If there is an upside to the current economic malaise it is how this situation so clearly points to weaknesses in business models. Smart business owners can move ahead in the down market or at least position themselves better to leap forward when conditions improve.

Most of the weaknesses show up in a few key areas: diversification, efficiency, pricing and marketing.

Diversify or die

The shop that does only one thing, no matter how well, is going to be in jeopardy if that one thing is the target of some drastic change. Many shops today - which already had some form of diversification plan in place - are finding they are increasingly relying on second and third business streams to support what was lost from the primary one.

Successful diversification relies on related but not so intimately connected product lines. One example is a shop I know in Vermont that long ago divided production into three streams of custom furniture, a furniture line sold through galleries and store display tables for a major retail chain. All three streams use the same equipment in the shop but the markets are very different.

Another common strategy is to combine general contracting with residential cabinetry which offers the potential for expanding work at whatever jobs you do get. Other shops take advantage of their excess capacity on automated equipment to do work for other companies.

Maximum efficiency

When times get tough, you need to deliver. You must meet tight deadlines and produce the maximum amount of work in the minimum amount of time. That means this is a golden time for automating or introducing lean manufacturing practices to your shop.

Customers know they have the upper hand now so they are more demanding than ever. The shop that can meet those demands efficiently and profitably will be way ahead. And when business improves you'll be poised with the capacity for dramatic growth.

Pricing pressure

Pricing has always been one of the biggest problems for small shops. Now is the time to really hone pricing skills and make sure you know your numbers. One of your best tools in a tough economy is knowing your numbers well enough to have the fortitude to say no to unprofitable work. Don't dig yourself into a hole just to keep busy. There is no future in that.

Marketing magic

This is probably the most difficult area for most shops and the single biggest reason they are hurting in the current economic mess. Nine out of 10 small shops rely almost entirely on referrals and have really no cohesive marketing plan. That means if there is a change that affects their primary sources of work they have nothing to fall back on.

Now is the time to develop a strong marketing initiative. Admit weaknesses and bring in outside help if that's what it takes. Slow in the shop? Put those guys to work on displays for a good showroom. Update or build your Web site to expand your reach and add credibility.

All of these things should be basic components of your business every day. But when times are good it's easy to let these slide. Now you can't afford to do that. Build a fresh strategy to keep yourself afloat now and ride high when the tide turns in your favor.

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