Many small-business owners are feeling very nervous about the spread of COVID-19. Leading economists and banks are now predicting that a recession is inevitable. We are witnessing unprecedented volatility in the stock market, and panic behaviour in the general public.
Among the fear and panic, there is still hope. It will most certainly not be business as usual, but small businesses that are willing to adapt can open up new opportunities during these difficult times. In fact, many of the iconic companies in our society were formed during periods of recession – these include General Electric (1890), IBM (1896), General Motors (1908), Disney (1923) and Microsoft (1975) to name just a few.
According to human nature, during periods of economic prosperity, we become complacent. We tolerate products and services that are “good enough” while our businesses are profitable. Few are prepared to make the mental and emotional effort to seek out superior solutions. This phenomenon is known as satisfycing – settling on the first course of action that will achieve a particular goal. Innovation can even be stifled during these periods, with customers lacking a sense of urgency to drive a change from the status quo.
In times of turmoil such as many experts are anticipating, this dynamic will change. Particularly for business-to-business, the inefficiencies in the status quo may prove fatal to many small businesses. This is true also for consumers, who with limited disposable income must prioritise spending and forego luxuries that they had previously expected, but in reality, provided little utility. An essential element for realising change is a sense of urgency, as identified by Harvard Business School Professor John Kotter. This element is provided in spades during periods of economic uncertainty.
In their book Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne present the concept of the strategy canvas. It lays out a framework for creating a leap in value to customers by eliminating factors that contribute to cost but create little utility to customers while focussing on those factors that are of most value to your customers.
In prosperous times your customers may expect personal service, offices in expensive inner-city locations, investment in advertising and entertaining and a raft of other expenses that in reality do little to increase value to them. These expectations are based mostly on tradition. These additional costs while transferred to the customer, remain hidden during periods of prosperity. As your customer’s ability to pay drops, these hidden costs can become unbearable, however. This leaves them with two options; (1) stop purchasing or (2) be open to re-evaluating their expectations, and accept elimination of high-cost, low-value features.
Use the Blue Ocean strategy canvas to map out the factors that your industry competes on, plus any factors you identify that your customers value, but are generally overlooked by competitors. From this basis, your next step is to understand what factors your customers truly derive value from. By eliminating or reducing the factors that are of low value and focusing those of high value you can provide the best value for your customers while improving your own profitability.
There is little doubt that the months ahead will be challenging for small-business owners. This is not a time for waiting idly hoping for the best and doubling down on your existing business model. Change in your business environment requires change in the value you provide to your customers. The approach presented in the strategy canvas can at the same time improve your business, help your customers through a difficult period and build loyalty that will endure well beyond the dark times ahead.
James Baker, Director, Ars Imperatoria Consulting