Business Pivots: The Next Challenge for Small and Medium-Size Enterprises
In our recent Manufacturing & Distribution Pulse Survey Report, 44% of respondents said changing their business model (also referred to as a business pivot) to adapt to COVID-19 is the biggest challenge that they are facing. Indeed, a business pivot is complex and risky, but in this new environment, few have a choice. The next 6-18 months will be a critical time for small and medium-size enterprises (SMEs). Soon the benefits offered over the past 6 months, including PPP loans, will be consumed and the ability of SMEs to operate in the post-COVID environment will be put to the test. The success of SMEs will have a significant impact on our country, since they account for roughly 48% of the US economy and provide employment to about 60 million people in the United States1. What’s interesting, is that revenues for many SMEs, as well as larger companies, have remained relatively consistent with pre-COVID levels, and some have seen significant increases. Couple this with the cost-cutting measures companies have instituted, along with the suspension of travel, meals, and entertainment, the result for many is a profitable 2020. Of course, this is not the case for all. Business sectors which rely on communal activities (hospitality, entertainment, travel, etc.) have experienced severe revenue loss or worse.
Whether companies have done well or struggled, the future has more questions than ever before. Uncertainty is now the biggest problem. Managing through the COVID-19 pandemic may have been the least complex part of our new world. Determining how your business, market, and industry will evolve over the next 1 to 5 years is going to be difficult and chances are business owners will make many more mistakes now than a pre-COVID world. SMEs usually do not have the cash reserves or access to capital of their larger competitors, therefore mistakes can be unforgiving.
While manufacturing, wholesale, and retail trade may fair better than most, COVID-19 has introduced conditions which will make the road to recovery more complicated than during the Great Recession. The effects of disintermediation - the process of cutting out one or more players in the supply chain - and the power of e-commerce have been accelerated by COVID-19. In fact, respondents in our Manufacturing & Distribution Pulse Survey Report indicated technology and e-commerce were the top two biggest keys to future growth. Technology can be a “four letter word” for many SMEs, because mistakes when selecting and implementing technology changes are often very expensive, coupled with a COVID-weakened balance sheet, can put an SME out of business. Another change brought on by COVID-19 is the remote workplace, and more importantly the skills (both technical and emotional) needed to operate successfully in such an environment.
As mentioned, managing through the initial crisis may have been the easy part. Here are 5 tips to consider when pivoting your business and making decisions for the future:
- Perform the right kind of due diligence: Business pivots should be based on data and facts, not emotion or opinion. A good recipe for success will be to include persons both inside and outside the organization who can think strategically and who are willing to disagree with the CEO and leadership. After the analysis is made, advice is heard, and thoughts are absorbed and discussed, it’s the CEO who has to make the final decision.
- Know the “what, why and how”: The CEO needs to identify where they want to take the company, and why. The important part is to understand where they need to go and how to get started. You don’t need to know all the steps to the goal because plans will change and there will be mini shifts along the way. Having a general outline and knowing your goals is an efficient place to start.
- The decisions never end: Implementation will involve a multitude of smaller, tactical, and strategic decisions. Organizations that build a strong capability for making and implementing big decisions employ sound processes, including investigating multiple alternatives, seeking out dissent, and fostering a culture of inquiry for weaving down the path of implementation, rather than advocacy or going with gut feelings. They also employ data and analysis because they know that the scientific method is the best guide to making decisions.
- Collaborate with partners: Changing your operating model in this environment will likely involve collaboration with your customers and/or suppliers as you innovate products and services. Assigning cross-functional teams to work closely with vendors and customers will be critical to minimizing implementation missteps. Overall, implementation will involve multiple teams working in concert for a long period of time. During this time, regular communications amongst the groups are critical, therefore those selected to lead these groups must be adept at organization, discipline, and collaboration. Most importantly, they must have the authority to drive the team and its members.
- A helping hand: An organization may need outside help to implement a big decision. If change is not something that happens often in a company, the existing leadership team may need help in organizing, prioritizing, and keeping implementation activities on schedule. There are plenty of consulting firms willing to help. The hard part is finding one that understands the big decision, your culture, and has done it before with companies in your industry and market.
While a business pivot may seem like a treacherous task, with proper planning, analysis, and support – internal and external – business leaders can execute a plan to assist their company to withstand the future economy.
Citrin Cooperman’s Manufacturing and Distribution Practice recently launched our inaugural industry survey. The survey provides a pulse of the industry nationally in the moment – amid the COVID-19 pandemic – to measure the current health of their business and to take stock of future priorities, concerns, and challenges. For more on the current state of the industry, check out our Manufacturing and Distribution Pulse Survey Report.
1McKinsey & Company “Tracking US small and medium size business sentiment during COVID-19” May 29, 2020
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