The rules of business will change – here’s what you can do about it

The rules of business will change – here’s what you can do about it

How do we cope with our new reality, and when will it change back to something we are more used to? How can we plan? There are positives to everything, if you know where to look. This is going to sound harsh and you may not be comfortable doing this stuff, but we are in a harsh situation and it may be your only course of action if your business is to get through this. There are two sets of problems and behaviours we need to be aware of.

Absolute or relative problems

Most issues we have ever faced are relative. A dip in some areas, which affect us, but not all at once. Currently, we are in an absolute phase, when everyone is affected to some extent or other. Activity levels have dropped, not just your sector.

When we deal with relative issues, it is up to us to manage to claw our way back to what was parity. Others are still carrying on as though nothing had happened.

Our response to an absolute dip is to maintain what we can at lower levels. By that we mean finding ways of keeping everything going in our value chain. We need our customers, suppliers, team and other stakeholders to still be there, albeit at this new lower activity level. We need to keep everything going. The essence of it is that we are all in it together.

When the world starts to come out of this issue, it won’t all change back at the same rate or at the same time. There will be false dawns, faster progress in some areas and little or no change in others. Winners and losers will start to emerge. We won’t all be in it together – we will have changed into a relative environment. It will get competitive.

 

Transactions or relationships

We want our value chains to be about relationships. That binds us all together better and produces better results for us. Firstly, amongst our customers, but also our suppliers and team. Whilst we all want to build relationships, the world has had a reset.

You will have transactional encounters in some cases. This is where it's all about price, quantity and delivery. There is little opportunity to build a relationship or add any more value. You can probably already identify the transactional people you deal with now. Being transactional is the default position for many businesses in a crisis.  

When we emerge from this issue, relative problems become the norm, and it will get more competitive. Expect more of this behaviour.

 

Economic impact

In the UK, we expect a 13% drop in GDP in the year. For context, the 2008/9 crash produced half that. This is going to be very steep and fast, although the pundits expect the UK to come out of it within a year. There are similar scenarios for most developed nations. Even so, expect 20-30% of small businesses to fail within the next 12months, most early on. And unemployment to rise by 2m.

What you can do to shield yourself

Post virus, there will be winners and losers. Plan now which one you want to be.

Defensive tactics

Start with 3 lots of triage for your customers and suppliers.

     1. Divide customers into - Can’t Pay and Won’t Pay.

     2. Rank customers and suppliers T(ransactional) or R(elationship).

     3. Rank customers 1-5 for risk of failure

Your 1-5 risk ranking will allow you to allocate resources where it will do most good. This is by supporting customers and suppliers who you think will last the course. Not all will be ‘R’s though, so make sure that, with each of them, you play by their rules. Remember that 20-30% of small businesses are expected to fail and no doubt a lot of large ones. Expect to lose customers and suppliers. I know it sounds harsh but don’t let their failure drag you down.

Expect a lot of your ‘T’s to shop around more. Be prepared to trim prices or lose customers. If some are high risk, you may want to let them leave anyway. You don’t want them failing when they are a customer of yours, owing you money.

You may well find that Won’t Pay customers are ‘T’s. Don’t waste time appealing to their better natures. If they can afford to pay you but won’t, sue them. If they insist on using their own rules, play by them or you will lose out. They won’t take it personally.

Assume the worst, plan for the best. So, go through the skill sets and capacity in the team you currently have. Are there overlaps or gaps that you can cut if there is a drop in activity? Can you turn a fixed cost like a salary into a variable cost by outsourcing some work? We are getting enquiries to outsource bookkeeping and payroll to us. This not only turns it into a variable cost but usually produces better information. Similarly, do you provide a service which you can offer as a variable cost to potential customers?

Support your community whatever it looks like – be that where you live and work or your business community. If you can make an offer that helps your value chain or a wider one, make that offer if there’s little or no cost to you. There are some fantastic examples out there.

Do all you can to support your customers – not the ones you think might fail, or the T’s. They won’t appreciate it. Make sure your community knows about it – you want them to call you first when life gets back to some sort of normality.

Offensive tactics

Triage your competitors. For those you think might be at risk, try to ensure that when they fail, their customers come to you. At the moment, it’s about maintaining capacity in your business, paying the overheads and getting some margin. Not the same margin you got before, but your competitors ‘T’s will be more receptive to offers. Once they have experienced and trusted you, you can develop relationships. Businesses that survive will have more available market share.

Some of your current team may be transactional i.e. not engaged with your business. More people will be coming onto the job market. It might be your chance to upskill your team.

Leadership shifts

You may wince at the directness of some of this – it isn’t how you want to be, and it may not sit well with your values. We agree. It’s not us either. We don’t want to have to give this advice. Leadership can’t ever afford rose tinted spectacles and action is better than feeling helpless. You won’t be able to live by your values if your business has ceased. You don’t need to be aggressive, but you do need to be attuned to subtle changes of how the behaviour of your customers and suppliers might be changing, so you can protect your business and your team. It’s happened before in 2008, 1999 and 1987. There’s a regression to survival mode. Right now, it’s about staying in the game and if these are the rules, you have to play by them. Later, you can change back. That’s not to say you have to change completely. Be your true self. Help where you can, be kind and supportive where its appreciated.

If you do nothing and hope for the best, you may well survive, but certainly you’ll be weaker. Or you can come out of this stronger. It’s up to you. Don’t feel helpless – take action.

If you want more help, our new tool walks you through all the Government help, what you can do personally, and provides an action plan. It only takes an hour or so, so call us on 01202 520010 or email office@hixsons.co.uk, and make sure you keep going!

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