In this the first part of a 10-part series entitled ‘Small Business Survival Toolkit’ brought to you by JP Morgan and the Gordon Institute of Business Science (GIBS), Dr Keith Fairhurst looks at how to reboot a small business after Covid-19.
Compiled by Tarren Bolton
It’s often said that small businesses are the heartbeat of every economy, and in South Africa, small businesses serve as the lifeblood of our society. The Enterprise Entrepreneurship Development Academy at GIBS and JP Morgan have come together with the objective of adding value, contributing, and assisting small businesses during a tough and very painful post-Covid period.
It’s important for small business leaders to think about the now and how to take some proactive steps in the now to be able to position them for the next. Dr Keith Fairhurst, lecturer at GIBS, shares some of his inputs and perspectives in terms of the role of small businesses in adapting to this changing context.
The wake of the Covid pandemic has been particularly disruptive in every facet of our society. Everything from the health consequences of Covid-19 to the deeper economic impact of what the pandemic has meant for us all. One of the major factors has been the dramatic and deep impact felt in many societies and on small businesses in particular. “The Development Academy is really an opportunity for us to contribute to how businesses can respond to the economic and business impact of Covid-19 on themselves, and also on the broader ecosystem,” says Dr Fairhurst.
With a PhD specialising specifically in turnaround strategies in corporate governance, Dr Fairhurst has spent the past 10 years of his career, both professionally and academically, exploring the space of turning around businesses and the difference between those that are successful and those that are perhaps not successful. He has worked with a number of companies in terms of assisting them from a turnaround perspective.
The Reboot Matrix
With the advent of the pandemic, and the resulting aftermath, many small businesses struggled to make ‘new’ sense of their business, because they were used to thinking about the business in a particular manner. Suddenly those rules no longer applied. “We are all still clawing our way back from a world that had been thrown into turmoil and there is still a lot of uncertainty,” says Dr Fairhurst.
“The period after the first lockdown led us to develop what we call the Reboot Matrix,” he explains. “We looked at four categories set against two scales. The vertical scale represented the near-term horizon – what could be seen with some level of clarity as a starting point.” Dr Fairhurst adds that the level of uncertainty grows significantly after the near-term horizon, because, just like a ship at sea, it is very hard to see beyond the horizon and it is all unknown territory.
Some practical tips
Resilience goes a long way, and those small businesses who face reality and don’t live in denial, and have the ability to face their problems head-on, remain successful. They get creative and they become inventive, for example by calculating where they can cut costs, or investing in technology to stay ahead of the curve. Most importantly, they never lost sight of their purpose. If the purpose for existence was to serve a certain market segment in a certain way, they never lost sight of that. They continued to talk to their customers to let them know that they were important to them.
A financial survival plan
Dr Fairhurst says that arguably the most important thing to think about in the short-term is financial survival plan. Think of it as a runway – you need a certain length of runway before the aeroplane can take off and fly to save your business.
Take action now. Start working out how long your runway is. Practically, what do you do to reduce costs, explore every avenue for revenue that you can, and turn unproductive assets into cash. If you have assets lying around that are not generating value, see if you can turn them into cash by selling them.
Funding
There is a lot of talk about funding and in particular distress funding, but it is important to remember that by borrowing money you underwrite your liquidity with your solvency. So, you’re going to need some security. If you do not have reserves, it’s difficult to borrow money to see you through a difficult period. If you do borrow money, the organisation or institution needs to know that the loan is in good hands. They will want to know what your turnaround plan is, what steps you have taken to reduce costs, what revenue streams you’re looking at, and how you are turning unproductive assets into cash.
“When assisting businesses in distress, the first three questions we ask is: show us your budget, show us your cash flow, and show us your profitability,” says Dr Fairhurst. He advises against small businesses taking on a contract or selling something or taking on some work that is not that profitable purely because they think that cash will do them some good. “I would urge you to be very careful about that. Because if you do not make a profit out of the work you take on, you may just be digging the hole deeper, or you may be accelerating the difficulty,” he says.
“So, after creating a budget, doing a cash flow and checking the profitability of every single trade that you do, you are lengthening your runway.”
Looking beyond the horizon
“Once you’ve lengthened your runway, and you’ve worked out you can survive 8 months, 10 months, 12 months, 6 months, whatever it might be, then what do you do? It’s time to look beyond the horizon. It’s a question of adapting your thinking, going back to the drawing board, and adopting a ‘startup’ approach. With this startup approach, you need to explore how to encourage people to adopt an innovation and a kind of creative approach to things like design thinking, rapid prototyping, experimentation. Be curious and be agile. Ask lots of questions, talk to lots of people and incorporate it into the startup mode. You will see if it’s going to give you a return, it will give you a return quickly. And you must drive hard. If you conclude it’s not going to give you a return, stop doing it. There is no room for sentiment. Don’t hang on to things because you like them. Ask yourself, do you have a market? Do you have customers? What is your differentiator? Talk to your customers and then lastly, seek some independent input. Talk to a trusted person and not a person who has an interest in your business – someone who will give you honest input. The value of having independent directors on your board is that they look after the business,” says Dr Fairhurst, and encourages businesses to find some independent parties that they can talk to that will give them the ‘honest talk’.
The key takeaways in rebooting your small business post-Covid are: Face reality – whatever that reality is or how unpleasant it may be; get creative – ask yourself what can you do? How can we make a difference? What can we do differently? And ask people around you for suggestions; and never lose sight of a bigger purpose – whatever that purpose is in your business. keep that at the centre and retain that integrity, because that will stand you in good stead.
Reference:
GIBS Small Business Survival Toolkit Part 1: https://rss.com/podcasts/gibspodcast/272096/
