The outbreak of Coronavirus has caused dramatic drops in the stock markets around the world and we are just at the beginning.
Many people are drawing similarities between the recent outbreak, the Financial Crash in 2008 and Black Monday in 1987 since they drastically impacted the economy. However, this new health crisis may affect businesses differently from previous economic turbulence. If this outbreak is sustained over a period of months, it may force businesses to change their business models. Some businesses may find that their previously successful business cannot function any longer. The next few months are going to test the resilience of business models like never before.
No matter how well prepared you think you are, no business can be fully prepared for what will be potentially many months of disruption and restrictions in our society. Downturns can cause a lot of fear. It forces businesses to operate in a more hostile climate. It shakes people out of complacency and challenges businesses to prove their business model and strategy.
Warren Buffett, the prolific investor and leader of one of the most successful investment businesses the world, stated that:
“Be fearful when others are greedy and greedy when others are fearful.”Warren Buffett
In a downturn, your strength as a leader and your business model will be tested. Some will fail that test. Getting through a downturn is one thing, but how can you emerge from the downturn in position ready to capitalise on the opportunities of an economic recovery? During a downturn, it is the survival of the fittest, so you need to think about your strategy.
Efficiency Becomes Paramount
During the good years of a business, the efficiency generally tends to drop. As the downturn approaches, every business should focus on being more efficient in every area. How can you do things more quickly and be more cost-effective? For some businesses, this may mean trimming back on discretionary spending while others are cutting down the size of the organisation. For small businesses, the difficult decision is where to trim and by how much? Trimming too much will hinders your ability to operate and trimming too little will carry more costs.
You need to plan ahead to ride the storm and be ready to bounce back.
Cut Hours Before Heads
One of the biggest costs in a business is headcount. Businesses heading into difficult times generally look at the headcount first. Cutting headcount is good as it can have the biggest reduction on the overheads of a business. However, if you cut headcount it can also limit your resilience to the downturn.
If you think you need to cut headcount, the first option should be to cut hours before cutting roles. Could you reduce hours by 10-15% to avoid people losing their job? Losing resources should be your last resort. You’ll need people to make things happen. Your team would prefer fewer hours over no job. Remember that nobody will love you for cutting headcount or cutting hours, but leaders are not there to be loved. You are there to lead them through these challenging circumstances. Your business has to be in prime shape to weather the storm and seize the opportunities as they arise.
Revisit Your Strategy and Business Plan
Your business model may go out of the window in a downturn. It is smart to reassess to adapt to the changing economic environment. It may mean almost reinventing your service and how you offer it if needs be. Carrying on, in the same way, may work for some businesses, but the vast majority need to re-think how they do business to ensure they keep themselves in the game.
Likewise, your budget will take a hit. Some sectors will see a deeper hit than others. Your job is to understand how that hit will affect you and what you can do about it.
In the current crisis, lots of leisure businesses, hospitality and retail are going to take a hit as they may not have the footfall or consumers as people may avoid visiting large public places. So how as a small business can you serve customers in their homes? Think about the different ways you can go to market with what you offer, can you do something which will help your customers using a different sales process or service delivery method?
Taking the time to revisit all of the previous plans and adapting them can make a real difference to your financial performance in a difficult time.
Go to Market Hard
Keeping your head down is not a great strategy. If it is going to be harder to maintain the existing business model during a downturn, not only do you have to revisit your business plan and strategy, you have to work harder. With a better understanding of your plan and strategy, you can refine your marketing to improve the performance of your activity.
Now is the time to relook at your marketing strategy and design new campaigns to adapt to the changes in the economy. You may need to keep your budgets the same but focus more tightly onto certain key customer demographics.
A downturn may reduce the effectiveness of marketing for some sectors, but refining it may the key to keeping the engine of your business turning. This is the very time to be capitalising on the value you can bring to your customers.
This will also stand you in a stronger position as the economy recovers.
Be Ready for the Opportunities
A downturn will create different opportunities. You may find that specific markets and sectors need more from you than you previously offered, can you extend your product or service offering to help your customers?
As the downturn progresses, it will eliminate some of your competitors, and, if you’ve been marketing effectively, you will now be in a position to take on some business which previously you couldn’t secure or reach. This again may mean you being flexible in how you deliver your products and services to allow you to seize on the opportunities that present themselves. In the 2008 financial crash, lots of small businesses went to the wall. At the same time, a lot of small businesses benefited from others going out of business. It may seem a little ruthless, but someone’s loss could be your gain. Whilst we don’t wish any ill onto others, if new opportunities come up, you should take them.