Hiya – I am the broad author of the SMB Consulting Best Practices book and I like to hold virtual book readings! This is a great one: a mini-MBA lecture on supply curves in our space. Yes – even SMB consultants and SBSers are impacted by the invisible hand!
BTW -= my new SBS 2008 book is out!
Shifting supply curves
Part of the reason you should care about macro economics as a technology professional is the effect technology can have on the supply function. You’ve seen it play out this way. A new software release makes the setup of SBS much more efficient. So instead of being a “network installer” who could depend on $10,000 US to simply install SBS, you’ve seen this part of your job be reduced to a couple thousand dollars and be “commoditized.” This is a fundamental shift in the supply curve caused by a change in technology (a new release of SBS). This results in a new set of prices of a range of quantities (service levels). This is not simple movement on an existing supply curve.
BEST PRACTICE: The example above also proves that solution selling is “in” and the business of strict bits is out of fashion. One thing you can count on in technology is that progress, which will lead to shifting supply curves, is a fact of life for an SMB consultant. Resistance is futile and Luddites are losers!
For those of you who skipped world economic history to go skiing in college, Luddites were weavers who were displaced by the loom and lost their jobs. Their response to this change in technology? Destroy the looms!
There are other factors that can lead to shifting supply curves, but these may not affect you as much as changes in technology. For example, macro economic leakages and injections into the economy can shift the supply curve (this could be the trading of dollars). Another is international trade (imagine that your technology work is outsourced overseas and delivered for a fraction of what you charge).
The point to this section on shifting supply curves is practical: Are you just one software or hardware product release or innovation away from becoming obsolete in your SMB consulting niche? Pretty sobering talk, but necessary as you consider what your niche will be as an SMB consultant. And fear not, I ask this question daily as I see improvements in SBS that make performing a task much more efficient than it previously was (and I can’t charge as much).
No macro economic discussion is complete without honoring the almighty dollar (or the currency in your respective country). On the one hand, a strong dollar is great when you’ve got a lot of them (dollars in hand that is) and want to vacation in a foreign land. Your dollar will buy a lot of stuff overseas. On the other hand, a weak dollar is good when you sell a product overseas as your product will become more affordable. Given you can’t have it both ways, pick you poison and forever keep your peace. Seriously, the good news is that dollars go up and down in value all the time and you basically have to play the hand you’re dealt. But have you ever considered, as an American, moving overseas to practice your SMB consulting craft? Then the value of the dollar must be taken into consideration.
Making sense of monetary and fiscal policy
It’s all about tax cuts (fiscal policy) and interest rates (monetary policy) in this game. When the economy is boosted (okay, perhaps just sustained) with a tax cut from your elected leaders (e.g., Congress), more dollars enter the economy. Some of these dollars end up on the owners of small businesses. These owners then proceed to use these dollars to fund a technology project such as having you implement SBS. You get the picture.
So how does the Federal Reserve Board Chairperson affect your next lucrative SMB consulting engagement? First, if the Federal Reserve Board lowers the general level of interest rates, the cost of funds to businesses go down. Perhaps the business you call a client will notice it on the next draw of their commercial line of credit. That draw is used to satisfy your SMB consulting invoice. While a quarter point decrease in interest rates isn’t going to make or break your SMB consulting practice, such market maneuvers signal business owners that credit conditions are loosening, the money supply is expanding, good times are ahead, and the businesses should increase their borrowings. The funds from borrowing can be used for capital expenditures, like your SMB technology engagement. Because part of my mission is to make you as much an MBA as an MCSE-type in SMB, I show in Figure 5-5 the Web site for the Federal Reserve Bank, where you can go for more information on US macro economic trends and facts.
The US Federal Reserve Web site at www.federalreserve.gov
Then there’s the other side of Federal Reserve life: inflation and deflation. Increasing interest rates can be a monetary response to inflation. High interest rates can dampen business borrowings and the demand for your SMB consulting services. Conversely, something to witness in more modern times (especially in Asia) is the threat of deflation. If the customer believes the technology solution you provide will be cheaper next year, they might not engage your SMB consulting services in the near-term because they have a deflationary economic expectation set. Bottom line? Either too much inflation or too much deflation can be harmful to your SMB consulting practice health. Like Goldilocks, we prefer our economy to be not too hot and not too cold, but “just right”!
Viewing the economy from a macro perspective is akin to looking at a problem child. When she is bad, she is very, very bad. When she is good, she is charming. The macro economic picture can be good and bad in a similar vein. There is not a lot you can do about it, but a heightened awareness of events that affect your livelihood as an SMB consultant will make you a better business person nonetheless.
On a positive note—the history of small business is filled with success stories about those intrepid entrepreneurs who started businesses during economic down times. Once economic times improved, these people saw many others join their ranks, providing similar services. However, history shows that, in general, those who started their small business in down times have survived and outperformed those who started a business during the good times. Because it’s much easier to start a business during good times, many of those who do won’t survive their first downturn. People who start businesses when economic conditions are tight really learn things, such as how to control cost and how to get by with less. They learn how to work hard and efficiently. These economic history lessons transfer to SMB consultants directly and should serve as words of encouragement for you not to let an economic downturn deter you from your goal of becoming an SMB consultant.
Harry Brelsford, CEO at SMB Nation
MBA, MCSE, CNE, CLSE, CNP, MCP, MCT, SBSC (Microsoft Small Business Specialist)