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Post COVID — will it be a repeat of the Great Recession?
By Stuart Morley
A Harvard Business Review article by Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen says that only 9% of public companies came out of the Great Recession stronger than competitors. This 2010 article, Roaring Out of Recession, also notes that 17% companies failed, some went bankrupt, others were acquired, and yet more went private. The study considered the various cost-cutting and expansion measures companies took to stay competitive. Having no comparable studies for private companies, we can only assume that the situation was similar.
In some economic circles, it’s predicted that the post-pandemic recovery will be comparable to what happened after the Great Recession. So do you prepare for it?
1. Signals
All good business strategy is based on signals owners pick up from customers, employees, and the market. Prior to COVID, the mantra was “efficiency.” Companies achieved this by creating lean organizations and delivering products just in time to control costs and minimize waste while staying ahead of global competition.
The pandemic destroyed this signal. Unlike in the Great Recession, governments forced businesses into lockdowns during COVID causing supply interruptions. The mantra of efficiency was quickly replaced with a signal of “resilience” to overcome setbacks. Actions taken to build resilience led to cost increases, as businesses built in more back-up systems. The challenge was to avoid fragility or wastefulness. Going forward, entrepreneurs need to build safety systems into their strategy when redesigning the business.
Another signal was that online businesses enjoyed a sudden surge in demand. Within a year after COVID, about 40% of the workforce in Canada was working from home and many will continue to enjoy blended work options even after COVID. Commercial real estate in big cities hit a record low with vacant office spaces turning downtowns into ghost towns. Within a month, Zoom meetings worldwide jumped from 10 million meetings a day to over 200 million daily. A year later, that number is at 350 million meetings every day. Even visits to the doctor have become digital.
However, businesses that relied on face-to-face contact with customers, like the tourism and food and beverage sector, were hit hard. Unlike in the Great Recession, these and many other types of businesses were able to secure financial support from the government. Grants and loans, however, resulted in a rise in short-term demand, which made the supply shortages even worse.
When we look at the top 10% of clients we deal with, we see them tackling COVID in highly innovative ways. These progressive clients pay attention to signals they receive from customers and employees as they search for novel solutions to problems as soon as they arise. They pay less attention to the media headlines, economists, and experts, who try to predict the future. For example, progressive restaurant owners moved to offer not only takeout options, but also delivery services. Some even started selling groceries online to meet diverse customer needs. With social distancing in effect, business owners brought back 50% of staff to offices, decreasing their commercial real estate footprint. Other progressive entrepreneurs went 100% digital and sublet commercial office space.
2. Lookback periods
Our progressive clients used longer lookback periods, studying customer trends not only over the last few months but also last few years. Some went even as far back as the Great Recession to get better insight into how customer and employee signals could provide insights into future trends. Our most progressive clients say that the more extended the lookback period the less noise and confusion they experience in signals.
3. Resources
Traditionally, businesses relied on a steady stream of cashflow from customers. But shutdowns disrupted operations drastically, affecting the flow of money. Many businesses did not have a large enough financial cushion to adapt to such radical change and move to alternate methods of business.
All of our progressive clients had ready lines of credit and emergency funds. They also applied and received whatever government grants and loans were available to create reserves. That money was invested in buying equipment and supplies needed to adapt to the crisis.
4. Talent
Many businesses lost staff during lockdowns when employees had to stay at home to focus on childcare. Some employees didn’t return because they felt better off taking government employment benefits.
Our progressive clients streamlined their operations to continue with fewer employees. Others aggressively recruited talent to grow the e-commerce side of their business. Our successful clients created an employee resource pool to continue functioning, even when employees took time off for family care.
5. Contacts
During COVID, many customers changed their buying behaviours, so some businesses had to rebuild revenues with new customers. A number of businesses packed it in because the cost of operating went way up. Many of our most progressive clients repositioned their products and services at higher prices to cope with the increased cost of doing business during the pandemic.
6. After shocks
Many businesses hope to come out of COVID and occupy the same offices, stores, hire back the same employees, and welcome the same customers to carry on in the same old way. However, progressive entrepreneurs realize there will be “aftershocks” from lockdowns requiring future adaptation. Other new challenges, including inflation, evictions, and insolvency scares, that will also ripple through the community. To be perpetually prepared, our most progressive clients review their strategic business direction quarterly instead of yearly.
7. Speed
For traditional businesses, sales slowed down during the initial lockdowns. Our most progressive clients used technology to speed up business. However, this meant investing in new systems and new technology to ensure a smooth transition to continuous sales.
8. Government
On a good day, most small businesses avoid dealing directly with government. To avoid extensive paperwork for loans and grants, many continued doing business, ignoring convoluted COVID rules and regulations, hoping they would not be caught and fined. The most progressive entrepreneurs have used accountants to file their taxes, help negotiate bank financing, and deal with CRA queries. Using advisors helped make the road to government money a lot smoother. Even if they did not have an immediate need, the financial help built a reserve in anticipation of future surprises.
9. Unexpected attacks
E-commerce makes it easier to do business during a pandemic, but it also exposes business strategies and tactics to competitors. Online platforms also make businesses vulnerable to cyber attacks. Our best clients have invested heavily in latest cybersecurity protection and are also using marketing strategies to watch competition.
Coming out of COVID, we need optimists not pessimists, who typically freeze when they hear bad news. Our progressive clients are more than optimists — they ignore the negative media and focus on real issues facing customers and employees. Doing this helps them act quickly to address concerns as they arise. Our best clients understand that business is conducted at the speed of trust. They are masters at building and keeping the trust of stakeholders. Hence, they use this advantage of speed to adapt and come out of tough times well ahead of competitors.