A response to Karl Palachuk…

Our very good friend Karl Palachuk posted an interesting blog as a result of what he calls a “disagreement” he and I had at the ICCA Conference in Washington DC last weekend. Karl says:

“Over the weekend I had a public disagreement with a friend over the economy. We both agreed that a recession is two or more quarters of negative growth as measured by GDP.

Facts are facts.

The economy grew slowly in Q4 of 2007. It grew very slowly in Q1 of 2008 (Just last week the adjusted rate was posted at .9%).

This quarter’s growth is expected to be even smaller. But it is expected to be growth.

No matter how small the positive number, growth is growth.

We haven’t had one quarter of shrinking GDP, let alone two.

I understand that gas prices are high and unemployment is up. But despite the hangover of the housing "crisis," there’s good news.

The Fed lowered interest rates and that will work it’s way into the economy over the next few months.

Overall, GDP growth for the year will be small — maybe 1 or 2%. But it’s not shrinking. Growth is growth.

The government stimulus package is kicking in. People are getting their "rebate" checks and spending them. That will help us all a bit.

And the silver lining of a weak dollar overseas is that U.S. exports are doing very well.

I am not an economist, but these facts are not hard to come by. You have to open the paper and get past the story about what Britney and Lindsay did yesterday.

Our economy is going through a period of weakness and slowness.

We are not in a recession.”

Read Karl’s entire post here.

I just had to respond to Karl’s post, because I speak to lots and lots of service providers and MSPU Members, and we do talk about the economy as well as a myriad of other topics. So I just couldn’t let Karl continue to profess that all is good in Whoville, just because we have not met the technical definition of “recession”. Most of you who I speak with have a lot to say about the pressure you’re starting to feel, and I wanted to give you a voice in Karl’s world, so here is my reply as posted to his blog:

“Hi Karl – I don’t think we had a public disagreement more so than I think you corrected a statement that I made during my keynote at the ICCA which I believed to be accurate – thank you. I quickly agreed with you on the technical definition of a recession, as illustrated on the slide I had up at the moment.

The core issue here isn’t about nitpicking a percentage of GDP growth (frankly a .9% figure is truly embarrassing, even to support your point, by the way), but what the environment feels like. You know, like "it’s only sixty degrees, but with the wind it feels like forty".

We may not technically be in a recession, but the Service Providers and MSP University Members I speak with every day are feeling the pinch. Sales cycles are growing longer, projects are being put on hold, and it’s tougher to get in the door of new prospects.

You’re in California just like me, so you’re no stranger to the $4.75 gallon of gas, nor are you unaware of the horrible housing market out here, which is at its lowest level since 1993, with foreclosures at their highest since record-keeping began in 1979. And I don’t need to throw in that consumer spending has posted its smallest gain since 1991 (I can hear you now – a gain is still a gain! lol).

I gotta tell you, Karl, we may not be in a recession, but for a lot of service providers and the smb business owners they serve it sure feels like forty degrees…”

Let’s get your feedback on this please – there’s a lot of discussion to be had on this topic.

Erick Simpson
MSP University
www.mspu.us

Posted in: Events

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7 Comments

  1. Matt Makowicz June 13, 2008

    Maybe, and I am just spit balling here, that the providers that are feeling the pinch need to hunker down their sales process a bit and get back to basics. It’s all about value in the mind of customer – and I know you know this Erick, and I know MSPU members must hear it constantly – but what is value for a customer in a booming economy and what is valuable for a customer in a teetering economy is different.
    Sometimes it is just saying the same thing differently to a customer. Instead of saying “we do things remotely so you get your problems respolved more quickly.” try saying (or adding) “bacuase of the rising cost of fuel, we figured out how to deliver even better service to you withiut having to raise our rates or get in a car.”
    The reality is there are numerous reasons why this is the best time (type of economy) for customers to focus upon the value that efficient management of technology provides. What’s the addage? Whatever the reason that a sale may not occur should be made to be the reason it does!
    Recession – business goes up.
    Booming economy – business goes up.
    Gas $1/gallon – business goes up
    Gas $5/gallon – business goes up
    IF and only if how we present our solution to our clients changes. We need to simply change the approach. To finish on your anaolgy of weather – the strategy on how to win a football game changes dramatically depending upon the weather on game day. The end goal remains the same, but the tactics are adjusted.
    For those providers feeling a pinch – adjust your tactics!
    Happy hunting!

  2. Vlad Mazek June 13, 2008

    I agree that Karl is to blame for the economy, gas prices, downturn in SMB spending and I am pretty sure he had something to do with the daylight savings time.
    Businesses struggle for a number of reasons, economy is just one of the components. Bad marketing, lack of credit, lack of effort, lack of talent, overspending, undertraining can all spell disaster for a small business IT solution provider.
    I talk to a lot of SMB IT professionals too and I can echo what you’ve said – SMB is struggling. To be fair, the ride that many of these people had on the way up was unwarranted and may have come so easy to the many participants that they failed to keep strict focus and control of their business and are now paying the price. All my bigger partners are growing. The smaller partners aren’t shrinking, they are disappearing. Thats the reality of the business though, only the strong survive.
    I really hope that people reading this post don’t mistake the tone for some sort of an apology or a group hug – shame on you if you do! This is a reality check and hopefully a motivator to sit down and work on whats really important. Don’t just sit on your butt and feel sorrry for yourself because others are struggling, stand up and go at it twice as hard so you can clobber all the guys that are singing que sera sera..
    -Vlad

  3. Mark Crall June 14, 2008

    I will agree with whomever offers me the most compensation. 😉
    Vlad would be proud!

  4. Dave Sobel June 14, 2008

    At the risk of being moderate, I think the aggregate numbers are potentially misleading. Both of you are right, and I think it’s also more regional than people let on. Pressures here in the “big city” aren’t what they are say in, Reno, Nevada.
    As one who hears it all the time from leaders, Karl’s right to say that based on indicators, it’s not a recession. But Erick’s also right to point out that “times aren’t good”, either.
    Times are certainly different, and even just the discussion that is going on now is changing the landscape. Even if there isn’t a recession on paper, people perceive one, and all that matters is perception.
    If you aren’t adjusting your business based on market conditions, you’re crazy. And can I know what market you’re in, so I can come there?

  5. Naseem Saab June 14, 2008

    In my humble opinion you’re both “right”.
    Growth is growth! Karl has facts and compelling arguments to back it.
    Yet, there are real signs for a slowing “economy” all around us – we all “feel” them.
    The question in my mind is simply “how are we and our customers perceiving and adjusting to everything around us?”
    Small businesses by their nature are directly affected by the perception of the “humans” that make the business decisions that drive these businesses. That’s the 800 pound gorilla than never leaves the room! These humans are feeling the personal side of the economy, as they are touched by it on a daily basis. Various businesses, especially in the “services” industries are directly and sometimes immediately, impacted by these perceptions and realities. So caution sets in and spending decisions are made more carefully — elongating the sales cycle for small business. Interestingly, bigger businesses and governmental agencies have longer budgeting cycles and run more like a “machine” than a “human” and so are less “reactive” to the fluctuations of the economy…
    We are in the Small Business market – so we’re all affected.
    At Results we sell information and business management solutions – that translates into efficiency and productivity (a key word that Karl emphasizes in his blog) to our clients.
    Here is a fact. The interest in our products is at an all time high, as companies try to do more with less resources and expenditures. So this belt-tightening phase is “good” for our own business. We just hired two senior-level developers (that are very well compensated) in the last two weeks alone, to keep up with our plans to expand our product features, to stay competitive (marketplace demand), and to deliver on projects that have been already booked (business demand), so it is good for the economy too! Sure, the sales cycles are longer and funds are tighter and decision makers are more cautious than ever with a myriad of choices being presented to them. So we adjust our tactics, as Matt wisely suggested!
    One simple example, to how we adjusted our tactics: We now offer a flexible “leasing” option along with our standard purchase option of acquiring the same software, to ease the bite into cash-flow and fast-track the decision to “buy” the software… Think about that… We’re a small (eight full-time person) business, we’re actually a very tiny business (relative to our industry) as we compete for market-share with companies that typically send more people to a single tradeshow than I have on all of my payroll! Question: What the heck are we doing offering “leasing” options to ease our customer’s cash-flow burden, when there are months where our own cash-flow barely allows us to make payroll? Answer: We’re trying to make more sales, by adjusting our tactics and roll with the punches and make it work for us and our customers…
    We determined that people sometimes go to SaaS offering, not because it is the better product/solution, but because that’s all that their budget can bear and/or the mentality of not wanting to be stuck-for-life with one software. So, we gave them SaaL and SaaL2B (lease-to-buy) options, without the multi-vendor experience and without the paperwork! 🙂
    We all adjust to the economy and the marketplace as vendors as well as consumers. I like Vlad’s definition for a successful business – always adjusting to the marketplace demands (real or perceived.)
    If there is a will there is a way, my dad used to say. We all adjust! I lived four years of the Lebanese civil war, before immigrating to the USA. Was it hell? Looking back on it, Yes it sure was, BUT not while I was living it. Why? It escalated slowly and so we adjusted our lives and expectations. My sisters and I would listen to the news each morning and if there was reported shelling or kidnapping in one section of Beirut, we simply used a different way to get to school and to the university that morning, as we persistently and rationally pursued our studies, for a better future. It’s like checking for traffic patterns as you decide how your commute will go that morning… just more morbid. The point is that I was fortunate to have parents that kept me focused and driven to pursue a “better future” while surrounded with senseless violence, misery, death and madness. The Lebanese pound went from 3LL to a US dollar to over 2,000LL to a US dollar (slightly more than a “down economy” :-)) and we still adjusted, survived and thrived.
    The power of the human mind is that we can choose between allowing one set of circumstance to overwhelm, depress and destroy us, while the same set of circumstances are recognized by the same human mind (in another person/body) as an “opportunity” and reason to adjust and drive to do more. That’s why not everyone is an entrepreneur and why machines will never replace the human mind and spirit!
    So yes, you’re both right.
    I choose to believe that there is no better time to be in this “solution delivery” business that we’re all in. We want to teach consultant that they cannot “worry” that it feels like forty degrees out there, but figure out how to “leverage the opportunity” to provide our customer with warm coats to help them whether the storm! 🙂
    Thanks,
    Naseem
    PS Talking about adjustments to the realities around us: I drive an 8-cylinder SUV (no worries, lease will be up soon.) Do you realize that I can no longer fill-up my tank without having to perform two distinct transactions at the gas pump? It turns out that when the Amex is swiped, it pre-approves for only $100 – at one point that was a reasonable expectation. So the gas pump comes to a slow stop at $100 and my SUV is still NOT full! As my 11 year old would say, Dang It! I have to finish that transaction and get my receipt and then start the process all over again to actually get a full tank of gas! That’s one adjustment that Amex will have to make real soon, by maybe pre-approving the gas purchase at $125. An optimist would suggest that they might as well go to $200! 🙂

  6. Erick Simpson June 14, 2008

    Now this is what I call great spitballing! I think we can all agree that the consensus is that no matter what the economic climate, we need to find ways to help our clients make the right decisions to improve their business processes, efficiencies and productivity – but that also means that we as service providers must modify our own services and deliverables to be more client-friendly in the face of uncertain economic times.
    I like Naseem’s post the best, with his analogy of providing our clients warm coats to weather the storm – if I were Drew Carey on “Whose Line Is It Anyway”, I would award Naseem 1,000 points!
    Thanks all for your comments and feedback – keep it coming!

  7. Stuart Crawford June 14, 2008

    Hi Guys, sorry for being slow to the dance, I had a golf game issue I needed to deal with here in Calgary, see my blog at http://www.stuartcrawford.com to learn more.
    The price of gas here in Calgary is at the highest I have ever seen it, we are sitting at a $1.34 per litre, do the math for the Americans out there that don’t understand metric. It is a lot more expensive that what you pay for a gallon.
    We are very fortunate to be in Calgary, we have 15 or 16 construction cranes in the air building office space that is sold out, combined this with our high performing dollar against the US and we are sitting pretty. We don’t export anything to the US we import so the low US dollar is AWESOME and very welcome here in the north.
    Oil prices continue to rise, last time I saw the numbers it was around $135 US per barrel, not to long ago it was $10 in the late 90’s when I worked for an Oil and Gas ISV.
    The slow down is coming here as well, I am seeing “PRICE REDUCED” signs on houses in our neighbourhood now that we didn’t see a year ago. Actually 18 months ago we had less than a 1000 real estate listings now we are sitting around 5500. So slow down is coming.
    Has IT Matters been hit by it, absolutely NOT, we are on pace for our best year ever in the history of our firm. Why, a couple of things, lots of forward momentum especially following Arlin and team’s SWOT a few weeks ago, creative solution selling – combining leasing, financing and other payment plans, hey we are still in the right place – Western Canada is still an economic hot bed.
    The facts are this, the price of gas will never go back down, we are stuck where it is at or higher forever, look at the trends, however it may go down if alternative fuels are introduced in the main stream, that will happen, when don’t know. Look at long distance in the Telecom industry, the bottom dropped out of it when newer technologies where introduced.
    Ken Thoresen said it right on my radio show at http://www.blogtalkradio.com/smb a few weeks ago is when the economy is uncertain, the expert sales people start to shine, same with what we do…the superstar partners will shine now the economy is in a turn down. Are you a superstar?
    Stuart R. Crawford
    Calgary, AB
    IT Matters Inc.
    http://www.itmatters.ca
    http://www.stuartcrawford.com