By Lim Kee Yeong
By now, the wide-ranging impact of COVID-19 has been well publicised, be it medically, mentally, and economically. All the pessimism and negativity that has plagued the world will likely result in a ‘new normal’ – which may be permanent or at least last for some time. From an economic perspective, countless articles, news, forums and discussions have centred around businesses struggling during the lockdown, economic relief efforts by governments and also some examples of how businesses held up despite the difficulties.
Statistics have suggested that anywhere between 20 percent to 40 percent of SMEs globally may not have enough cashflow or commercial activity to last more than 6 months from day 1 of the lockdown. During the initial stage of the crisis, many SMEs sought advice and immediate recommendations on optimising relief assistance, preserving cashflow, managing costs, ensuring transparency with debtors and creditors as well as motivating oneself and their employees. Topics subsequently moved towards crisis pivoting for businesses and alternative customer fulfilment approaches; all of which are very relevant and crucial at this stage.
Data of late points towards positive developments in many parts of the world on the fight against COVID-19. This may also mean lockdowns will end soon, and normalcy in daily activities can be expected progressively. SMEs should by now realise all activities and recommendations given are short term fixes in nature. What is more important is to comprehend the need and importance to plan (and then execute) for the next 24 to 36 months. This is the most critical period post-crisis, often quoted by statistics globally (including the Small Business Association in the US), where 70 percent of SMEs will fail within 3 years after a disaster even when business resumes. This is often due to lack of a business plan or an updated plan of action.
The need for a business plan has never been doubted for proper anticipation of business activities and volume. A post-crisis plan typically will involve revision of the original business plan (if there is one) to address changing consumer and market behaviours, as well as to plan for another disaster; a fundamental understanding all SMEs should have but often miss.
SMEs often fail to realise the emergence of a ‘new normal’ after every disaster. COVID-19 is definitely something unprecedented; perhaps no one alive has seen it before. Enough worry has been cast all over, including for the unemployment rate and GDP. Coupled with a turbulent oil & gas situation, we are in for a very rough ride.
Undoubtedly during any crisis, the first instinct is to survive short term and then hope for the best in the long term. Those capable of adding on a workable 3-year plan to pivot the business in accordance to the new normal will have a significantly better chance to survive. SMEs must consider the following pointers for the medium horizon post-crisis, be it making a proper 3-year plan or a sketch on paper in ensuring constant awareness:
Can my current business model survive the next 24 to 36 months?
- ‘Business model’ may seem like a big word, but it is actually not complicated. Breaking it down will yield 5 core and simple elements:
- enabler, and
- Basically, in simple language, is my business internally fit to withstand a further and/or prolonged crisis?
Will my competitors do something differently to thrive?
- This is an area often overlooked by SMEs, especially when they are growing but their competitors are growing faster.
- Has the market or environment changed externally, and have I recognised and adapted to it?
How do I set aside something for a 2 or 3-year project or pivot plan?
- A planned pivot is different from a crisis-driven pivot. A planned pivot will need data, resources and timelines for long-term, sustained benefits. A crisis-driven pivot on the other hand is a virtually instantaneous shift for short-term survival purposes. Whether the shift will translate to sustainable benefits depends on actually putting such a shift onto a longer-term plan for proper execution.
- A foresighted SME will have its business return to normalcy, while immediately working on new ideas to be unveiled periodically – perhaps every 6, 12 or 18 months – as part of the plan to pivot effectively.
Lastly, what have SMEs learned to prepare ahead in case of another disaster?
- This is an intriguing area where SMEs may react differently based on what happened during the last crisis. Some may see it as one-off, while some will act innovatively according to what they have experienced.
- Are SMEs prepared to dig into their coffers to build something or pivot their businesses in preparation for a crisis that may not come again? Or will they see what they built as a new business model?
All management gurus will agree with the statement of “failing to plan is planning to fail.” It is much easier said than done when SMEs are often juggling between keeping the business running, paying the bills and feeding the family. Consider this from a different viewpoint: a business with a plan will gain confidence not only from potential investors, it will also convince current and prospective employees and also entrepreneurs themselves. While it will be ideal to plan for the next 5, 10 or 20 years, such practices may be on the back burner of most SMEs. Nevertheless, a 3-year post-crisis business plan is something every SME must embrace as a new normal.
Lim Kee Yeong is Director of SME Banking at Affinbank.