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Companies selling to companies see an improving economy

Is business getting better? MinnPost’s “sidewalk economist” — yours truly — decided to do a little unscientific research talking to people in businesses who sell to other businesses.

“Right now, we’re off to a great start this year,” said Mike Jorgeson, president of Impressions Inc.,  a family owned commercial-printing business. But the growth has come primarily from winning new business from competitors, not from growth in existing accounts, he said.

Jorgeson’s vantage point, with nearly 85 percent of his business in packaging printing, gives him a window into early shifts in the economy — in both slowdowns and as business picks up.

“Our customers [are] starting to spend,” he said. He is projecting about $40 million in revenue this year — “still down a little,” he said, from the pre-recession peak hit in 2006/2007.

Economists like to talk about leading and lagging indicators. Packaging is a classic leading indicator, starting to move up and down ahead of the overall economy. Employment growth is typically a lagging indicator, with hiring starting to turn up only after employers are confident that demand for their products will remain strong.

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MinnPost’s “sidewalk economist” — yours truly — decided to conduct a little unscientific research talking to people in businesses who, like Jorgeson, sell to other businesses, to ask what they are seeing and hearing in their own business and from their clients. While there is unanimity that optimism has increased, no one predicted a sharp rebound to pre-recession levels.

Slowdown started in early 2008

Jorgeson started to see the slowdown early in 2008. “We were definitely feeling the crunch before the news services were talking about it,” he said. “I think people cut back just because there was so much uncertainty.”

His business  “took a drastic downturn” in the fall of 2008 as his customers aggressively reduced inventories in anticipation of a difficult year-end.

Impression’s revenue dropped nearly 20 percent from the previous year. They weathered the downturn by cutting spending throughout the operation at plants in St. Paul and Hutchison, Minn. The company escaped layoffs by instituting a hiring freeze as headcount fell through retirements and attrition from a peak of about 300 employees to 270 today, he said.  He also suspended the company match for employee contributions to 401k retirement plans, a benefit he just recently reinstated.

While he and his brother Mark, who is Impressions CEO, looked for possible diversification plays early in the recession, he said the core business started to recover by the second quarter of last year, so they never had to commit to risky and expensive capital investments in new ventures.

Clients increased spending discipline

Brand and design consultant Jane Tilka, founder of Tilka Design, said she thinks there is “a new optimism… things don’t feel so serious, [there is] more stability out there.” In part, she credits an improving employment outlook as major job cuts are behind us, with improving people’s attitudes.

The firm “got really busy” at the end of 2009. Now she is seeing “lots of smiling faces, lots of tire kickers” as clients come to her with “permission to buy, but [are] being very careful shoppers.” In contrast to the “somewhat fuzzy edges [to a project] in past years because the scope would change,” companies come to her with firm budgets, clearly defined boundaries and increased discipline. “And that’s a good thing,” she added.

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The firm was able to remain profitable while the business declined from its level of three years ago, she said, because “we’ve cut expenses on all fronts.”  For example, she saved 60 percent on payroll processing costs by switching to COSTCO.  Headcount dropped from seven to four through attrition, while she increased the use of freelancers. She is now looking to add one full-time position.

And the makeup of the business has changed as well. With the growth of online advertising and promotion, Tilka recognized the firm “had to spread our wings” as designers learned new skills. She observed that she is spending more time working with application programmers from software companies.

“As a small firm where employees have always been accustomed to wearing different hats, the absence of admin help hasn’t been all that difficult. We all put in very full days and continue to rely on each other for assistance during very busy times,” she added.

Changed consumer attitudes

“I’m very much in the camp that things are coming back, but coming back, in a different way,” observed Mark Murray, managing director at DesignLab, which he describes as a “retail-experience firm” whose clients include major national retail chains.

Murray is not predicting a sharp bounce back to pre-recession levels, but said that “time is doing its job” in gradually improving consumer confidence and the economy.

People who were most affected by the downturn are changing their purchasing behavior, creating “a whole new set of winners coming out of [the recession] who will do well with consumers,” he predicted. Retailers who succeed will recognize their customers’ new attitudes towards value and their desire for “something different and fun.”

Consumers are looking for better value over either lowest price or largest quantity, an attitude that prompted Murray to think of his father, who would say: “I don’t have enough money to buy cheap clothing.”

Consumers are also interested in understanding the consequences of their purchase decision, he said, pointing to increasing use of social networks such as Twitter and Facebook to gather information. Sustainability is an increasingly valuable attribute that retailers also have to recognize, he said. “It sounds sobering, but it means consumers are getting more intelligent.”

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Moving in new directions

For the past 11 years, Susan Shapiro has built up her Minneapolis-based consulting practice, Rhino Research, providing brand strategy, market intelligence and new-product development in the consumer hard goods, food, pharmaceuticals and financial services industries.  “Business was great up until last year, and then it took a dip I’d never seen before,” she recounted, as her business fell off nearly 40 percent at one point.

While her business has not fully recovered “the way I think it should,” she is hearing more optimism about the economy “on the street.”  As a consultant, she is particularly vulnerable during a downturn, she said, as clients cut back spending on advertising and new-product introductions.

She has seen the business move in a different direction as she adapted to the recession. For example, she has trained clients to run their own idea-generation workshops, a project she would have facilitated in the past. She finds herself networking more, seeking clients beyond her traditional industries and taking on smaller projects she would have turned down a few years ago.

‘Getting ready to grow’

Karen Bumgardner, an organizing professional whose firm Better Organization serves small businesses in the Twin Cities, credits the economic turmoil with motivating clients to seek her help.

“We reached a point where the whole country was out of control; they [her clients] did what they could to take control of what’s going on in their business,” she said.

The client flow became less seasonal, she said, as small business owners looked for ways to increase focus on their businesses. She said clients realized if they had an assistant taking care of paper work, they could “get out and sell.”

Bumgardner said over the past three or four months she has seen something new — her clients “are getting ready to grow.”