Sound Business Principles, Not Panic is the Key to Surviving this Economy

Boy, when the economy is good, everybody is a marketing genius. Seems it is impossible to fail.

We even begin to believe in our own business acumen. So we expand, take unusual risks, borrow money for expansion, relax our credit terms and so on. Whatever it takes to grow, we do because, after all it’s grow or die. . . right?

Then there is what I call the Hamlet effect. To quote Hamlet “When sorrows come, they come not single spies, But in battalions:” – William Shakespere, Hamlet Prince of Denmark (Claudius, King of Denmark at IV, V)

Well now careless optimism has come home to roost. What was once a stroke of marketing genius may be starting to look more like reckless gambling. And rest assured, the carpet baggers have shined their shoes, put on a new face and now stand outside the door offering their help.

Since the turn in the economy, has your phone been ringing off the wall or your email filled up with “free advice” to help you succeed? At every turn is there someone telling you that if only you did better SEO, made a video, had a website make over, bought this marketing plan, or whatever, you will will over your competition?

Stop. Take a breath, slow down and think for a minute. If you had the money, and time, to take advantage of everyone of these offers, would the added success even cover the cost of the services? Somethings obviously will improve your business more than others and some are probably just a waste of money.

No amount of marketing, SEO or website improvements are going to save a company that is not running on sound business principles. We had a joke at one company that seemed to engage in endless price wars. The joke was; “who cares if we sell at a loss, we will make it up on volume.”

Here are some solid strategies that you must implement if you are going to survive:

1. Get your Cash Flow In Order. Bill Douglas, CEO of EssentiaLink, has a saying “Cash Flow is Oxygen” and boy truer words were never spoken. Bill’s careful and incessant attention to cash flow has helped EssentiaLink survive and grow.
    
2. You have to understand and adhere to basic financial principles. For example, a $1000 expense is far more than a $1000 burden on your company. If your margins are 10%, you have to boost sales by $10,000 just to recover the $1000 spent and who wants to just break even. Not to mention an extra $10,000 in additional sales also puts an extra burden on cash flow. And when that happens, the cost of money comes into play. Things can get very expensive.
    
3. Not all customers are worth keeping. Some customers just don’t quite fit into the niche of what you are offering. Maybe you can never quite keep them happy, or maybe they never embrace all that you can do for them. These customers can bring down your business and image and they often consume far more of your resources than they are worth. Do some research, find a company that can serve them better and bring the two together. Your reputation will rise as a result.
    
4. Stop stepping over dollars to save dimes. In light of point 2 this might seem counter intuitive, but it’s not. If you are the main mover and shaker in your company and you are wasting time fiddling with IT, or spending 15 minutes to save a few bucks on a box of paper, the little you save can never make up for your lost time. The same is true if you are paying for a purchasing staff. If they are wasting time pricing pencils when they should be tracking down better prices on raw materials, you are losing money.
    
5. Technology is a tool to use, not the object of the game. If your technology is getting the job done and not incurring excessive maintenance cost, let it ride. remember, every dollar you spend on technology will cost you $1 / margin rate.
    
6. Focus on your core competencies. If you are an Engineering or Legal firm for example, your efforts should be to increase billable hours. So if billable people are working on IT problems, marketing, buying office supplies, consider outsourcing the non-core tasks and put people back to work on core projects. Having them do busy work while waiting for business to come in is draining your cash flow and hurting your business. Notably, sometimes this leads to a tough decision.
    
7. Get close to your customers. Before you spend a fortune on SEO or website overhauls, make sure you are speaking to your customer’s current needs. The reason they signed up a year ago, may not be the reason they are staying with you or would sign up with you today. Marketing is like fishing, if you use the wrong bait, you will get the wrong fish or nothing at all.
    
8. A million hits means nothing if you are not converting. Wouldn’t 500 highly motiveted buyers be better than 1,000,000 drive bys? Focus on revenue per hit, not hits per day.
    
9. Running a business is like writing good documentation. You want exactly enough to cover the topic, and not a word more.
    
10. Document, document, document. If you do not document your processes and business, you can suffer from the effects of vanishing technology. What do you do when your star worker leaves for another opportunity? You have a great sales proces that works, but does it stop working when you go on vacation? Document everything, so you can remain successful even when good people leave or you go on vacation. Try selling a business for what it is worth if it is not documented.

At the end of the day, good busienss practices go a long way towards securing your survival. And yes, you must market and sell. But if your house is not in order, throwing a lot of money an time at marketing will do little to help you survive in the long run.

Are you charging enough for your services? 14 Hidden Costs You Must Consider when Pricing Your Services.

As more and more people find themselves twisting in the financial wind, they often to turn to consulting or providing other services for hire.

One of the most pressing and important issues you face as an independent service provider is how to price your services.

While the following will not tell you what to charge for your services, it will give you a number of things to consider. But, before we go into the nuts and bolts of calculating, let’s review some basic marketing principles.

First you have to think about how you want to position yourself in your market place.

• Do you want to be the low cost leader?
• Do you want to be the high-end expert?
• Are you introducing unique new services?
• Are jumping into a mature market full of established competitors?

Obviously, how you want to position yourself affects your message? It is very difficult to try to position yourself as the leading expert when you are trying to compete on price. Sadly, your chances of being perceived as the leading expert when you price your services too low are very slim. You may be thought of very good for the price, but you will never be perceived as the top dog.

Here are a couple of examples to drive home the power of perceived value.

Imagine your friend’s son or daughter is soon to be married and you are shopping for a $50-$75 wedding gift. You know the bride loves crystal. So as you are shopping you find a beautiful crystal bowl. So beautiful in fact, you are afraid you won’t be able to afford it. You almost walk away, but decide to flip the bowl over and see the price.

Tentatively as your allow your eyes to focus on the price tag, you see two things.
#1 it is a brand you do not recognize. And,
#2 the bowl is only $17.49

Instantly, fear sets in. You can’t possibly show up at the wedding with an $18 dollar gift, no matter how beautiful it is. So you put the bowl down and go in search of a more appropriate gift.

That my friends, is perceived value. The value you placed on the bowl is greatly diminished just because the price was low.

Here is another example. When EssentiaLink first started out, the message got confused. As we wowed our potential clients with the huge array of products we provide, the conversation always turned to price. Something in our presentation lead our prospective customers to think all of our products would be lower priced than the other guys.

It was not until we approached companies above the purchasing level and started speaking with C-Level managers that our message made sense. We were not selling low cost products, we were offering a simple procurement solution that typically lowered the TOTAL cost of procurement for non-strategic consumable supplies by 25% or more.

In both of these examples, the issue of price obfuscates true value.

Think about this with respect to the service you are offering. Are your prices high enough to establish value? Think of it this way, if your price is too low, it diminishes the perception of value, no matter how much you contribute.

Don’t think so?

Have you or someone you have known ever had to change jobs to finally earn a salary commensurate with their abilities and contribution?

A very common problem in companies is that when they hire someone at say $40k per year they always think of them as a $40k per year employee. Even if the employee takes advantage of all the company educational benefits and completes 2 degrees, they still see him/her as a $40k per year employee. Consequently, they only move them up the pay scale based on small annual % increases. So this highly educated and trained individual has no other choice but to seek financially rewarding employment elsewhere.

And the company that hires our hypothetical employee for $70K will always perceive him/her as being a $70k employee and so the cycle starts again.

Are you inclined to price your services low so you can get a foot in the door?

Think about it, will your services ever be valued for the benefit they provide?

Also, imagine a group of CEO’s are having social lunch. What do you think will capture their imagination more, the fact that one of them hired a functionary for a nominal fee or the fact that another just committed a bundle of money to an expert to come in and shake things up? If you are the high priced expert that gets results in that crowd, you are going to open far more doors than the perceived functionary.

So here are some things you must consider when pricing your services.

• What is your true cost of providing your services?
  Obviously you have the cost of travel, printing, office supplies, phone, Internet and so on but there are a lot of hidden costs that get over looked. For Example:
  • The cost of business licenses
  • 7.65% FICA and self employment tax
  • Your health insurance
  • Additional Car insurance to cover liability of using vehicle for business
  • Banking and Phone services are higher for businesses and many banks will not allow you to cash checks as DBA
  • The cost of incorporation and/or maintaining O & E insurance to limit exposure to liability.
• You need to charge for marketing time.
  As an employee everything is taken care of, but when self employed you need to plan to spend at least 25% of your time on marketing efforts. Even if you have the perfect gig, it is going to end and if you do not maintain marketing efforts, you may have extended periods of $0 income.
• You deserve to have benefits too.
  As an employee you probably had a number of benefits that comprised your compensation package. For Example:
  • 7-10 Paid holidays
  • 7-28 Paid vacation days
  • 0-14 Paid days of medical or personal leave
  • Continuation education benefits

  Benefits vary greatly from company to company, but regardless of the level of benefit you are used to, there is an associated cost that must be taken into consideration.

• Do you have children?
  Typically, unless you have found a way to make the 4-Hour Work Week work for you, your home business will place more demands on your time than the old 9-5 did. With that in mind, you may expect an increase in child care costs.

Ok, let’s wrap this up with a nice little formula to give you a way to think about how to price your services:

Let’s define the terms of the equation.

• S = The desired salary or effective salary you need to replace.
• AC = The expected annual cost to be in business including licenses, phone, banking, insurances etc.
• B1 = The annual cost of your health Insurance benefits
• B2 = The annualized cost of other benefits you want to replace (i.e. $2,000 / year for certification / continuing ed)
• OE = Other expenses such as child care you may need to take into consideration
• PTO = Paid Time Off hours (i.e. 8 hrs. per day for each paid day off you want to replace
• CHR = The calculated hourly rate you need to charge to net your desired salary (S)

The Formula
CHR = (S+AC+B1+B2+OE) / (2048 – PTO) * .75

An Example

• S= $100,000
• AC = $1,000
• B1 = $12,000
• B2 = $2,800
• OE = $900
• PTO = 160 (2 wks vacation, 5 holidays, 5 paid days off)

CHR = ($100,000 + $1,000 +$12,000 + $2,800 + $900) / (2,048 -160) * .75
CHR = ($116,700) / (1,888) * .75
CHR = $116,700) / (1,416)
CHR = $82.41

Notes and Conclusions

Given the above example, your would want to start by pricing your services at $82.41 per hour. But this is just a starting point. You also need to consider what the market will bear. That does not mean your are limited by current market prices. But if you are too high, you must build exceptional value into your offering. By the same token, if your prices are too low, you may need to raise them to the appropriate level to garner the respect and reputation you want.

Also not taken into consideration in the calculation is your current business tax structure. If you are an LLC, you have more deductions than you would have as a sole proprietorship. If you are a C type corporation and work the system properly you can deduct a lot more, but risk double taxation if the corporation makes a profit. These are all topics you should discuss with your Tax Adviser.

If your down time between jobs or time required for marketing efforts is greater than 25%, then adjust the formula from .75 to whatever number represents your situation.

Finally, the 2048 is based on a 40 hour work week. Chances are you will will be working a lot more than that. So you may want to adjust to rate up to reflect overtime. Or not. It is just something to keep in mind.

So, when you run the numbers, are you charging enough?

Why Ignoring These Opportunity Costs Will Destroy Your Balance Sheet

CEOs make tough financial choices every day.   Every capital expense requires a combination of fact finding and polishing the crystal ball.  On the one hand, CEOs need to know the acquisition cost, the operating cost, depreciation cost, useful life and so on for every asset purchased.  On the other hand they need to look into their crystal ball and make some educated guesses and intuitive leaps as to what the future may hold.

Award winning entrepreneur, Bill Douglas helps his customers uncover high opportunity cost that typically get missed. He put it this way. “I see it every day.  C-Level managers get so focused on external drivers and cost cutting; they often overlook the high opportunity cost of a seemingly simple cost reduction.”

Mr. Douglas identified these very expensive cost cutting mistakes:

• Assigning routine computer/network maintenance tasks to professionals that should be working on billable projects.
• Overstaffing of highly paid IT employees for general maintenance and security tasks that their competitors have learned to outsource at reduced cost.
• Tying up working capital in computer hardware and software purchases when they could leverage the assets of a managed services provider and have scalable hardware and software to meet current demand.
• Directing highly paid purchasing staff to waste time trying to save a few bucks on non-strategic consumable items when they should be putting all their energy into reducing the cost of production supplies.

Bill Douglas is the founder and CEO of EssentiaLink and specializes in delivering managed IT and procurement BPO services to Small and Medium Businesses.  EssentiaLink has earned 13 growth awards for providing exceptional services and support.

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How would your life change if you had Disney’s Creativity Strategy?

There are a number of reasons why we may not feel creative at any particular moment.  If you read my previous article “8 Simple Steps to Becoming a Successful Author and Why You Should Start NOW!” you know the story of starting with the “upper left brick.”

 

There is another creative block people often run into I refer to as “the little voice that won’t.” 

 

Maybe you are familiar with it.

 

You have a sudden flash of inspiration.

 

Then, before you have your ideas thought out the little voice in your head (or even possibly from a colleague or friend) starts to criticize the idea. 

 

Or just as bad, the voices start getting into all the realistic details of how to bring the plan together.

 

Critical and Realistic perspectives are absolutely essential to bringing an inspiration into successful fruition.  The problem is not one of the critical and realistic voices; the problem is one of timing.  

 

Our brains and/or well meaning friends try to help us do all three activities simultaneously.  As a result, our creativity is dampened.  The critical and realistic voices feel annoying instead of helpful.

 

The process needs to be sequential and recursive. 

 

Years ago in an NLP practitioner training, I watched Robert Dilts do a great presentation on what he called the Disney Creativity Strategy. 

 

This method works for individuals, departments or large organizations.

 

Two Important Points to Remember

First you must recognize that being a Dreamer, Realist, and Critic require 3 distinct mindsets.  Trying to do all three at the same time only frustrates and slows down the creative process.

 

Second, the Realist and the Critic are as important to the creative process as the Dreamer.  They should be utilized; not dismissed or ignored.

 

Creating Harmony Amongst the Voices

Have you ever been in a poorly run brainstorming meeting where ideas get shot down as soon as they are presented?  Does this ever happen in your head?

 

The key to creating harmony between the Dreamer, Realist and Critic, involves:

·         Making sure every voice is heard

·         Making sure every function is exclusive of the others.

·         Making sure the environment for each voice is conducive to the role of the voice.

 

Environments Matter
While sounding a little “left brained” you should plan to be creative.  Start by setting up three distinct areas.  These areas may be as elaborate or simple as your situation allows. 

 

In some cases it might mean just moving from an easy chair, to desk, to a kitchen table.  I have done this by simply using three differently colored tablets.

 

 

For corporations it might mean building three unique rooms or areas that that are designed to support each specific role.

 

 

1. The Dreamer’s area will be a comfortable environment.  It should include all the things you or your team will need to be creative.

   For example, you may have flip charts, colored pens, white boards, inspirational posters, awards, comfortable furniture, bright lights, appropriate music, and so on.
   

2. The Realist’s area will be less comfortable and more practical.  It could include calculators, budgets, lists, editing tools, good lighting, reference books and articles.

   Basically you want this area to provide the Realist’s with all the tools they need to fully analyze the ideas brought in from the creative area.
   

3. The Critics area will be smaller, uncomfortable, without chairs.  The purpose of this environment is twofold. 

   First, to put people on edge a little bit so they are more likely to speak their criticisms.

   And second, to be uncomfortable enough that no one wants to hang out and just bitch or complain.

    Let’s look at each at each area.

The Dreamer
Start in the Dreamer’s area.   If you have an idea or need to come up with an idea, the best place to do it is here.
 
If you are working alone, use this space to fully expand your idea.  No holds barred.  In this location there is only one rule.

 

NO REALISTIC OR CRITICAL THOUGHTS ALLOWED!

If realistic or critical voices enter into your thoughts, STOP what you are doing and acknowledge the voices.  Remind them that they will be heard very soon, and to please be patient and wait.
 

The Realist

In the creative process the role of the Realist is to evaluate an idea based on the criteria of a real world.  If the idea was a supersonic blimp, the Realist would send the idea back for revision based on the violation of the laws of aerodynamics.
  

Or if there were a really profitable idea, but it involved selling contraband or robbing banks, without a rock solid getaway plan, the Realist’s job is to point out the risks and send the idea back for revision.
  

There is only one rule for the Realist’s Room.
 

NO DREAMER OR CRITICAL THOUGHTS ALLOWED!
 

It is not uncommon, when faced with reality, to immediately start creating solutions.   This is not appropriate in this area.  Nor is it appropriate for the Critic to start slamming the idea as being stupid or whatever.
 

If the Dreamer or Critic insists on disrupting the voice of the Realist, STOP what you are doing and go the appropriate area to jot down the ideas or criticisms.  Leave the creative or critical notes in the appropriate area.
  

If the Dreamer’s idea passes the Realist test, then move into the Critic’s area.  If not, send the idea(s) back to the Dreamer’s area for replacement or refinement.  Let the Dreamer focus on creative solutions. 
 

The Critic

The role of the Critic in the creative process is to be negative.  Their role is to think of everything that can go wrong or be perceived badly.
 

This is the Realist on steroids.  Output from this area might be in the form of “This will never work because . . .”
 

It is no fun being a Critic in this capacity, but it is absolutely necessary to fully develop successful ideas.   I have personal experience with ignoring the Critic inside me.
 

When I wrote my second book, The PC Easy Reader: Because Your are NOT a DUMMY or an IDIOT!   I thought I was really on to something.   Even the Realist in me was happy.  Who wouldn’t want learn something without having to buy a book suggesting they were an idiot.
 

My critical voice kept trying to tell me it was a bad idea because PCs make people feel like dummies and idiots.  Besides, my cover was plain and the subject matter fully discussed. 
 

I didn’t listen to my inner critic and ended up giving away 1000 books I couldn’t sell. 
 

There are only two rules for the Critic’s Room.

 NO DREAMER OR REALIST THOUGHTS ALLOWED!

DON’T STAY HERE TOO LONG.

 The Creative Process

With your areas established and full agreement on the rules you are ready to begin creating.

1. Start in the Dreamer’s area, create wildly without constraints.
   
2. Take best idea(s) to the Realist area and test them against reality.  Ideas that pass muster get forwarded to the Critic.  Ideas that fail are returned to the Dreamer for revision.
   
3. Criticize the Ideas from the Realist.  If ideas can’t be shot down, let them pass.  If they are shot down, return them to the Dreamer for revision.
   
4.  Cycle ideas through the process numerous times until they stand strong in the face of reality and criticism.
    

 This process sounds complicated and time consuming but it is not. 

 It is actually more efficient.  Once each voice knows it will be heard; it stops interfering in processes where it doesn’t belong.  
 

The end result is the development of highly creative, well tested ideas with better chances for survival.

 If the Realist or Critic, insist on disrupting your creative thoughts, STOP what you are doing and leave the creative area.   If the insistent voice is a Realist, go to the Realist’s area and write down its concerns and leave the paper in the area for the future steps.   
 
If it is an insistent critical voice, go stand in the Critic’s area and jot down the criticisms and leave the notes there for future steps.
 
Once the concerns have been addressed, go back to your Dreamer’s room.  Continue dreaming up new ideas.
  

Who is monitoring the monitors?

Wikipedia describes Operational Intelligence (OI) as “providing real-time monitoring of business processes and activities as they are executed within computer systems, and in assisting in optimizing these activities and processes by identifying and detecting situations that correspond to interruptions and bottlenecks.”
 
I am reminded of the end of the 1998 movie Enemy of the State. Will Smith plays a lawyer whose life is turned upside down by government corruption,  monitoring and tampering after he unintentionally receives a video showing the assassination of a sitting Senator.  

His wife played by Regina King admonishes him throughout the movie about the perils of excessive government monitoring.   After the drama plays out, a Senator is on TV stating that the offending agency will be monitored more closely. 

Regina’s final line is “ya but who is going to monitor the monitors?”

Herein lies the crux of a common business problem.   Gathering Operational Intelligence (OI) is usually the providence of the IT department.   The question is, how introspective is the gathering of data?  Or in Ms. King’s words, “who is going to monitor the monitors?”

There are many vulnerabilities and sources of waste in most IT departments, including but not limited to:

·         Using highly trained (read highly paid) professionals to monitor and maintain in-house backup systems.

·         Sending tapes filled with confidential data home with employees as an offsite back up plan.

·         Buying blocks of software licenses in anticipation of future need.

·         Using expensive professionals to perform routine server and workstation maintenance that can be inexpensively outsourced.

·         Using billable hours of non-IT professionals to maintain workstations or other routine tasks.

·         Buying and Supporting Microsoft Exchange servers when those same services can be purchased for an insanely low per user, per month fee.

The list goes on, but that is not the point.  The point is, when an IT department is tasked with building Operational Intelligence, exposing IT inefficiencies often is counter intuitive.  Or as Dr. Deming so eloquently put it “a system cannot know itself.”

Unfortunately for many C-level managers, the Information Technology department is a “black box.”  Money and resources are poured in and voila’ out comes some result.   Not being able to see inside the black box makes it very difficult to evaluate operational efficiency.

With the potential savings in capital expense and the ability to have IT operations scale with business cycles, it is important that upper management has useful metrics to measure cost and effectiveness of their IT operations.

For the CEO Information Technology poses a number of challenging questions.

·         How can Information Technology best support current and future business initiatives?

·         How can we get the maximum benefit from IT at the least cost?

·         How does investment in IT stack up against other opportunities?

·         How can IT investment be held accountable to ROI initiatives?

·         How can non-productive IT maintenance expense be minimized?

·         How can capital investment in rapidly depreciating IT assets be minimized?

Answering these and other business specific questions define the relationship between CEOs and their IT departments.   Since most of what goes on in the IT underworld is invisible to CEOs, they often feel held hostage by the very Information Technology that is intended to help them.  Important financial decisions are frequently based on barely understandable jargon presented by department experts with a sense of urgency and intellectual authority.

It does not have to be this way.  It should not be this way.  CEOs should have no less discretion over decisions related to Information Technology than they do any other department or operation.

The first step for the CEO is to expect and have absolute clarity regarding IT operations.  Clarity does not mean stacks of technical documents describing every bit and byte of data, every piece of hardware, memory boards, monitors etc.  Clarity, means having useful reports that speak to their objectives.  These reports should include:

·         Backup reliability reports.  The backup reliability report should clearly outline backup system uptime and results of restoration tests.  It is not enough to believe you have a backup plan; you need to know you can depend upon it.

·         Hardware, software and IT staff utilization. 
This may or may not include slightly technical reporting regarding CPU, memory, storage and other benchmarks that will warn the CEO of impending need to invest money in hardware.  The benchmarks will also tell the CEO when IT resources are underutilized.

·         Security reports that show the effectiveness of hardware, software and procedures at keeping data secure.

This report should highlight the number of attacks fended off by their security systems, how many attacks made it past the first line of defense, how quickly the intruders were eradicated and so on.

·         Downtime/Uptime/Response time reports. 
These reports will show the overall effectiveness of their IT resources.  Anything more than a very small percentage of downtime is abnormal and very costly.  At minimum, down time may seem like a minor annoyance.  But in reality, any downtime is a disruption to the flow of business.   Employees lose track of what they are doing if not the actual files they are working on.  Frustration breeds contempt and lower rates of productivity. 

On the high end, ecommerce businesses with very active business sites have reported that they can lose over a million dollars for an hour of downtime.

The other significant piece of information in this report is the response time.  When events do happen, how quickly did the IT department notice the problem and get it fixed.

·         Periodic cost analysis.
This would be based on the number of users, the amount of hardware and so on.  The cost analysis should include Internal IT department cost, software licensing cost, hardware costs, and any other metric the CEO deems necessary to evaluate the total cost of their IT resources.

Ideally, the CEO will assign a team to determine the true cost of downtime events.   Factors entering into this estimate would include lost productivity cost based on salary and benefits, lost revenue due to missed opportunities, IT resource cost and so on. Many companies however find it equally useful to use a rough estimate of $X / hr.  For the CEO, knowing the cost of downtime enables them to more confidently assess IT expenditures and projects.

When CEOs have enough clarity with respect to information technology, much of the mystique and confusion about IT operations goes away.  Having meaningful measures of IT effectiveness enables them to make more appropriate decisions.   CEOs have the information they need to control the IT operations that once controlled them.

Serial Entrepreneur Tells Secret for Surviving in a Down Economy

Bill Douglas started EssentiaLink at a time when dotcom businesses were dropping like flies. He was not discouraged though. Mr. Douglas knew EssentiaLink was the right business at the right time. 10 years and 13 growth awards later, the company is still going strong and is well positioned to survive this current economic storm.

According to Mr. Douglas, “having the right idea at the right time will get a company started, but if you don’t pay attention to some critical financial data the dream will die. Profit is the primary nutrient to keep a business strong and healthy. But, cash flow is oxygen; no business can survive long without it.”

Cash flow began to strangle EssentiaLink. Customers were signing on and buying more but credit limits with suppliers quickly fell short. To further exacerbate the problem, some large customers were stretching payments out well beyond 45 days. Suppliers, having more at risk, were threatening to cut off supplies if not paid in 30 days. Oxygen was running out.

Something had to be done quickly. After a series of meetings with the entire staff a plan emerged that would quickly improve the company’s cash flow. The cornerstone of the plan was to convert over ½ of EssentiaLink’s Colorado employees into remote workers. This bold plan enabled them to cut their office expenses by 75%.

Next the company had to tackle CAPEX. EssentiaLink had a computer room filled with underutilized equipment, loaded with software that was not being fully utilized. Further, all this equipment and software needed considerable labor to maintain the endless patches, software upgrades, and security measures. Mr. Douglas decided to take his own advice. “For years” he said, “we have been helping our customers reduce their CAPEX and improve cash flow by providing comprehensive managed services for their Information Technology. We looked at our situation and realized we could greatly reduce our costs by strategically outsourcing to service partners.”

EssentiaLink took these steps in early 2008. Had they not done so, surviving the current credit crisis could have been extremely difficult, if not impossible. Mr. Douglas feels that because of these and other steps they have taken, the future looks bright for EssentiaLink.

EssentiaLink got its start by providing customers an outsource method for the acquisition of indirect consumable goods without the high cost or long-term commitment of vendor managed inventory or 3rd party procurement. Their approach was so unique, the process was awarded a patent in 2007. Additionally, to enhance strategic benefits for their customers, EssentiaLink soon added their MaintenanceFreeIT suite of managed services.

Business Process Outsourcing (BPO) is a proven strategy for leaders to keep their businesses focused on core competencies. For EssentiaLink, it has been particularly good. As a BPO provider, their market is growing fast. And, as a consumer of BPO services, EssentiaLink has converted 90% of their CAPEX into variable OPEX that easily adjusts with current market conditions.

“No doubt”, Mr. Douglas says, “there will be tough times and other challenges to face but for most companies, transforming CAPEX into variable OPEX is a sure way improve cash flow and build a strong financial foundation.