There’s no doubt that the fallout from COVID-19 is having a major impact on markets globally and a substantial period of recession seems inevitable. It’s a prospect that terrifies leaders of businesses large and small, but it doesn’t have to spell disaster, writes Hamza Mudassir for Entrepreneur.
While some organisations will inevitably fail, and unemployment and bankruptcy rates will rise, research by the Kauffman Foundation shows that economic contractions are not necessarily a long-term factor in the progress of a business.
Mudassir, a business strategist, organisational change consultant and co-founder of Platypodes, cites US giants like Apple, Microsoft, Morgan Stanley, Walt Disney and Krispy Kreme as companies that blossomed out of recession.
WHAT’S THE SECRET?
Responding to clients’ calls for guidance to not only weather the COVID-19 storm but also emerge from it well-prepared for expansion, Mudassir backed up his own theories by studying how scores of businesses empowered themselves during the 2008 recession. He also spoke to contemporary entrepreneurs about their positive handling of the current crisis.
Here are his top four observations, based on his research and extensive experience:
1) Each business needs a customised strategy. Just as every company will face a different level of downturn during recession, there is no universal solution. Some businesses will lose sales and others will see steep gains, depending on the goods or services they are offering.
Small doesn’t necessarily mean more vulnerable – it could be an advantage at a time when being able to adjust quickly to change is a business’s biggest asset.
Review how the crisis is changing the demands of your key customers and affecting the resilience of your suppliers. Bearing this in mind, could you formulate new strategies to make your business more competitive? An external mentor or adviser could help with this.
2) Think beyond cost-cutting and lay-offs. “Ironically, in research done on recessions by HBR, it becomes quite clear that following a single-minded, ‘cost cut only’ strategy is a recipe for disaster,”says Mudassir.
Post recession, it’s often assumed it will be simple to regain the same level of “talent, technology, and opportunity” but this is rarely achieved. Use the hiatus to prepare for a healthy leap in quality and productivity to challenge competitors. You may still have to lose some workers, but almost certainly not as many.
Ask yourself:
- How could you provide an improved version of what your customer wants, more quickly and more cheaply?
- Are there products or services that could be sacrificed, or new technology, equipment or training that could help make that happen swiftly?
3) Beware acquiring cheap assets. The recession will bring some apparent bargains to the property and business market, but be cautious. All that glitters is not gold, particularly at this time.
A retailer could be tempted to buy up competitively priced stores that are currently losing their market to online outlets, but Musassir says this move is almost guaranteed to hamper your progress later on.
Instead, look at developing your own online capability by investing in technology and the team members who can advance it for you.
4) Up your research, development and marketing budgets. Be highly selective in how you increase your spending in these areas. Don’t be tempted to throw more money in the same old places.
Direct appropriate R&D resources towards areas where you can see potential for future growth and good scope for post-recession competitive edge.
It’s not the time to seek out superior components, but could you investigate materials or methods that would lead to a product that is cheaper to make, but more appealing?
In the case of marketing, invest in pushing products or services that answer customers’ dilemmas.
Mudassir cites an example from the auto industry during the 2009 recession, when Hyundai used ingenious marketing to introduce the Genesis as the epitome of “affordable luxury”. This was something the “other car manufacturers simply could not follow at that time. Hyundai won the prestigious North American Car of the year award in 2009 and gained record market share and increased shipments in the face of an otherwise shrinking automotive market.”
THE RIGHT MOMENT FOR ACTION
Many businesses are in jeopardy and many will not survive the fallout from COVID-19.
It’s vital for leaders to seize the entrepreneurial spirit and the opportunity to forge ahead with positive changes in the quest for successful survival.
A decision made now to investigate and invest in ways to improve and innovate – and to take some creative risks – stands a good chance of paying dividends down the line.