I’m going to focus my comments towards entrepreneurs and high growth companies (particularly tech companies), but there will be some relevance to all businesses.
Fundamentally what we have with the COVID-19 coronavirus, is a change in the marketplace and without doubt, economic slowdown. There are some unique factors relating to the virus pandemic, but there are also common forces at play that relate simply to an economic slowdown. Some businesses will naturally flourish, for example, if you’re producing products which help people work from home, you’re probably excited at the opportunity, if you’re in a business which requires mass gatherings, e.g. an events business, you might be wondering how you’re going to get through this. Every business has ways they can optimise the outcome for themselves. For some it’s about minimising losses for others it’s about maximising gains. Let’s look at fundamentally how this works.
I’m not going to cover off the simple things which we should already know or have read about, but I will talk about some fundamentals I don’t see being written about.
There are two fundamental parts to a business, not to oversimplify it, but a business has operational costs and incomes (which are typically sales).
Let’s start with the two combined together:
Cash Burn and OPEX
Quite simply as we all know the difference between the cash in and cash out is your burn rate. If you need to reduce your cash burn, then do it fast. We will all be implementing travel bans etc so those cost reductions will happen naturally. If people are working from home, try and sort something out with your rent to have it reduced or stopped. If you need to cut staff, then try and do it all at once – you don’t want people coming in each day worried, those that are left need to feel safe and positive – they will not feel that if a coworker is getting retrenched every second week (or day). You need to structure your business for the new reality, do not hang on to the past – it’s not your fault and you haven’t failed anyone. Alternatives to cutting staff include reducing all staff salaries, cutting incentive payments (especially for executives – show some good leadership and cut your own and other executive salary and incentives harder than the rest of the staff, it is common to cut exec incentives in full and salaries by as much as 30-40%), don’t forget that an employee’s leave will be paid out if you retrench them so also look at enforced leave (especially leave without pay) or reduced hours for staff in order to keep the team together. Also, remember that you’re going to get some good government assistance too, so factor that in.
Cash Incomes and Sales/Marketing
During an economic slowdown, for most businesses, it is harder to raise capital and it’s also harder to generate sales, however some businesses will flourish in hard economic times.
In summary – your market no matter which side of it you are on has changed so your business needs to change with it.
The key on the revenue side (when you have economic slowdown or any other event which produces significant changes to the market) is that it becomes necessary to realign how you are selling your products and potentially which market segments you are selling them to. In the situation that we are in at the moment with COVID-19, we know there are a lot of home workers, pressure on the healthcare system, certain government departments are going to spend lots more and there will be boosts to many online businesses etc.
Step 1. Look at who is going to be busier or benefit from this new market – if they are potential clients for you, then target them.
You should also look at how buying processes and decisions change – again this is predictable. There will be less face to face meetings and more virtual. Adapt to online and virtual sales. For many smaller/high growth businesses this is fantastic as you won’t have to compete face to face on sales for the time being. One clever tactic is to organise a “virtual tour” for one of your rarer people– believe me it works, for example, “our CEO will be conducting Zoom meetings with clients in San Francisco this week, so I’m reaching out to see if I can schedule some time before he moves on to London next week”.
As the remote workforce is on the rise it is crucial to stay connected to your business community to enable your growth. Business incubators such as the Gold Coast Innovation Hub are now offering virtual membership options; facilitating continued connections, collaborations, grow, investment opportunities and expansion into global markets.
Step 2. Adapt your sales strategies to the new manner in which your potential clients are working.
The other part of the buying process which always changes during an economic slowdown is that more businesses buy things that reduce their costs and less businesses buy things that increase their productivity – look at your potential clients, if they are a net beneficiary in the new market they will likely keep investing in growth – most will be losers (that’s what the slowdown is – net losers) so most of them will be looking to reduce costs. The “losers” don’t actually stop spending, they are happy to spend on products which help streamline their costs and assist in managing their pain. A lot of products have multiple benefits (I’m sure yours do) and you can reproductise and remarket your products so that they realign with new decision making – especially cost-cutting decisions which are widespread during a significant economic slowdown. In the case of this particular slowdown, there are obvious changes – nobody is travelling, more people are working from home, businesses cutting costs so it’s about realigning and pivoting your marketing and productisation messages, and potentially making some tweaks to your products, but remember, we will get out of the economic slowdown so you are likely to want to focus on your marketing and sales to align with the shift in the buyer’s mindset than completely changing your products.
Step 3. Adapt your productisation and your sales and marketing messages to align with the new market.
Channels to market change with new markets also. Look at your resellers or channels to market, in this new market if they rely on face to face sales or mass gatherings at events, then likely they are no longer good channels – if they work mostly in sectors that are being ravaged (e.g. travel) then they may no longer be a good channel – move your sales to channels that make sense to the new market.
Step 4. Secure your current sales channels/sales partners if necessary or move your sales channels and partners to those that align with the new market.
Let’s look at a simple example that everyone can relate to (and specifically steer around a tech business) – a bicycle (and please excuse lots of assumptions below – you should do market testing when repositioning anything). You’re selling bikes and you’re selling them mostly through your shop and bike clubs. You’re selling awesome bikes, which are light in weight, strong and fast and that’s your main pitch. Your whole market just changed. Bike club memberships are going to drop, as will activity at the clubs – they aren’t the right channel anymore. There is also going to be less foot traffic in the store so you may need to close that or maybe it can survive or shrink – watch and act fast if you need to. You will likely want to be pushing more of your sales through online, social media and referrals. Bike ownership is probably not going to tank – in fact, it is quite possible it will rise as more people work from home and want to take a break and get out on a bike, and as more people look for socially isolated exercise rather than gyms. The benefits of the bike may well now also be that you can use your bike and stay off public transport in order to avoid the virus. Your whole pitch changes. Looking at your product set within your bike range – if you’re selling on socially isolated exercise and avoidance of public transport, it may well be that there is not enough extra benefit of a high-end bike over a low-end bike. The benefits of high-end bikes may now become secondary marketing items (they don’t go away; they just get pushed back). Sales of products like rollers (which allow you to ride your bike indoor at home for exercise rather than go to the gym) may increase and perhaps could be packaged with a bike in a new productisation effort if you expect to see an increase in purchases of home gym equipment including exercise bikes.
I’m sure you get the idea – your market is probably dead, but you are not – you are simply in a new market.
These are unprecedented times with COVID-19, we know there are a lot of teleworkers, pressure on the healthcare system, certain government departments are going to be under pressure to boosts online businesses and they will need our expertise to do this.
Every business will need to change, Opmantek want to help our community to optimise their outcomes; this is where access to network management support is critical so that Australians can stay better connected.
As a final note – financially at this time – re-do your forecast, especially your cash flow forecast. The economy recovers slower than the virus – look at 12 months to start with. You need to step back just like you would if you were starting a new company or a new division launching into a new market, look at how the market is reacting and adapt fast. Those that are familiar with agile project management within the software development world – use similar methods in your financials too –be very conscious that your ability to plan twelve months is now a lot lower than it used to be and you need to undertake agile planning and forecasting.
This will be a time of continual change however we do know that these things will be a constant.