Be Bold. Make the Change. Have a meaningful Impact.
Almost a decade ago I wrote an article, titled “How to Survive an economic Recession for Dummies”, when the financial crisis had caught-up with me back in 2009-2010.
At the time I went through a catastrophic failure, as all the ventures I had collapsed, I had to make all my employees redundant and see everything I had worked hard to build over 5 years, collapsing within a period of six months.
So, I started writing more as a self-healing process reflecting my personal lessons from my own failures, rather than anything else. It was then when I took the decision to become an expat and start over, firstly in the Netherlands (didn’t work out…) and then in the UK.
Never in my worst nightmares would I have expected to live in such a short period of time a second (some say deeper) financial recession, this time due to a global pandemic.
Even though, on a personal level I was not as affected as the first time, I had the opportunity to identify specific patterns that especially small businesses had to face during both recessions.
Over the past 9 months, either through the university or our hybrid accelerator, I spoke with many different founders, and business owners on how the COVID-19 pandemic affected their business and how they are handling the current financial crash.
Through personal experiences and multiple discussions and stories I collected, I came up with seven (7) points on how businesses can become more resilient during hard times.
So, what you need to do, is to be P.R.U.D.E.N.T.
Plan for Reconstruction and Build Assets
As you build up your business there are core building blocks that you will need to develop. These blocks are your Assets. New business norms have forced us to reconsider the way we conduct business and re-engineer many of the processes we had within our businesses. In order to rebuild, you need to first deconstruct and go back to the basics. As you are building up think about your Market, your Products / Services, your Brand & IP, your internal Systems and your Strategic Assets.
As a business you need to reconnect with your values and your whys, you need to rediscover the needs and wants of your customers, understand theirs pains and provide true value-added solutions to them.
Naturally, crisis puts us into survival mode, however it is also a chance to change our state of mind, reevaluate, take a step back and rebuild a better business.
There is a wonderful book by Daniel Priestly “24 Assets” which provides some excellent insights on these fundamental business building blocks that you need to develop.
Redesign Products / Services and your Marketing Approach.
The pandemic accelerated the adoption of e-commerce and digitalization of business transactions. Therefore, you cannot be ignorant or blind to the fact that you will need to redesign your core products or the delivery of your products and services to fit the new transactional model. Remember that going online or just building a new online service channel will not solve your problem. Going online means that you are now competing in a global market with global competitors. So be careful how you utilize your cash reserves or your profits as you might invest time, money and valuable resources to build electronic tools, while at the same time shifting your attention form more important issues like your products and your clients.
Take the time, reach out to your clients, and try to redesign the products and services you offer with them. Make them part of the solution. Try to maintain your most profitable products and focus on redesigning or even killing less profitable ones.
Remember that when you redesign your products and services you will need to take into consideration the principles of Ethical and Conscious Branding and Collaborative Sales Methods. Consumer behavior has shifted, and you need to shift with it.
One of the best ways to communicate your “new” products and services is to concentrate on content generation (creation of your digital assets). There are infinite free resources and collaborative platforms which will allow you to effectively communicate your message. Especially digital assets remain there and act as multipliers.
When you design your products also think about the different types of products that you may need to create in combination with your marketing campaign.
As an example, can you create products / services that can act as hooks? Can you design products of services with very low cost that will allow your clients to have a first experience and interaction with you?
Don’t get me wrong I would never recommend creating loss leaders, but how you design and define your product / service line is up to you. For example, freebies and “loss leaders” should perhaps exist under your marketing and not within your core product mix. Label, budget and measure prudently.
Finally, when you productize, think of your strategy to market your products.. It is much easier to upsell or achieve a new sale with existing clients, instead of constantly generating new sales. Always think about product families which can be sold after your initial sale and interaction with your clients. Repeated sales with low marketing effort and cost are where you make your profit.
Unify the Team.
Team is everything in today’s business world. Usually, in times of crisis team members become easy victims in our crusade to reduce cost. Business owners go into survival mode, take everything upon themselves, isolate, feel stressed and take it out on their employees. This is a recipe for failure and not crisis management.
Allow me to make a statement. Your employees are not working for YOU. You work for them. You are responsible to provide them with whatever they need, give them the chance to thrive and use empathy and honesty when you deal with them.
As you can imagine your team is essential to pull your business out of the hole. In times of crisis your job as the business owner / manager is to unify your team around your business. Believe in people, communicate with them and make them part of the solution. It is better for all to make sacrifices instead of some to lose everything. Clearly communicate the issues you have and explain in plain terms what needs to be achieved. Ask their opinion, give them the space to express themselves without fear. Give them timelines of how long you expect things to be “in the red” and what sacrifices you expect everyone to make starting with yourself. I am certain, you will be surprised with the collaborative spirit and empathy that your team will express and furthermore with the gems that they will come-up for improvements across your whole organization.
This is the time when you need to demonstrate leadership and be in the front, instead of hiding in your office and blaming everyone else for what went wrong.
Simon Sinek’s “Leaders Eat Last” is a very good read on the importance of Leadership.
Diversify your business, Persevere or Pivot.
When faced with such devastating situations every business, every entrepreneur has to answer the question of Business Diversification. Everything comes down to a seemingly simple question. Is your business making enough progress under the circumstances to continue ahead and persevere or do you need to pivot.
Business diversification can take two forms. You completely change strategic direction, in other words you Pivot or you expand in new markets by re-engineering and adopting your offering without necessarily changing your strategic direction, in other words your apply a correction (Iteration) and expand persevering down the same route.
The compass for such a decision is the market itself, your clients. Companies that fail to bring themselves to act towards a specific direction on the basis of feedback from the marketplace are in danger of becoming zombie-companies stuck in a state of neither growth nor oblivion. This state can suck dry a company of its resources and completely destroy dedication and commitment from its team members.
Whether you persevere or pivot you should not be afraid to try, test and fail. We learn from our failures. However, your decision should be based on true, well calculated data and not just a feeling.
In his book “The Lean Startup” Eric Ries describes that a business has a specific number of pivots left. This is the company’s runway and represents the amount of time remaining until a company must either make it and achieve lift-off or fail. This is calculated by dividing the available cash by the monthly burn rate.
Now what happens if the runaway is running out. In an environment of crisis, you cannot usually raise additional capital, except from situations where you have government support, therefore you are forced to cut costs.
This is critical as diversification is fundamentally a business strategy and direction decision, a strategic hypothesis. During a crisis you need to make decisions fast. The only other way to extent your runway and make a better use of the time given to you is to test more strategies faster, in other words, validate what works and what doesn’t.
Doing so takes courage and requires a sound measuring methodology and validated learning. Otherwise, you are just blowing time and resources in the wind.
Enhance Cashflow and Operational Savings
Cashflow is king! I am sure you have heard this expression. Companies with a healthy cashflow and cash reserves can access debt financing much easier than others. You can get better deals on your procurement (remember especially in retail, you make your money on procurement) and also attract better talent with higher salary and bonus incentives. In crisis though you need to make your cash go further. The first move is to have a clear understanding of the burn rate of your cashflow. In other words, you need to KNOW YOUR NUMBERS. If you haven’t budgeted before now is a good time to start doing it in detail. If you can’t, get help. Knowing your numbers will allow you to close holes that burn cash reserves. It will also allow you to understand income and outgoing payments. This is very important as rearranging and rescheduling payments can have an immediate positive impact on your cashflow.
Concentrate on high profit items. Rethink and adopt your marketing budget. Never kill marketing. This is a rookie mistake that most businesses do. In crisis you need to sell. Effective marketing (even through free resources) acts as your brand and sales megaphone. Speak with your clients to see whether they can give you further visibility on upcoming orders. Incentivize them with a discount strategy, which will not kill your profits. It is a mistake to adopt a pricing policy which will just cover costs and allow you to barely stay alive. Engage your suppliers to see how you can optimize payments and get further discounts. Same applies to property that you might rent. One of the biggest inelastic expenses is rent. So, speak with your landlord and negotiate.
Obviously, the days you could spoon-feed your business are over. Even in a normal situation a prudent approach would be to gradually built-up a cash reserve, which would allow you to cover 3-6 months of operational costs & expenses. Experience has proven that these cash reserves now need to be able to cover up to 12 months of operations. If you don’t have the reserves already things will be more difficult, but even if it sounds impossible you should start saving, while you can.
Network. Identify the partners and people who can help you.
Over the last decades the way that business is conducted has changed dramatically. We started with process focused businesses, to reach now a more interactive collaborative model. Technology became such a structural enabler, with businesses forced to adopt new solutions across the board. The way we source and procure, how we make and produce and how we sell is constantly changing. The pandemic is a true testament on how quickly things can change and the rate businesses have to adopt.
Your Network and Partners will be your enablers to effectively productize and diversify if necessary. Your network acts as your brand and sales ambassador, they are there to support and make introductions, both at the front and back-end of your business.
Once you have a clear understanding of needs and wants of your clients and a line of products / services that fulfill those needs, it’s time to reach out to your existing business partners; your suppliers, your wholesales, your logistics providers, even your accountant and your graphic designer can help you in this time of need.
If you do not have a CRM system then, dust-off that old telephone book with your contacts. Create a circular doodle with consecutive cycle, put family and friends in the inner contact circle and continue with business contact on the outer ones based on the importance and frequency of contact. Write down a small action plan / tracker of what you want from each individual contact. Also be prepared to tell them what you are willing to give them or trade. Clearly explain your situation, the reason you are contacting them and how you could help each other. Remember it’s about creating a collaborative environment, it’s about “give and take” without ending up giving a whole pack of IoU cards.
Your network can help you from simple things like joining you on a social media group, sharing your posts and articles or helping promote a new product and service through their respective network (this is one of the key reasons that creating digital content is extremely important, it’s easy and inexpensive for people to like and share).
Existing business partners are even more important. Your suppliers will have to help you if they want to retain you as a healthy client. Be sincere and negotiate with them more favourable terms at least for the time until the crisis is over.
Better payments terms, extended credit, lower supply chain costs, discounts on production, better training for your team and market intelligence are some good examples on how they can help.
Transform & Innovate in practice.
Business transformation and innovation are not just buzz words made for big corporates with deep pockets, they apply as much to small businesses and startups.
Innovation in practical terms is what you do to improve the processes and procedures within your own company. Maybe the implementation of a mature well known and widely used technology is not innovative per se, but it is an innovation process for your business. The way we now communicate and the wider adaptation of communication and collaboration platforms like Zoom, Google Meets and Microsoft Teams is considered an innovation for companies that their employees needed up until now to be physically present in a room to communicate. Your new e-shop through Shopify, your new packing machine, your new tools are all practical innovation examples for your company.
You need to be mindful that as a small business you should aim to transform your business and innovate with two goals in mind, Sales Boost and Cost Reduction. Sales Boost is about the product/ service you deliver to your clients in order to better serve the needs of your existing clients (i.e. providing better products / services, at more competitive prices and easier accessible) and how you open up new market segments or territories. Cost Reduction is about transforming and innovating internally. It’s about optimizing production, minimizing time and cost to produce a unit of your product or to deliver a service. Think, what can you do to improve efficiency, what new assets can you create, how can you do more with less with the assistance of technology and people? A good example on this is the fact that many companies are willing to innovate by bringing inhouse data capture systems and specialized analysts as digitilisation comes more on the centre stage and data becomes the new global currency.
Lastly, I would like to add another dimension to the transformation and Innovation. Be certain that these two terms are not just applied to the actual business. They are as relevant for you as a person / business owner and for your team. Caught in the everyday struggle we usually forget about our self-development as professionals and as people. So, when thinking to transform and innovate give the time and the resources to you and your team to learn, evolve and change the way you perceive things. Transformation and Innovation come firstly from a creative state of mind. It starts with you and your people.
This time around the crisis has different characteristics. The pandemic completely changed consumer behaviour and forced the shutdown of business (especially for business in the high street on HORECA and retail). This was a massive blow to many business owners and thousands of employees. We are just starting to scratch the surface of the upcoming financial crisis and we don’t know when we will rebound. This article does not aspire to be a definitive guide on “How To”, but rather to give you my perspective on small business crisis management, from experiences that I lived and lessons I learned through my failures and by examining failures of others.
Concluding this article, the way I see it, each and every one of us has two choices:
A. Accept your fate, roll down and blame everyone else for the situation or
B. Pick yourself up, change your mindset and act. The choice always remains yours.