Thriving in Challenging Business Environments

In the face of a challenging business environment, many business owners feel a sense of uncertainty. It’s difficult for business leaders to make decisions that will ensure future profits and growth and retention of market share. However, there are certain strategies companies can use to help them succeed in this ever-changing landscape.

Here are some tips on how you can stay competitive and thrive in a challenging market:

What is Your Generic Recession Strategy?

Understand that every recession or challenging market is different and each has nuances that require an adaptive approach.  However, there is some commonality about the factors that will help you navigate it best.  Understand how susceptible you are likely to be to this recession, what your strategic brand strength is, and what your financial strength is. These answers shape your response as below.

Figure 1.  Generic Recession Strategy (adapted from Bain & Co)

In general terms, there are some actions to take.

Target Customers - Where to Play and How to Win

As a business owner, spend time to be clear on your business model and what it is designed to maximise, eg operational excellence, product leadership or bespoke customised service to enhance business performance.  Your business strategy needs to focus on your target customers - those with the most growth potential, those who are most profitable and most influential and tailor their product or service to them.  It is not a time to decrease your marketing efforts but might be time to try different marketing approaches.

Implement an Effective Customer Retention Strategy

Retaining your existing customer base by building highly loyal customers is essential for businesses seeking to survive a challenging market. An effective customer retention strategy involves empowering customers with an excellent online experience, gathering feedback from customers, creating personalized messaging campaigns and offering them unique rewards or incentives.  Ensure excellence of customer service across your business as this is the key driver of loyalty. Additionally, it’s important for business owners to recognize repeat customers and reward them for their loyalty to the brand.  A former colleague recently reminded me that business owners should also "Invest in your communications with customers. Don’t try and “do it tough” so that customers can’t see the struggles you have in delivering for them. Many would be surprised by how understanding and collaborative most customers will be if they know you have their interests at heart.”

Figure 2.  Customer Loyalty Drivers (Adamson & Dixon)

Be Visible Experts

Social media is one of the most powerful tools available when it comes to customer engagement. Platforms like Facebook and LinkedIn can reach huge audiences quickly and easily — which should make them key components of any business’s marketing strategy. Businesses should take advantage of social media by using content marketing techniques like providing value-added services or engaging followers through polls and interactive content such as videos or downloadable value add material. This allows your business to create relationships with potential customers while also gathering valuable feedback from current ones and positioning your business as a visible expert in the market.

Enhance Strategic Partnerships

Partnerships are often overlooked as a way of driving sales, but they can be immensely beneficial when leveraged effectively. Too often in New Zealand businesses are too focused on competing when they should perhaps look to collaborate.  Whether it involves partnering with a competitor to offer to develop a new tool or service, or promotions or working with influencers who share your brand message and drive people towards your product or service — strategic partnerships can be great assets in times of economic volatility. It helps increase exposure, tap into new markets and ultimately boost your bottom line — all without breaking the bank!  Your also want to maximise your business partner relationships to mutually support each other through the tougher times - having someone trusted to be able to call on for support emotionally.

Stay Informed and Be Situationally Aware

Continual competitor analysis of your current market should become second nature for any business looking to succeed in its industry during turbulent times. Knowing what strategies other companies have implemented — both successfully and unsuccessfully — gives you insight into market trends which might work best for your own situation: which target markets are being approached? What language is being used? Who is driving growth? Etc… All these questions will provide invaluable information which can be leveraged by your own organization going forward.  Who is extending the lead?  Who is going backwards and are there potential customers you can acquire?  Is there a saturated market? Where are the market opportunities? And, where do you sit in the equation?  Remember, it’s not the same for everyone and there are often growth opportunities in a shrinking market.

Adapt Quickly When Necessary

Remaining flexible throughout volatile market conditions is another key factor that contributes towards maintaining success amidst economic instability— meaning you must be quick on your feet if you want to capitalize on emerging opportunities before they become irrelevant. Be innovative and look for efficiencies to put more into the bottom line.  This means staying abreast of industry news so that you can spot trends early enough before they become commonplace; responding quickly when necessary rather than waiting weeks; and having confidence enough in yourself that you’ll make good decisions even when presented with unfamiliar results!  Experience from many CEOs who have been through this before is to act and make decisions early.  Conversely, at other times, don’t rush and make them emotively in haste into decisions you can’t come back from– this is a delicate dance.  Also, check that your decisions fit with your values.  If you need to right-size your business - do it with the mid-term plan in mind.  The current scenario won’t last forever, so ensure you retain the right capabilities, skills and knowledge to be able to surge out the other side.  The airline sector is a great example of where they recently cut to the bone, and as the international travel sector took off again - they appeared to have no muscle (they lost a lot of corporate knowledge) to support a re-scaled operation.  This leads me to the next point...

Get Advice

In tough times it is often easy to sucked into the current business battle and focus on the immediate challenge in front of you. It’s damn hard to be innovative, be creative or make good decisions when you are in what feels like survival mode. A Board of Directors, an Advisory Board, a Strategic Advisor or a management consultant is a critical mechanism to lift the business owners out of business as usual, to review the market conditions, and keep you focused on your business strategy to make the best decisions in the near term, with a view to the mid-term. If you already have a Board, make sure the skills on it still fit the changing strategic environment.  They are the rational heads that lift you out of the mire and help you explore ideas and bring perspectives. Rally them around you and leverage them.

Lead Your people

Your people are looking for assurance, empathy, and confidence that you have got this (even if you aren’t sure), and have a plan that you can tell them you are doing.  It might have a simple mantra of ‘play to our strengths’.  But communicate, communicate, communicate!

Cash is King!

Everyone must understand what core business is and how they drive sales to maximise cash flows and retain profit margins through their cash conversion cycle. Know where your costs lay and manage this with a fine toothcomb.  Financial planning is key to maintaining profit margins and developing cash reserves.  It might be time to pause on paying dividends and reinvesting in growth opportunities.  But make the tough decisions early instead of retaining a leaky ship that ends up sinking.  If a recession hits hard, it is a balance of reducing overheads by restructuring, while keeping enough staff to be able to surge when required and retain the corporate capability to ensure your future success.  These things don't last forever, so how do you want to look on the other side?  Everyone can see that the passenger airline industry cut so deep to manage the Covid-19 pandemic that they now lack the capability and corporate knowledge to surge business operations out the other side as international travel gains momentum.  Those who make these decisions and grow profitability during a recession come out the other side stronger as shown by this Bain & Co graph.  They typically excelled in; early cost restructuring, financial discipline, aggressive commercial plays and proactive M&A.  These scenarios never last forever, so be ready for coming out the other side.

Opportunities Abound

It’s not all doom and gloom, there are many opportunities likely to present themselves, you just need to know what you are looking for. It may be early in the scenario or as you start to come out the other side (that’s typically when the wheels fall off). It may be key talent, new clients, market share or acquisitions.

This article was contributed by Greg Allnutt, Partner.