Crisis Offers Opportunity for Clarity and Focus
I have been reflecting on the unprecedented challenges all business are navigating and what skills entrepreneurs and leaders need to ride out a storm while maintaining a growth mindset around building value – let’s face, it no entrepreneur will be happy with mere survival as a goal!
This situation has provided an opportunity to go down memory lane and think about the lessons learned coming through and thriving after previous crises. There is a lot we can draw upon from past experiences, both from research and in stories.
I was a co-founder of Meriton Networks, a company formed at a time of hyper-accelerated growth around the dot com boom, only to hit the chasm of the dot com bust 15 months later.
As a telecom start-up punching above our weight, we went from competing for talent that demanded double-digit salary increases and six-figure signing bonuses to internally cutting salaries up to 30% while watching established companies lay off thousands of workers. Vacancy rates went from 1.8% in Q3 2000 to 23% by Q4 2001 (Dot-com Bubble Effect on Commercial Real Estate, by Coldwell Banker Commercial, Oct 8, 2010), saddling many companies with 10-year lease obligations and tons of unneeded space. In a few short months, suppliers went from forcing customers to pre-buy inventory 3–5 times more than what they needed at inflated prices to selling inventory off at $0.10 on the dollar at liquidation auctions.
Most companies fell into a mode of paralysis with a hope to preserve cash and get through. Paralysis simply was not an option for a start-up. Investors would not fund a cash preservation strategy so we had to turn our minds to creating value and achieving wins. We naturally cut costs where we could but also invested in a new strategy and goal to get our product into a customer’s network.
The focus became on extending our runway to buy us time with cost cutting measures, making smart investments to create value and engaging our entire team in the plan are some of the key lessons from that time.
Crisis offers opportunities for finding clarity and focus that should not be wasted. It is an opportunity to refine or reinvent a business model, clarify decisions on resources, including prioritizing where to invest.
Studies that examined what strategies companies adopted during a crisis and how companies performed after an economic shock have clearly shown that those which were strategic (more than just cutting costs) by making investments in value building activities like R&D and marketing, out-performed competitors by a long stretch. Simply put, the highest performing companies’ post-recession are those that adopted both defensive and offensive strategies.
Cost cutting and preserving cash buys you time, but it is those companies that used the opportunity to pivot or perhaps double down on specific strategies or invest in simplifying their operations that were the winners in the end. I recommend two great articles on this topic. The first is Harvard Business Review’s Roaring Out of Recession by R. Gulati, N. Nohria, F. Wohlgezongen, HBR March 2010 which shares the findings of a study of 4,700 companies pre, during and post 2008 recession (thanks to my friend, Mark Emond, for sharing this with me). The second is McKinsey’s article Strategy in a Structural Break by Richard Rumelt, McKinsey 2009. It explains what happens and which companies perform well when there is a structural break in our economy.
Beginnings in Crisis
Business Sherpa Group formed right in the middle of the 2008 financial crisis. The Great Recession of 2008, the longest since World War II, resulted in a drop of GDP of 4.3%, home prices dropped 30%, the S&P 500 index fell 57%, and unemployment rates hit 9.5% (The Great Recession December 2007 – June 2009 by Robert Rich, Federal Reserve Bank of Cleveland, November 22, 2013). Our focus on supporting small and mid-sized businesses and our business model of highly flexible and part time experienced finance and HR professionals fit well with the business needs and realities small businesses were facing.
While many businesses failed, my recollection is that many small and mid-sized businesses, not forgetting the hard lessons from the dot com bust, were highly nimble, cost conscious and had business models focused on creating value, customer validation and quick pathways to profitability. They were willing to consider and adopt new workplace and workforce models that have become commonplace today.
The big lessons from that time pointed to the importance of business fundamentals and considering alternative ways of working and not being stuck in the drag created by old assumptions of how to operate. Businesses became innovative not only in what they created but also in how they worked.
Lessons Learned in History
To finish off the lessons of the past, I would like to share the story from a favourite novel of mine, Alfred Lansing’s “Endurance, Shackleton’s Incredible Voyage” and his ill-fated expedition to be the first team to transverse the Antarctic continent on dog sled.
Shackleton and his crew of 27 men set sail in August 1914 and just 60 nautical miles from their destination become trapped in the ice floes that were excessively large that year. After drifting off-course 500 nautical miles entombed in the crushing ice, the Endurance succumbed to the tremendous pressure and broke apart like match sticks and sunk leaving Shackleton and the crew stranded with three lifeboats on ice floes.
Eventually, as the ice floes disintegrated with the warmer weather, the team moved back into their 22-foot lifeboats to navigate in the stormy Wendell Sea, one of the most dangerous seas on the planet. They made it to their destination of Elephant Island where Shackleton left 22 men and headed back into a boat with 5 other crew to make their way to South Georgia Island and the nearest whaling station. Finally, after a terrifying journey through the sea and crossing mountains, Shackleton and his team made it to the whaling station, secured a ship and rescued the remaining crew on Elephant Island in August 1916.
It is an amazing story and a great read, but for me it was the leadership Shackleton showed to lead a team through what seemed a hopeless situation, with uncertain length and limited chances of success. It seems that others feel much the same as I do. The leadership lessons offered by Shackleton have been written into one of the most popular case studies at Harvard Business School Leadership in Crisis: Ernest Shackleton and the Epic Voyage of the Endurance. Author, historian Nancy Koehn reflects on his leadership qualities in an interview with HBR Editor-in-Chief Adi Ignatius (HBR Real Leaders Podcast – Shackleton).
Most notable were his flexibility, adaptability and willingness to shift goals, a key skill needed of most entrepreneurs. As well as his presence and mindset and how he showed up every day, his focus on managing the energy of the crew and himself, especially given the bleak prospect of uncertain length, and his ability to run split-screens in his head, is a quality Koehn says is critical for all leaders. That is, the ability to see a bigger picture and have a vision while paying close attention to details.
When I net all of this out and think about the key lessons I draw upon and see many businesses we work with adopting, my list of 10 essential skills and strategies to navigate crisis are:
- Crisis offers clarity and focus – don’t waste it
- Change strategy and goals if needed and do it quickly
- Quickly understand your cash position and plan accordingly
- Combine defence and offence strategies
- Evaluate the new landscape – is there a structural break and what will the impact be on customers, competitors, resources
- Never underestimate the importance of business fundamentals
- Communicate frequently, openly & authentically to all stakeholders
- Engage the team in the forward direction – create structure, routines and roles
- Watch how you show up as a leader – calm confidence & bounded optimism
- Remember the importance of self-care
Business Sherpa Group is currently helping many businesses operationally with our Finance and HR teams. We are seeing businesses seize the opportunity to be strategic with smart investments in their digitization and technology strategies. The areas with the most activity are digitizing the finance function, HR operations and payroll systems, information management systems and migrating records, documents and data onto cloud-based platforms. You can check out a few tips on digitizing the finance function we shared at our recent webinar with the Ottawa Board of Trade.
Small and mid-sized small businesses know how to navigate stormy waters as evidenced in past crises and we now see their ability to show resolve and willingness to reinvent themselves. I have great hope and optimism for our Canadian small and mid-sized businesses and believe they will lead us into a new era of opportunity and innovation.
About the Author
Margo Crawford is the President and CEO of Business Sherpa Group. Learn more about Margo here.