Halfway through 2022, small and midsize enterprises are wrestling with several strong but conflicting market forces that are challenging executives to assess the economic terrain, forecast future conditions and make decisions on internal spending, including travel. Executives at small and midsize companies must contend with persistent inflation, some continued supply chain woes and stubborn staffing and retention issues. On the other hand, sales for many companies have bounced back and Covid regulations have been dropped, allowing for some business activity to approximate a pre-pandemic footing.
BTN managing editor Chris Davis in early July spoke with Marc Snyderman, a business consultant who specializes in growth strategies for small and midsize enterprises as well as an attorney and former C-suite executive, to discuss SMEs’ approach to the market and how their projections might affect spending decisions. An edited transcript follows.
Considering the various market forces right now — some recovery from Covid, some recovery in sales, but staffing shortages and inflation — how are your typical SMEs handling it?
It’s tough. I would say they’re pretty cautious. People were really excited coming out of Covid that things were going to start moving, and you started to see movement in the market. You started to see some travel. You started to see things pick up, and quickly Wall Street cratered, and the economy went into this… whatever you want to call it, stagflation or whatever we’re going to call it right now, and it’s really changing the way people are thinking .
I’ve seen a bunch of deals that I thought were going to happen go completely dead. I think people are a little afraid to put money to money into the markets. They’re afraid to buy equipment and figure out where they’re going to go, because nobody really knows. There’s a lot of talk that we’re headed into a recession or something worse, some kind of extended recession. Some of the smaller businesses are definitely afraid right now.
I have a client who runs a landscaping company. He’s had trouble finding labor now for three full years, and you just get to a point where you shrink your business back to, “I’ll only do what I can do.” He’s got more calls coming in than he can handle jobs, and he won’t even take deposits because he doesn’t know when he’s going to get materials.
It definitely has created a very cautious environment, I would say. I have clients that are full-tilt, but they’re on the larger end of the SME market. They’re full-tilt because they have the advantage of all the Covid relief funds that they got. Those things put them in a position where some of them are being highly aggressive and acquiring other companies, acquiring properties. They’re really going after it.
Does that vary by sector at all?
It’s in the services industry that I’m seeing it. On the manufacturing side, not as much. I’m seeing some consolidation in manufacturing, actually, where larger entities are buying them up or private equity is. But the private equity market’s going to start drying up a bit as well with funds becoming less available.
How does this cautious environment translate in terms of looking at future plans and strategy? Is it more about retrenchment?
I think there’s going to be a lot of wait and see, because people are worried. There’s been talk of a collapse in the housing market, and I even thought it would be a lot sooner than has been, because there are still hundreds of thousands of mortgages that are in danger right now of default. It’s more than what happened in 2008. But ’08 was different because it was all backed by securities, so when that collapsed, it was a domino effect. You don’t have that same problem these days, but you still have a huge problem in, when is this market going to cool down? I think things will start to normalize themselves as mortgage rates go up, because they have to. They have no choice.
Overall, I think everybody’s going to wait on the midterm [elections] at this point. I think that’s going to start to determine where things are going to really fall out. Realistically, how much of an effect are the midterms really going to have on our economy and everything else?
What are the different ways that can go? If the Republicans flip Congress, how might that change SME perception or strategy?
I think they’ll be more confident, whether it’s legitimate or not. I think there’ll be some more confidence in the market. There’s been so much that’s moved towards the left in term where the money’s going and how much money is going out versus what’s really creating market opportunity. That sounded like I’m Republican, and I’m not. [Laughs]
Given all this, what should we expect in terms of internal spending on travel and other business needs?
In terms of internal spend, like travel and marketing dollars and all those kind of things, the year before Covid, I think I traveled 36 weeks. If I travel 15 weeks this year, that’s going to be a lot. And I think that’s consistent across the board from people I speak to and from people I know that travel a lot.
Do you think that’s permanent?
I think there’s a permanence to some of it, unfortunately. I don’t think it’s a good thing. I do think that there’s something to be said that we all found a way to be more communicative and be able to hold certain meetings virtually, but there are certain meetings that still need to be in person. And I think not having enough events and conferences is not going to be good. I think they truly lose something over virtual that can’t be replaced. You’re not going to replace a 1,000-person conference with a 1,000-person virtual meeting. It’s just not the same thing.
Beyond the midterms, what are the metrics or signs SMEs might look to help assess what’s coming?
From my perspective, some of them will say they look at the market, which is a terrible place to look, because the public markets, aren’t really indicative of what’s going on, and they haven’t been indicative of what’s going on on Main Street in years. They’re almost polar opposites. Main Street was falling apart during Covid, and the markets were flying. So they’re not good indicators, at least not in the past decade or so. To me, the biggest indicators are really unemployment and banks. Are the banks going to loan money? Are they willing to step out and support? If interest rates go up too much, there’s no money.
As long as money’s cheap and money stays cheap, small businesses can survive on that. And you need the labor market to switch up a bit, and we have seen some of it. We’re definitely seeing more candidates available, more people working and willing to take those lower-paying jobs than they ever did before, because all that extra money that they made during Covid for sitting at home not doing anything is gone. And now they have to work again, which is a good thing. And I think that will help stimulate the market back, some of the small businesses to get back to where they need to be.