Samuel Rutherford, a Scottish pastor in the 17th century, said when he was cast into the cellars of affliction, he remembered that the great King always kept his wine there.
It does feel like many of us have been cast into cellars during the Pandemic. Thinking in terms of Pre-Coronavirus and Post-Coronavirus has become routine. How were things done, decisions made, and circumstances different before and now?
As we return to full-scale business, have you found some good wine?
Covid-19 has devastated families and severely damaged businesses. Many have pivoted and found their wine in these changing days. It still fascinates me to think of people paying hairstylists for a video call to coach them through cutting their hair.
Another physical to virtual pivot comes from Chicago’s Second City, improvising from a 60-year-old comedy theater to become a virtual show moving beyond the physical capacity of less than 300 audience members to 1,000’s per viewing, today. They have expanded their offerings to deliver business education and humorous workplace content. Read more about it here.
Small companies and especially start-ups, generally have more flexibility to alter their business model and respond. Understanding what has changed in the customers’ view of the world takes intentional and persistent dedication.
Roaring Out of Recession
Studies have shown that emerging from a season of economic disasters such as a pandemic, recession, or depression can be a gold rush for some companies, and others never open their doors again.
In a 2010 HBR article, the authors evaluated company responses to the prior three global recessions and their longer-term results. The high-level conclusion is that progressive companies that simultaneously trim necessary costs and manage risk by investing in other areas outperform those that merely cut costs.
“Our findings are stark and startling. Seventeen percent of the companies in our study didn’t survive a recession: They went bankrupt, were acquired, or became private. The survivors were painfully slow to recover from the battering. About 80% of them had not yet regained their prerecession growth rates for sales and profits three years after a recession; in fact, 40% of them hadn’t even returned to their absolute prerecession sales and profits levels by the end of that time period. Only a small number of companies—approximately 9% of our sample—flourished after a slowdown, doing better on key financial parameters than they had before it and outperforming rivals in their industry by at least 10% in terms of sales and profits growth.”
How should you consider the best areas to invest in or tighten up now?
Below are six recommendations, from the startup world, that can complement necessary cost-cutting.
Startups live every day as if a Pandemic has just receded. Beginning with an idea or capability, they need to validate it. They want to gain a deep understanding of how customers think, feel, and address the job at hand related to their offer. Customer insight takes open-ended conversations, observations, and iterative prototypes until features, design, packaging, and pricing are determined.
Large companies can bring years of sales, product evolution, and longstanding customer relationships. Often, they rest on these pillars.
Since the pandemic began, we each have our unique perspective on how the world has changed, how we think and act differently, and if we think about it long enough, we have a why. Some of the why’s are emotional, and some are practical, based on personal circumstances and how the virus affected us.
If each company does not consider what has changed for the customer: consumer, small business, or enterprise, they will not know for perhaps months if changed views influence customer buying and usage habits and preferences.
These may have a significant impact on the company’s revenue and profitability.
Startup Lessons for Today
Startups offer at least six lessons for responding to the changing marketplace:
- Validate your products and the market need. Or at least re-validate. Normally, enterprise customer research focuses on how the product performs or how the service channels work.
But how well do we understand what has changed today from 8 weeks ago? Some questions to consider:
- What has changed in your customer’s world?
- How have your customers’ customers changed (if B2B)?
- Are there alternate products or quantities they need going forward?
- How have your target customer personas changed?
- What are our competitors doing we should be aware of?
- Drive to a strong product-user fit, passionately. Working tirelessly to understand why customers buy, how they use, and how existing products or services could be improved is the foundation for an entrepreneurial team.
Larger companies are often lost in meetings, unwritten rules of behavior, and non-value add bureaucratic processes eating up time and energy. Infusing, not only customer-facing teams but those supporting them with this passion may generate a better solution in the new world. Thinking and acting with laser-focus from the customer’s viewpoint is far different than a 9-5 job function for a big company.
- Ensure the right business model is in place. Startups not only change their product based on customer feedback but are constantly adjusting their business model to simplify and drive adoption. Changes to pricing, contract duration, delivery frequency, market channels, and many other pivots are evaluated almost daily. This type of agility may be required in many markets once updated customer needs are understood.
- Compare the changing market to your company’s current core competencies. Leading companies deliver well to their markets, usually optimizing capabilities. Startups often see a market opportunity and put in place capabilities to serve the need. When needs change, a deep review of what you do well and struggle with should be undertaken to ensure you don’t pivot to something you can’t deliver or better yet capitalize on a capability you can accentuate for competitive advantage.
- Move with urgency. For startups, time equals money until a product or company is cash-flow positive. Every decision is based on the burn rate and how long you have the cash to support the ongoing costs. When returning from “shelter in place,” moving quickly might be the difference between new markets gained, or former markets lost to an agile competitor. Of course, there is a need to balance reputational damage for missteps for large enterprises with a strong reputation.
- Adjust to the best go-to-market model. Startups plan, re-plan, and adjust the way they promote, market, sell, and service their customers, always seeking to get it right at a reasonable cost. With changes in customer needs or even expectations, the way you go to market may need to change. Paul Fornier at Thomas in his article offered this insight:
“If you are looking for new customers in the same places you were looking before, they may no longer exist there. Now is the time to seek out opportunities in channels and categories you never thought possible!
Customers who, in the past, said “no” to your outreach may now be a "yes" opportunity. Pick up the phone and call them personally.... You might be very surprised at the response.”
Big companies have benefited from well-known brands, established channels, long-term customers, and deep cash reserves. However, if they do not deeply understand what has changed in their customers’ worlds and adjust their business, customers may go elsewhere and leave them far behind.
Embracing steps such as those outlined above after the pandemic, may not only help your company survive but thrive in the economic rebound and withstand future crises that might arise. We are all in start-up mode today and every day.