With the average age of a UK company coming in at just over eight years old, for many entrepreneurs the coronavirus pandemic will have been the first crisis they have led their business through. At ECI we know from over 40 years of partnering with management teams, that you learn a lot more during the hard times than the good, and that your key decisions can make all the difference to surviving through a crisis.
So, we’ve taken a look back, from the dot.com crash to the 2008 financial crisis, and consider the lessons we’ve learned. And we’ve also asked Julian Bambridge, who managed his premium pet food business, MPM, through the wake of the 2008 recession, to see what he learned during that time and how it’s helping him through the pandemic crisis today.
1. Identify your priorities, and keep to them
Britain’s lockdown in March coincided with the 20th anniversary of the dot com crash, which devastated many internet companies. Where did they go wrong? Tech CEOs ran their companies on a ‘Get Big Fast’ strategy looking to prioritise sales and market share over profits, and burning up capital in the process. When the crisis hit, it was hard to work out how to protect the value of the companies and keep them afloat. Today’s CEOs, thankfully, have a much more defined strategy and understanding of their underlying market and what is driving value.
MPM CEO, Julian Bambridge, says these are the areas leaders should identify and act on when managing through a crisis. “Find your four things that are driving decision making. At MPM we set up daily meetings to go through them and for us firstly it was people – do we have everything in place to support our teams? Secondly, we look at sales – what is happening across the different regions and what do they need? Then we look at supply chain, the kinks and what we need to work on. And lastly, we look at cash flow. It is the fundamental principle as to whether you survive this or not.”
Today’s CEOs benefit from a sophisticated toolkit that can help to deliver that focus. Management teams can and should leverage the power of data tools to help decide priorities, solve problems and make decisions quickly. ECI has helped many portfolio companies to harness data analytics in order to sustain their growth even during hard times, for example using machine learning to optimise where companies are prioritising their time.
2. Act quickly…but be pragmatic
Research by consultancy group Bain shows that companies that acted fast and reduced their costs at the first sign of recession in 2008 typically emerged from the downturn with higher profits than those who did so at a later point. At the same time, a study by the Harvard Business Review shows that firms that cut costs too fast and too deep during recession were least likely to flourish once the economy recovered.
Julian says, “The recession taught us that you should always deal with things early on. Changing suppliers, getting the right team… whatever it is, you can’t hold on to legacy issues. My advice is always deal with those issues straight away – it never gets better. But we also really learned the value of cash during the last recession, as it was very scarce. It drives a mentality of knowing what decisions to make, where to invest and what levers to pull. We still managed to invest throughout the period, growing at 20-25%.”
The lesson is very clear: you need to act quickly but be pragmatic at the same time. Companies need to master the balance between managing costs to survive and investing for future growth. Again, AI and analytics can help you to harvest, assess and act on real-time data quickly: what customers to target, what cost centres to tackle, what investments to prioritise. Don’t count on your Q1 data- it’s ancient history and relates to a ‘pre-COVID era’ that may never return in the same way.
3. Let your values and culture shine
While cash and liquidity are crucial to helping your business survive in a crisis, this is also the time to make the most of your people, your culture and values; now is when they are all tested. As Julian says, “This is where your culture, and the time and effort that you put into your culture starts to pay out. If you’ve spent time and effort on driving that, you will have recruited people aligned to it, and in times like this they will understand what is needed from them, and won’t panic about it being different.”
You need to be transparent with your employees too. “We know how important it is to be honest with people about what is going on. Often companies don’t give people the credit they deserve, but we find that people respect it if you’re honest with them. It pays back when you explain why you’re doing something rather than what you’re doing.”
4. Understand the long-term value of short-term cuts
You may need to cut costs in the current crisis, but make sure you understand the long-term implications. For example, many brands cut marketing spend at the start of a crisis, but this decision needs to be understood in the context of long-term customer lifetime value. Many dot com businesses had to learn this the hard way as they believed they had long term customer loyalty that didn’t prove true. In 2001, advertising magazine Campaign reported that those companies that focused their advertising spend on building short-term awareness rather than long-term brand loyalty went out of business when they couldn’t sustain their marketing spend.
If cash is tight, be inventive about how you market your business: for instance many brands are offering free online alternatives during lockdown, diverting spend and helping them to win brand loyalty over the long term.
5. Innovate and grow
Whilst survival should be your short-term priority during a crisis, keep sight of your longer-term goals and be sure to seize opportunities. Amazon is a good case study for why you should continue to invest for future success even in times of crisis. The company invested through the dot com crash, setting up Amazon marketplace, and laying the foundations for its transformation from online bookseller to the e-commerce colossus it is today. It’s an exceptional case but demonstrates why you need to focus on the long-term, at the same time as putting out fires in the short term. In 2010, ECI helped IoT business Wireless Logic to expand into France, Germany and Spain even amidst the Eurozone debt crisis. Today, we continue to support our portfolio companies overcome challenges and look for future opportunities throughout the crisis.