The emergence of COVID-19 and the subsequent measures the government put in place to combat the spread of the pandemic has had devastating effects on our personal lives, businesses and the broader economy. The world has changed in ways we previously could never have imagined. For months, we were confined to our homes with limited freedom to travel, many people lost their jobs and others had to take pay cuts. Consumer expenditure took a nosedive and businesses have seen unprecedented dives in their revenues as a result. For their part, investors are holding back and unwilling to take on new risks. In order to survive, businesses will need to think and act differently.
However, the fundamentals of business success and traits of successful entrepreneurs haven’t changed. Customers still pay for value and astute entrepreneurs will find ways of delivering that value. As businesses seek to reinvent themselves and restore their revenues, they will need to employ the right strategies to create value and align with evolving customer needs, while dealing with fundamental shifts in the business environment and new ways of interacting with customers.
During this period, I have had the opportunity to support a number of businesses to develop and implement these strategies, in order for them to stay afloat and reinvent their business models. This article is my first attempt to share the insights I have gained through this experience.
The key success factors of every business can broadly be categorized as; Product (or Service), People and Finance. Any efforts to protect your business from major disruptions must therefore focus on addressing the flaws in these areas.
- Product (or Service)
While there are varying definitions of a product, I define it as something that can be offered to the market with the goal of satisfying the desire or need of a customer. Product extends beyond the physical commodity to added services such as customer care and after-sales service. It is a combination of these elements that create a value proposition that the customer pays for.
Due to the COVID-19 disruptions, many businesses have found that their products are no longer able to deliver their value proposition and brand promise. They have quickly moved from stretched demand to little or no sales over the last couple of months. The tourism sector that largely relies on international travel has by far been hit the hardest. Many businesses in the sector have had to close or pause operations, including big brands like the Intercontinental Hotel in Nairobi. Such businesses will need to evolve fast and make significant shifts that ensure their survival or revival when some normalcy is restored. This will involve remodelling existing products and services, or in some cases, changing the product entirely. Players in the sector are already shifting their focus to domestic tourism and will need products that will attract the locals. It’s certainly not safe to assume that local tourists have the same desires and needs as international tourists.
As a business, you need to interact with your customers with empathy in order for you to feel and deeply appreciate their needs, fears and circumstances. At SHONA, over the last five months, we have had open conversations with our clients, partners and competitors in order to understand how the needs of our customers have changed due to the COVID-19 disruptions. It is this data that we have used to remodel certain elements of our services. This, for us, is an unending process that we hope to continue as a way of keeping up with our customer preferences. While many businesses prefer to use surveys, I encourage you to have open conversations with customers as this helps you understand their emotions – something you don’t get from questionnaires.
Businesses that previously relied heavily on physical delivery and retail stores need to consider technology-enabled ordering and delivery systems. One of our clients in the business of manufacturing food and beverages is a perfect example of this. Prior to the lockdown, they relied on supermarkets to sell and distribute their products. The restrictions put in place to curb the spread of COVID-19 made it hard for them to sell and distribute this way and they had to sign up to online stores in order to keep going during the lockdown. The transition to online selling has subsequently enlarged their customer base and made them more efficient, setting them up to revive the business.
COVID-19 has also generally amplified the role of technology in our lives and any product that ignores this fact is likely to face difficulties. While we tend to limit technology to mobile apps and devices, anything from a simple cashless payment system to machines that lower the cost of manufacturing could create unimaginable value to your business in these tough circumstances. Our client running dental clinics had to create a mobile clinic and improve their appointment management system in order to continue earning revenue during the lockdown. Like them, entrepreneurs need to think more broadly and holistically when it comes to technology.
- People
The second and probably most important element of business success is people. This includes yourself as an entrepreneur, your team, your board and other business relationships that you form. For now, I will focus on your team. In such difficult times, everything else can go wrong but not the team. You will need skilled and committed people to navigate the challenges you face and bring the business back on course. The values that govern your relationship are under test in these difficult times and your team is watching to see if you stick to those values as you navigate your challenges. The most important value in such times is honesty.
Talking openly about your financial situation and the business decisions you make builds trust and helps set the right expectations. Regular communication with the team creates a sense of ownership and accountability and keeps their attitude in check so that they stay motivated despite the circumstances. Employees may also help you make better decisions that protect the business and balance the interests of all stakeholders; so it’s important for you to consult with them and make them a part of the decision making process.
With changing products and business models, you also need to keep track of the skill gaps that exist with your team. This ranges from simple ICT skills such as how to use Zoom, to more sophisticated customer relationship skills when operating in a virtual environment. You need to ensure that the team has the required competencies and can effectively execute the strategies outlined in your business continuity and recovery plan. This may require training, outsourcing and with careful impact analysis, bringing on new hires.
- Finance
Finance is an all time key aspect of business success, not just in a time of crisis but also in the best of times. Keeping financial records enables you to accumulate data that you can analyze and review to inform strategic decisions. Efficient cash flow management ensures business continuity and smart capitalization of the business gives you the ability to take on new opportunities. These are all key aspects of business finance. In April, we shared this article on how to efficiently manage your cash flows and ensure business continuity. I encourage you to read it if you haven’t already because these same principles apply in recovery. Cashflow management is the most important aspect of financial management because running out of cash is equivalent to a death sentence.
While capital is the primary need for all businesses, finding new investors or lenders at this time is going to be difficult. Most investors and lenders that I have talked to are holding back on new investments, especially in non-essential sectors and directing more capital to businesses already in their portfolio.
Banks are one of the most risk-averse funders and currently have a low appetite for private sector lending. However, they have been open to restructuring loans and refinancing for customers with good credit history and those they have a good relationship with. Entrepreneurs need to have open conversations with their relationship managers about their situation and present clear proposals that protect the business without exposing the bank to too much risk. Banks fear risk, so make sure they see as low risk as possible. If you are not confident about having these conversations, make use of a professional corporate finance advisor to prepare you. We recently supported one of our clients to get a 12 month deferral on principal repayments, giving him enough room to rebuild and recover from the effects of the lockdown with less pressure on cash flows.
The risk exposure to international angels, venture capital and private equity funds is also much higher since they are no longer able to travel and physically appraise opportunities. There is therefore an increased reliance on advisory firms and other business development organisations to refer opportunities and undertake due diligence on their behalf. Entrepreneurs need to build relationships with such advisors to increase their chances of raising capital.
The importance of quality presentations and documents such as pitch decks, investment memos and financial models is now more pronounced since investors have to make decisions mainly based on these presentations. Besides cultural biases and business acumen, this I believe, is one of the main reasons local entrepreneurs in East Africa struggle to raise capital despite the increased flow into the region – mainly from VC firms. Entrepreneurs can seek expert help or work on improving their presentation skills to ensure that they always make a good impression whenever they have an opportunity to speak with investors.
Generally, as a business, you need to find alternative creative ways to capitalize and finance new projects. We shared some of these alternatives in this article mentioned earlier on cash flow management.
At SHONA, we are offering Business Training to support businesses in the areas above, for example with our series on Financial Management, focused on Budgeting, Record Keeping, Financial Controls, Cash flow management & Sources of funding. We also provide hands-on advisory and consulting services to help businesses solve challenges, identify growth opportunities and boost their existing capacity in order to achieve their short term objectives and promote long term growth. Comment below or email us at hello@shona.co to let us know how we can help!
Written By Ivan Mandela, Co-Founder and Director of Investment at SHONA.