Learning how to alter customers’ routines likely means making significant changes to your own.
Let’s face it: Your regular customers are on autopilot. When a purchase is repeated enough times, it becomes habit. However, market shifts can disrupt even the most powerful habits, and the current financial meltdown is the single biggest market disruption we’ve ever lived through. Customers are altering their behavior because of uncertainty about the future: laying off employees (maybe even your contacts), hoarding cash and postponing routine purchases. All purchase decisions are now up for conscious review.
This is a daunting challenge, but it also creates opportunities. Here are some ways to get your customers back in the habit of buying from you.
your existing customers to buy something–anything. You want to grease the wheels of habit formation by getting your customers to once again get used to doing business with you. Even if it’s selling small volumes or items with low margins, write orders. Once you have customers buying from you, you can look for ways to sell bigger and more profitably. Remember, your goal is to reestablish purchase behavior, so be flexible.
Recognize that your original value proposition may no longer hold. Perceptions of value have changed along with perceptions of need. Spend time with your contacts inside the company to determine if you, your products and your services have maintained their reputation and relevance. Make sure you know who the new influencers are, and spend time with them to uncover new directives.
Go for the throats of your competitors. Their customers have changed their purchasing habits, too, so now’s the time to get your products and services into the mix. Get in front of potential customers and pitch strongly. Again, get a foot in the door by getting a sale–any sale. Get into their systems so ordering becomes easy. Create repeatable processes that will lead to long-term sales relationships.
Reinforce your value. This means not only delivering on your promises, but also understanding the sequence and timing of rewards and the removal of punishments. Salespeople often treat their prospects better than their clients. This is bribery and doesn’t lead to habit. Reinforcing behavior means providing the reward after the targeted behavior occurs.
Pay attention to customer feedback. Your customer is trying to train you as well. Pay attention to the feedback. What’s the preferred method of communication? This may vary by the context; for example, e-mail for documents and work flow, phone calls for complaints, and text messages for quick questions. Work with it.
By becoming your customers’ habit, you will create a strong competitive advantage. And we all know how hard it is to break a habit.
A noted author, speaker and consultant, Neale Martin works to bridge the gaps between marketing and sales as well as between the scientific and business worlds. Neale’s latest book, Habit, updates our understanding of marketing and sales based on current findings from neuroscience and cognitive psychology. – Entrepreneur magazine
As you begin to understand the four styles of communicators and how they act and respond to the world around them, you will be able to better understand your own style and identify the style of the people around you. To help you understand each style, here are a few key descriptions to help you picture each one.
Always hold your ground In January of 1945, on a French battlefield during World War II, United States 2nd Lieutenant Audie Murphy’s unit was attacked by six tanks and waves of enemy infantry.
What happened next is the stuff of legends.
In the face of a seemingly insurmountable enemy and against all odds, Audie Murphy grabbed a .50-caliber machine gun and, with bullets flying past him, held his ground.
His heroic actions saved the lives of the men in his unit and earned him recognition as a Congressional Medal of Honor recipient.
What’s more, Murphy, as countless other Medal of Honor recipients before and after him, forged an epic legacy and left an indelible success lesson from which we can all learn and benefit: Always hold your ground.
December 21, 1998, was a brisk winter day in Saudi Arabia. I was stationed on my first combat deployment, flying missions enforcing the Iraqi southern no-fly zone.
I was scheduled to take off on only the fourth combat sortie of my career, inexperienced and quite nervous. It was a mission I’ll never forget.
I was flying that day with my flight lead Lt. Col. “Hos” Hyatt, the commander of the 79th Fighter Squadron Tigers. Our “2 ship” of F-16s were charged with “sanitizing” the airspace of any enemy aircraft that might be crossing the restricted area. It could have been a routine patrol – or not.
Suddenly, our radios blared with an urgent call from the radar ground controller, “Viper flight, you’ve got a MIG-23 150 miles off your nose headed south…hostile, hostile!”
This meant the MIG had crossed the no fly zone and was headed towards us and the fuel tankers we were in charge of protecting. A split second later, my headset erupted with a call from Hos.
“Viper flight, COMMIT, COMMIT!”
Almost unconsciously, I pushed up my throttle to afterburner and started to climb as I struggled to stay in perfect formation with Hos. There was no turning back. We were going after that MIG.
With those two words, “Commit, Commit,” my destiny was set in motion that day. No time to think – there was simply time to react. I was trained for that moment and my instantaneous choice was really quite clear: it was time to “commit.”
My heart raced. The intensity was beyond words. Quite frankly, there was a part of me that asked, “Am I ready to do this? Will I get shot at? What if my engine fails?”
In the moment, doubt crept in.
But deep down, I knew I was ready and I was mentally and emotionally prepared. Otherwise, I had no business being in that jet. Aborting that mission was not an option – period. I had a job to do. All of my military training boiled down to this one moment and I simply had to trust my wingman, stay in position, and execute the briefed plan. It was time to act.
That moment may have come in the extreme of combat, but it was really no different than the “call to duty” we all face in everyday life and business.
Do you have the discipline and training to commit to action in your life – to “push it up” and go after your target with confidence? Perhaps it’s the challenge of raising a family, a new job opportunity, going for a promotion, embarking on a fitness regimen or a “serious” diet, or the trust and rigors that come from a relationship. The actions you take once you commit will determine the quality of your outcome.
If you’re not ready to commit, no problem. Perhaps it’s not the right time, or you just need more time.
But, if you really are committed to take action in your life, then you better have the discipline to do what it takes to commit with confidence and foster that level of trust others can count on.
True commitment only exists when it is aligned with action. Action that is based on disciplined preparation, laser sharp focus, and most of all – courage, the sort of courage that says even though you may get “shot at” – you will carry on regardless! This is the reality of flying fighters in combat, and it is also the reality of leading a life of passion that is based on commitment and action.
Bottom line, before you commit to anything, you have to risk getting “shot at.” You have to be willing to work and sacrifice. Let’s face it, it’s not easy to commit. If it were, everybody would be doing it!
So, here’s the wingtip: The ability to face our fears, harness courage, and commit to action when the stakes are high is made a lot easier when we act in service to others. More importantly, when we have a trusted partner on our wing backing us up, it gives us courage to press on.
Visit any home improvement store on a Saturday morning, and you will see the beginning of hundreds of projects. People gather supplies, get instruction, and consult with professionals to get their game plans in order. Week after week the same scenario plays out. Based on sales, it would appear that these weekend warriors will soon beautify and improve the entire planet.
But reality and results tell another story entirely. A quick look through the garages and basements of many of these great starters would likely reveal the truth about completion: the final ten percent, for many people, is virtually uncharted territory – meaning they never get there.
Carry the accumulation of half-demolished foyers, clogged caulk guns, and piles of debris into the business world, and it’s no different.
The pattern for success in business is to recognize an unsatisfied need, innovate to find and provide a solution, then to expand and repeat the process. Somewhere between innovation and delivery, we find the no-man’s zone known as completion.
I once employed someone who proved to be an excellent initiator but a terrible finisher. She would start a task but get hung up once she encountered an obstacle. When asked why she didn’t get the job done, she blamed someone for not getting back to her or a situation she’d encountered. In short, she didn’t understand how to drive to completion.
What makes completion such a challenge?
Completion forces us to step forward.
For many people, the thought of completing a goal is unsettling – even when the task at hand is unpleasant. Maybe it’s the sense of the ‘known evil’ being preferable to the unknown one. No matter how ornery a project has become, at least it’s a pain in the neck that is familiar. We know that upon completion, we must choose again. We question whether we’ve got the goods needed to accomplish the next challenge.
Completion forces us to step up.
Concluding the current initiative inevitably moves us to a point of “what next?” For success-minded people, the answer to that question always comes in the form of raising the bar. Knowing that an even greater challenge lies ahead can make incompletion insidiously alluring. We know that each completion is followed by a call for even more. We wonder how we will bear up as the stakes are raised.
Completion forces us to step out.
Whether the task at hand is pleasant or not, we become attached to it. No matter how hard it seemed as we first put our hands to the plow, it is now within our comfort zone. It is familiar, and it seems manageable. People generally fear change. We convince ourselves that survival depends on staying inside our circle of competency. Completion represents a not-so-subtle nudge out of that circle.
For many people, incompletion has become a way of life. It takes the form of procrastination, loss of interest, confusion, and frustration. By remaining at the 90% complete mark, we reap the dubious benefits of security, mediocrity, and familiarity.
How can we push forward for completion?
Assess the current situation.
Focus on one task at a time until it is complete. This sounds like an effective solution – on paper. Chances are, though, that your world is more complex than that. However, even with multiple projects and priorities going on at the same time, you can still focus on one idea at a time and then move on. Each new opportunity should be evaluated before you commit. Remember that ‘good’ is the enemy of ‘best’ in your consideration. Does it serve your purpose? If so, engage and then move forward into completion.
Realize that the final 10% isn’t so bad.
Often the final stretch is comprised of unremarkable, monotonous, or tedious tasks. Because they are less than exhilarating, they seem onerous. Reality is that these final milestones are a lot closer, and a lot easier to attain than they seem. These loose ends rarely take the time or energy we fear they will. Just like the sticker on your car’s rearview mirror reads, completion “may be closer than they appear.”
Understand the price you pay for incompletion.
The process of beginning an initiative and working on it requires that you fully engage your commitment, your creative power, and your attention. The deepest recesses of your mind loathe letting go of these commitments. Like an elbow constantly poking into your ribs, your mind will nag you unceasingly about your incompletion. This distraction is often enough to pull you right out of the game when it’s time to take your next step.
Enjoy the rewards of completion.
The marketplace rewards completion. Every purchase of goods or services is immediately and unconsciously evaluated for completion. If you were to go out for dinner, place your order, and then never receive your food, you would complain, refuse to pay, and never want to go there again. If you purchased a car and discovered it was missing some key component, a steering wheel for example, you would refuse to take delivery.
It’s been said that the key to outrageous success is to do what nobody else will do. This brings to the forefront an opportunity to excel through completion, and reap the rewards of your diligence. A quick look around illustrates people’s tendency toward procrastination, loss of momentum, distraction, and incompletion. By committing to completion, you will do what nobody else will do, and the rewards will follow.
Recognizing the prices and benefits of completion may be enough to move you forward. What prize awaits when you push forward for completion?
Recognition–not money–is the real motivator in a down economy.
Business owners need to ensure that their employees are productive and eager to do the best job possible–this is especially true during today’s challenging economic times. Yet every industry and every organization has people who simply do not produce work in the quality that they are capable of providing. That can create costly problems for a manager.
Leaders often miss the mark when trying to ramp up employee productivity. Let’s debunk some motivational myths.
1.Money motivates. Of course, if you pay some enough money, they will do almost any job. And when you give bonuses to reward past behavior, the recipients are usually very happy (unless they were expecting a larger bonus). The staff does a better job following the glow that accompanies added money.
However, studies find this happiness is short-lived. Within six months, individuals have difficulty recalling that bonus and it does not seem to have the same impact it did within the first few weeks or months of receiving it. That’s because money, in and of itself, will not continuously motivate individuals.
It’s the recognition and status that are the true motivators for the increased output. Take for example, the high tech salesperson who sold more product than anyone else in the department. The boss rewards that employee with a bonus. Everyone knows who the bonus recipient is, and she is proud of her accomplishments–the high earner gains recognition from colleagues and clients. Recognition and status are two key sources of motivation. So while money can serve to motivate, its effects are often short term at best.
What should you do? Set up situations that allow the employee to feel a sense of accomplishment. Employees respond most to opportunities for achievement, recognition, growth, job enrichment and job enlargement.
2. Just keep them happy. Employers often go to great lengths to keep their employees happy–some offer game rooms; others have phones with free long-distance access. The theory here is that if we can keep the employees happy during their break time, it will translate into increased motivation and productivity. Unfortunately, this is not very effective.
Employees actually enjoy their break times, look forward to them, and may even linger during them. But the satisfaction found during the break times does not necessarily translate into better or higher quality job performance.
3. Ignore Conflict. Few people, especially in the professional world, enjoy conflict. Most bosses and employees alike would rather “let something go” or “sweep it under the rug” than make an issue out of it. Too many managers are concerned about being liked that they don’t fulfill their responsibilities to catch problems quickly. Not addressing an employee’s problematic behavior doesn’t help any one.
4. Some people just aren’t motivated. This is a very common misconception. Everyone is motivated–but for different reasons. Walking through the offices, the manager may see someone playing computer games or sending personal email, this could be seen as the individual is not motivated because he’s not attending to the job tasks. But that may not be entirely correct. At that moment, the “aimless” employee is motivated, perhaps even highly motivated. But that motivation is not work directed, nor is it productive for the company.
The challenge here is for the leader to discover what actually motivates that employee and match up those elements with the worker’s job description. (This point also assumes that the employee is worth keeping.)
5. Smart employees don’t need to be motivated. Being “smart” carries an important cachet in American society. Everyone wants to have smart people working for them because these people are quick to learn, adapt and produce. Employers may erroneously believe that they don’t need to spend much time or attention on these staffers.
Unfortunately, intelligence and self-motivation do not necessarily go hand-in-hand. There are plenty of smart employees who haven’t been able to find out just what motivates them personally; they tend to get bored or frustrated easily. The result is a lack of interest and a lack of productivity.
So what does an employer do? A smart employer creates the atmosphere that allows and encourages the employee to be motivated. That employer also gets to know what his staff is interested in doing to advance company goals and what parts of the job description are interesting or exciting verses boring.
10 Quick Ways to Motivate
Praise the employee for a job well done–or even partially well done.
If an employee is bored, involve that individual in a discussion about ways to create a more satisfying career path, including promotions based on concrete outcomes.
State your clear expectations for task accomplishment.
Ensure that the job description involves a variety of tasks.
Ensure that the employee sees that what she’s doing impacts the whole process or task that others will also be part of.
Make sure that the employee feels that what he/she is doing is meaningful.
Provide feedback along the way, pointing out both positive and negative aspects.
Allow for an appropriate amount of autonomy for the employee based on previous and anticipated accomplishment.
Increase the depth and breadth of what the employee is currently doing.
Provide the employee with adequate opportunity to succeed.
David G. Javitch, Ph.D., is Entrepreneur.com’s “Employee Management” columnist and an organizational psychologist and president of Javitch Associates, an organizational consulting firm in Newton, Mass. With more than 20 years of experience working with executives in various industries, he’s an internationally recognized author, keynote speaker and consultant on key management and leadership issues.
Have you ever been strolling through a shopping mall or car lot when – POW! – THE perfect product captures your attention? Perhaps it’s the sporty convertible with a V-8 engine and unbelievable acceleration. Maybe it’s the adorable dress that’s exactly your style, has a flattering fit, and accentuates all of your finest features.
Whatever the case, there’s an initial moment when you’re enamored with THE product. For a split second reality is suspended as you imagine the joys of owning it. Unfortunately, two words generally bring this pleasant daydream crashing to a halt: price tag.
When you first think about a dream, you only see possibilities and potential. As my friend Collin Sewell observed, all dreams begin obstacle-free. However, at some point we have to confront the Cost Question: Am I willing to pay the price of my dream?
If you want to achieve a dream, you have to be willing to do more than just imagine the outcome. You have to be willing to pay a price to start the journey. Dreams don’t fall into our laps by accident or good fortunate. They must be attained at the cost of personal sacrifice.
The Price Must Be Paid Sooner Than You Think
Dreams can’t be bought on impulse. Buy now, pay later financing isn’t an option. If you want to own a dream, then be prepared to make a hefty down payment.
I think most people realize that there will be some cost for achieving their dream. They have a vague notion that someday they will have to pay a price. But they don’t realize how quickly the costs come. Stepping toward a dream is like launching a rocket; massive amounts of energy must be expended at the beginning. Otherwise, gravity takes hold and the journey never gets off the ground.
The Price Will Be Higher Than You Expect
All dreams have price tags attached, and the cost is always higher than we expect to pay. Not once in my conversations with successful people have I heard someone say, “Getting to the top was much easier than I anticipated.” The reverse is true. Those at the pinnacle of their professions point to the hardships and sacrifices they had to endure to reach the top.
Having done a good deal of travel, I’ve learned the taxi principle: ALWAYS find out the cost before you get in the cab. Unfortunately, dreams are far too complex for us to accurately access the costs upfront. A noble dream is worth the expense, but the full costs won’t be apparent until we’re already on the journey.
The Price Must Be Paid More Than Once
As a young leader, I mistakenly thought acquiring a dream was like buying a ticket to Six Flags: pay once and enjoy the rides. Experience has taught me otherwise. Following a dream forces you to make continual sacrifices.
Just as a rocket must shed weight to escape gravity, so to a leader has to let go of some goals to accomplish others. You have to give up to go up.
Let’s face it: dreams don’t work unless you do. Easing off the accelerator and coasting won’t get you to your desired destination. For dreams to be apprehended, leaders must have an appetite for hard labor.
It Is Possible To Pay Too Much for Your Dream
Although sacrifices go hand in hand with success, it is possible to overpay for a dream. Don’t mortgage relationships or discard your moral compass in pursuit of career goals. I’ve seen it happen all too often. I’ve watched people sacrifice marriages, neglect their kids, ignore their health, and abandon their conscience – all in the name of a “dream.”
As Jesus of Nazareth once said, “What does it profit a man to gain the whole world but lose his own soul?” Some prices aren’t worth paying. Do not allow your dream to dictate your values. Rather, make sure your values inform and govern your dream
As we look throughout history, we find that this great country of America was built on the backs of those who had an unwavering determination. It did not matter the trials or the difficulty they faced. It was not predicated on the adverse situations that seemed to surround them as they built families, farmed the land, established towns and cities and created businesses. As I think about our country’s history and how it would have been if I were a part of the toil and labor that it took to build the infrastructure and lay the foundation on which we, a privileged people, now stand, I have to say that the level of determination set the standard for achievement and overcoming adversity we admire today.
While playing in the National Football League, I was faced with many situations that required extreme determination! Yes, playing in the games on Sunday afternoon calls for a great deal of toughness, grit, strength, and commitment, but you must be determined to overcome adversity, pain, mistakes and failure in order to be successful. Your opponent is doing everything in his power to outmaneuver you, to break you and ultimately beat you down. Well, I had the same attitude towards them! I was not willing to give up an inch. I was determined to hold my ground and not allow the opposing receiver or ball carrier to catch the ball or gain one yard! Now, it didn’t always work out that way but that was my attitude.
There were always opportunities to give up and throw in the towel – or, more importantly, my career! — during the course of the games. Before I ever put on an NFL uniform, I was told that I would never play professional football. Before I set foot in an NFL locker room, I had faced much adversity, trial, doubt and negative criticism from others. It would have been very easy for me to bow out and not see my dream realized, but I thank God that He gave me a strong determination to not give in to what “people” said and not give up on the “vision” He gave me when I was a little boy growing up in Plano, Texas!
What is your vision? Are you determined to see it come to pass and live out your dreams? Along the way, you may face trials and tribulations and have doubt. You may have those that are close to you tell you that “it will never happen, you can’t do that.” You may even fail a time or two, but I encourage you to never give up, never throw in the towel and bow out. Be strong in your faith and have a great determination that says “I will, in spite of….!”
I have found that sometimes the subtle difference in our attitude, which of course can make a major difference in our future, can be as simple as the language we use. The difference in even how you talk to yourself or others. Consciously making a decision to quit saying what you don’t want and to start saying what you do want. I call that faith. Believing the best, hoping for the best and moving toward the best.
A few examples could be, instead of saying “What if somebody doesn’t respond” you start saying, “What if they do respond?” Instead of saying “What if someone says no?” You say, “What if they say yes?” Instead of “What if they start and quit?” say, “What if they start and stay?” or “What if it doesn’t work out?” You say, “What if it does work out?” and the list goes on and on.
I found that when you start thinking and saying what you really want then your mind automatically shifts and pulls you in that direction. And sometimes it can be that simple, just a little twist in vocabulary that illustrates your attitude and philosophy.
Our language can also affect how others perform and behave around us. A teenager says to a parent, “I need $10.” And if the parents learn to say, “No comprende. That kind of language doesn’t work here. We’ve got plenty of money, but that’s not how you get $10.” Then you teach your teenager how to ask, “How can I earn $10?”
That is the magic of words. There is plenty of money here. There is money for everybody, but you just have to learn the magic words to get them. For everything you could possibly want. If you just learn the philosophy. How could I earn $10? Because you can’t go to the soil and say, “Give me a harvest.” You know the soil smiles and says, “Who is this clown that brings me his need and brings me no seed.” And if you said to the soil, “I’ve got this seed and if I planted it, would you work while I sleep?” And the soil says, “No problem. Give me the seed. Go to sleep and I’ll be working while you’re sleeping.”
If you just understand these simple principles, teaching them to a teenager (or adult) is sometimes just a matter of language. It’s like an investment account instead of a savings account. Simple language, but so important. It is easy to stumble through almost a lifetime and not learn some of these simplicities. Then you have to put up with all the lack and all the challenges that don’t work out simply from not reading the book, not listening to the tape, not sitting in the class, not studying your language and not being willing to search so you can then find.
But here is the great news. You can start this process anytime. For me it was at age 25. At 25 I’m broke. Six years later I’m a millionaire. Somebody says, “What kind of revolution, what kind of change, what kind of thinking, what kind of magic had to happen? Was it you?” And I say, “No. Any person, any six years, 36 to 42, 50 to 56. Whatever six years; whatever few years you go on an intensive, accelerated personal development curve, learning curve, application curve, and learning the disciplines. Now, it might not take the same amount of time, but I’m telling you the same changes and the same rewards in some different fashion are available for those who pay that six year price. And you might find that whether it’s in the beginning to help get you started, or in the middle to keep you on track, that your language can have a great impact on your attitude, actions and results.
Lately, your favorite restaurants have been working hard at maintaining their business. Maintaining business is the new black after all. When most do go out to eat they are no longer order appetizers, wine or dessert. Eating out now means once a week or once a month with a coupon or taking advantage of early bird specials. When people go out they want value for their money and great service.
Whether you are a restaurant, retailer or online e-tailer these same tips apply to help you retain business:
1) Keep your business looking clean and attractive.
2) Your customers should be king.
3) Treat your employees like your customers. Make them part of the solution. Find ways to drum up business and reward them with incentives for their ideas and actions.
4) Walk around and survey your customers. Listen to your employees and find your niche business. Should you add a new product or service?
5) Is your business and online presence fresh?
6) Do what you say your are going to do and be sincere.
7) Reassess you online store. Check the keywords of your competitors to attract business. Ask others to provide you with critiques of your website. Is it easy to use? Does it make the visitor want to purchase?
Learn more about your younger customers in the 17 to 25 year old bracket and develop your future customer base. Often times, this age group has more of an expendable income because they have not started a family yet.
9) Keep an eye on the news and on trends acting quickly to adapt your business to cultural and economical changes.
10) Cross sell and each opportunity. If someone feels they are treated right and are getting value for their money they will often spend more.
11 Treat each customer as if they were your best customer. A first time or average customer could be a top buyer in the making.
12) Pre-package or bundle discount services to make it easy for your customers that may be uncomfortable to ask for a discount.
13) Post signs with suggestions paring products or service together.
14) Use humor to sell and include extra incentives for each upsell.
15) Celebrate each positive comment or experience with a personal reward.
Every one’s business is affected by our economy. It would last forever, so don’t throw in the towel. Stay positive and endure!
Two economists–one for and one against the stimulus–sound off on why small businesses are getting a bad deal.
Often, economists can only agree to disagree, and on the subject of the economic stimulus, they are particularly divided. In fact, a few weeks before the American Recovery and Reinvestment Act of 2009 was signed into law, 200 leading economists lent their signatures to a full-page ad in The New York Times and Wall Street Journal decrying the proposed legislation. That same week, a letter supporting the bill was sent to Congress–also signed by approximately 200 venerable economists.
But when Entrepreneur spoke with Raymond Keating, chief economist of the Small Business and Entrepreneurship Council, and Jeff Rosensweig, professor of international business and finance at Emory University’s Goizueta School of Business, about the stimulus (Keating is against and Rosensweig pro), they thought in common: there should be more done for small business.
What are your thoughts on the stimulus package? Keating: I’m against it because if you really want to get entrepreneurship and investment moving again, you need tax relief that’s not targeted and temporary. Investors and entrepreneurs need [permanent] changes that will really improve the profitability of taking risks in the expansion or startup of businesses.
On the spending side, I think most entrepreneurs understand that these resources the government is tossing around…don’t materialize from nothing. The economy would benefit from leaving those resources in the private sector rather than putting dollars in the hands of politicians and their appointees to decide where they are going to be spent.
Even economists who think this is a good idea will acknowledge that it’s just an effort to throw as much money as you possibly can at the problem and hope that something good comes out of it. Is it better than nothing? Yes. Is it enough to really get our economy moving? I would say no. It falls way short.
Rosensweig: I’m for it, but with caveats because of its approach to small business. Without a stimulus, I fear our economy could slide into the abyss. I spend a lot of time speaking with business owners, and I just don’t see a lot of growth occurring. No one is hiring to offset the downsizing.
In normal times, I wouldn’t like to see a lot of government spending, but these are far from normal times–we need anything that can create jobs. I also think it’s important to balance tax cuts with spending increases, and there is some of that in the stimulus.
What are these caveats? Rosensweig: What worries me is that the tax breaks for small business are temporary. Small business has been ignored in the bill, and I think the criticisms of many of us did lead to a better focus on small business, but I still think the package could go further in letting small business immediately expense all their capital expenditures and making that more permanent so that entrepreneurs see less risk. People are held back not just by the uncertainty of the economy, but also the uncertainty of tax policy.
Have you seen the impact of any “stimulus” yet? Keating: Unfortunately, there probably won’t be an impact for the average business owner. There’s a lot of talk around about how this money’s going to be spent wisely, but what generally happens is a great deal gets wasted.
From an economist’s perspective, you just have to understand the incentives at work: If you’ve got a business owner trying to keep things afloat, they have every incentive to keep a close eye on things and keep costs under control and to make the best investment they possible can. If they fail, they get punished and they go out of business.
In the public sector the incentives are completely different. In the public sector, it’s not your money; it’s somebody else’s money. The spending is driven by political and special interests. You’re not going to get the best bang for your buck by any means. And the other thing is, when you fail in the public sector, it seems you usually wind up getting more money for it!
Rosensweig: The stimulus hasn’t hit yet. I’m not seeing jobs created here, even in a top 20 business school. We’re very worried about our graduating students getting jobs, and people who have job offers are having them rescinded. In past years, most of our students already had a job lined up [before graduation]. After making a big investment in an MBA, it really hurts. And it’s even worse at the undergraduate level.
But the stimulus still costs taxpayers. Keating: Yes. For most entrepreneurs and small business owners, the benefits are going to be nil. But a good number of them are going to see taxes increase from the proposal President Obama has put forward. You just have to worry about how we are going to pay for all of this spending and debt.
Rosensweig: It’s costing almost all American taxpayers, even the ones who are getting the tax cut in the stimulus bill. That’s a tax cut now, but the gross federal debt is going to go from $11 trillion now to $18 trillion in four to five years, and that means there’s going to be a lot of interest paid down the road.
Small-business owners will face a two-edged sword. On the one hand, I want serious tax cuts for small business so they can help get the economy growing. But on the other, many have taken risks and worked hard enough that they won’t be the pit bull getting tax cuts, and later on they’re going to be paying more income taxes, more social security taxes, maybe even sales taxes or consumption taxes.
But it’s the best we can do right now. I think the only thing worse … is what President Hoover tried to do, which was to balance the budget at the time of a deep recession. That was a very effective way to fall out of the recession and into the Great Depression.
What measures do you think could improve the bill? Keating: I think we would have some certainty if our elected officials said, “Those tax increases that are looming at the end of 2010? Forget about those. The tax measures that were passed earlier this decade are permanent.” That would be number one. Then make estate taxes go away, bring tax rates down for businesses and make expensing [allowances] an option for all businesses.
Rosensweig: I think we need some way to stimulate job creation in the private sector as well as the government. For example, we raised the minimum wage–which is good–but the minimum wage could make it hard for some people starting a business to hire unskilled workers. There should be ways to [help] an entrepreneur in a bad economic environment subsidize the difference between the worth of an unskilled worker and a decent minimum wage for a hardworking person.
What I mean by that is that … the actual entrepreneur who hires people should get a subsidy because there could be a gap between what employees need to be paid and what the entrepreneur can pay. Obviously that subsidy should go away in a couple years of being on the job because the person can learn and become more productive and be able to justify earning the wage, but the main thing is to build up work habits.
I think another option … is for the government to provide a lot of free retraining of displaced and downsized workers so that they can [learn] the specific skill sets that an entrepreneur might need. So a business owner can go into their state’s Department of Adult Education and say, “I can grow my business if I can find people who can do X. If you can find people and you train them at your expense, I’ll hire them.”
What is the Small Business and Entrepreneurship Council doing to push for changes? Keating: We’re working on all fronts to get the word out and lay out the economics of the situation, the impact that it’s going to have on small business, entrepreneurs and investors and try to make the case of what does work and what doesn’t work.
We raise questions about some of the concerns we have about the President’s budget and [economic policy]. Should we be raising taxes on capital gains or should we be looking to provide tax and regulatory relief so entrepreneurs can grab and build businesses and create jobs?
How open is the administration to amending the legislation to allow for some of these improvements? Keating: In the short run, these measures will not come to pass. But I think it’s critical that these ideas stay in the policy mix. When we see that our economic recovery is lackluster and we’re losing our competitive edge in so many areas, people are going to hopefully come to realize … what we’re trying right now isn’t working. Then they’ll ask what we should do, and having these ideas in the debate means people can say, “That makes sense.”
Rosensweig: I think the administration is very open to changes. President Obama knows that someone of his race being elected will leave a wonderful legacy, but that he will ultimately be judged on whether the economy turns around; and therefore he is open to doing whatever it takes. Personally, I think he’s open to learning more about the small business job-creation machine that has promoted the American Dream.
When the stimulus finally plays out, what do you hope will happen? Keating: I think there’s an “at-the-very-least” scenario. The best case is that the stimulus doesn’t do any damage. There’s just a massive increase in size of government, and that tends to not go away.
I do expect that even with a lot of problems, the economy will start to recover late this year. The problem is it’s going to be a recovery that doesn’t feel like much of a recovery, and there’s still going to be some real problems going forward: higher spending levels on the proposed budget, looming tax increases, questions about cap-and-trade in energy policy, healthcare. Unfortunately, the list is far too long.
Rosensweig: I’m hoping that we can go back to roughly where we were, which is with most investment decisions and most job creation and most of the price-setting in the economy done by the private sector.
However, the shenanigans on Wall Street mean there’s going to be more regulation for the foreseeable future. The important thing is that the government steps in because it’s needed, but then gracefully steps out of this when the economy is growing again. The U.S. can only succeed in this century driven by private-sector initiative.
What I’m afraid now is that the business cycle and production are L-shaped. We’re coming down very rapidly. Let’s say we hit the bottom in the fourth quarter. I don’t see a rapid rebound–more of a muddling along the bottom, slowly rising in 2010, and well below average growth in 2011. This means continued strain on entrepreneurs and those heavily indebted, and it also means the job market is going to be a very difficult place for jobseekers for quite a number of years.
Do you have a parting message for readers? Keating: Sometimes people like to separate entrepreneurs and small-business owners from investors and capital markets. It’s critical not to do that because for small business owners and entrepreneurs, the biggest challenge they face is access to capital.
They need those investors willing to take the risks and put up the money to help their businesses to start up and grow and create jobs and all those things we want to happen.
If people with resources to make investments are seeing signals on all fronts that there’s a major shift in [big] government … it just feeds the uncertainly and turns around and affects small business.
Rosensweig: Every economist … knows that what makes the American economy go is the job creation thanks to entrepreneurs. I think one thing that might appeal to President Obama and Congress is that small business is a great and fair creator of opportunity for diverse Americans. Women and minorities have often had great opportunity to grow and to help their families … and to get started on the capitalist American dream.
I think if the Obama administration and the Democrats in Congress realize that, they’ll realize that small business is a way to reach their social goals as well as their economic ones.
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