The coronavirus pandemic has been what some have referred to as the Black Swan event of the decade. (Hopefully we only have one). Many firms have been sharing their what-to-do lists to keep you and your family safe. Since we are not medical experts, but financial and business experts instead, we would like to offer a few thoughts and suggested tips for adapting to change in the business environment.
First and foremost: the importance of adapting to change in business cannot be understated. Business leaders need to be agile and stay optimistic. Even during these uncertain times, we have encouraged our partners to maintain a positive mindset – something that is hard to do when so many news outlets are only talking about the negatives. Amazing things can happen during these events too, and some of the most successful companies have emerged during times of great change.
Google and PayPal persevered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the global financial crisis. When these events happen, great companies find ways through and are stronger on the other side.
During the pandemic, we have consulted over a dozen early- and late-stage CEOs about their plans and what they should be thinking about next. We suggest you start questioning all the normal assumptions about your business by applying the following seven tips.
7 Tips for Adapting to Change in the Business Environment
1. Increase Your Level of Outreach to Your Stakeholders
In times of change, the frequency and quality of your communication to the company’s stakeholders is an item many CEOs ignore. Many simply do what their attorneys or PR firms advise and follow the normal cadence.
Companies and their leaders should reconsider the normal frequency and consider a 10X approach. Reaching out to all stakeholders is vital:
- Pull your leadership team together for a 15-minute daily standing meeting where you cover each team member’s number one priority and the very top issues of the day.
- Reach out to all of your clients weekly at minimum, and depending on the service you perform potentially more frequently.
- Communicate with your key vendors to ensure consistent delivery, or to discuss any potential changes that you may need to share or be made aware of.
- Update your investors. This is critical. Discuss with them how you are changing your tactics and what you are doing to protect and potentially expand the company during this time. Keeping your stakeholders close, calm, and informed builds a coalition of people who will work with you during any significant change in the business environment.
2. Assess Your Cash Needs and Levels
Do you really have the runway you think? We would bet that you don’t, especially after having seen several of our clients lose accounts during the pandemic. Knee-jerk reactions are usually to assume all your customers will pay like usual or to immediately cut costs to preserve cash. Instead of knee-jerk, we recommend a measured approach:
- Reach out to your clients, and if practical, evaluate each client and the effect the change will have on them.
- Proactively ask your clients how you can help them more, and use this as an opportunity to build stronger relationships.
- Recalculate your cash runway. Do a sensitivity analysis around customer retention and payment timelines.
3. Adjust Your Expectations for Your New Customer Sales Cycle
When a major change event happens, companies can become like deer in the headlights. Everything stops or slows down. We recommend assuming that the new customer sales cycle will take longer, and that budgets will freeze or vanish instantly.
- Move to close approved sales quickly, and watch the sales pipeline intensely.
- Take a deep look at your sales and marketing language, and adjust it for what will become the new and/or temporary normal. An example is to emphasize the safety of the purchase or the cost savings.
4. Re-Evaluate Expansion Projects and/or Capital Spend
Investments in the future create the company of the future. But unless you have financial independence, you must determine if the projects are sensible in uncertain times. We recommend that you:
- Consider scaling expansion projects and/or capital spend back or lengthening the timelines. By slowing some higher risk projects, you protect the company in the short run by preserving cash while at the same time staying in the game over the longer term.
5. Think About Fundraising
The terms of a raise, and the fundraising efforts themselves, can change or dry up overnight. If you are in the process of fundraising:
- Change your view, consider alternative forms of funding, and brace for wholly different terms. First, seek bridge financing, and then look into SBA loans and bank financing (though in most cases, bank financing can be a longshot).
- Put equity raises off until later. If you can avoid raising money or reduce the amount needed, you will be more likely to succeed, and at the least, avoid poor terms on the money raised.
- Remember that you are scrappier than you give yourself credit for being. At the very least, fundraising will likely take longer than you think, so plan for it.
If you are not currently raising money:
- Don’t ignore your current investors or bankers. Reach out to them, and give them more frequent updates. Pull them closer to you and build more trust. They will be the first investors you talk to if you do end up needing short-term financing.
6. Shift Your Business Strategy
During a crisis event, there will be a fundamental change in view. Goods and services sought yesterday will be abandoned tomorrow. The get-big-fast or blitzscale efforts may go away entirely. We recommend that you consider your current strengths:
- Use being cash safe to your advantage, especially if you have cash and your competitors are cash poor.
- Press the advantage of saving companies money immediately, if that is your key value proposition.
- Look at your competitors. Are you in a stronger position than they are? Consider acquiring or merging with them. Be bold!
- Leverage this opportunity to “steal” your competitors’ customers. Being bold when others are fleeing has worked for many companies in the past. As Warren Buffet said, “Be fearful when others are greedy and greedy when others are fearful.”
7. Get in Cash-Conservation Mode
If your company was caught in a bad position and an unplanned change is making things worse, don’t give up. You must take action right away to determine your lifeboat strategy. Which areas are performing well, and which are not? Let the areas not performing go. This includes business units, product lines, customers, and even employees. To reduce costs, consider the following:
- Contact your vendors. Ask for relaxed payment terms or even negotiate lower prices.
- Call lenders and seek extensions or better terms on debt. You will realize you are their customer, and they want to retain you as a client.
- Review funds held for marketing and reduce spending by an appropriate percentage. Re-evaluate your customer lifetime value, as this will shrink, and change the amount you should spend on acquiring new clients.
- Consider payroll deferral or reductions of C-suite executives and/or vice presidents. And, to reduce the burden on these people who will probably be working hard during this time, consider swapping options for cash bonuses.
- Contemplate reducing or eliminating bonuses, and replacing them with options.
- Reduce or eliminate nonessential development.
- Cut nonessential new program project spend.
- Remember to talk to investors and prepare them for additional investment. Tell them about the measures the company is taking to weather the change.
- Draw down lines of credit and put the money in the bank to use later. A few points of interest may be worth it to you.
- Discuss companywide payroll reductions of 5% to 10% (or more) so that everyone can remain employed in the short run.
The Importance of Adapting to Change in Business
Slow down, evaluate and execute. We have seen panicked CEOs burn the company down by overreacting to Black Swan events by cutting fat, muscle, and bone. We have seen CEOs’ inaction ruin companies that could have been saved. A time of change is a time for action. Pull your employees, vendors, customers, and investors in close, over communicate, test all of your assumptions, be bold where you can, and conservative where you must.
Businesses that deliver superior value to their customers thrive, even in unforeseen circumstances. Calm leadership and a focus on business fundamentals can help you make every dollar count.
For more tips on adapting to change in the business environment, give us a call at 502.208.2125 or email us at firstname.lastname@example.org today.