As South Africa’s recessionary economy braces for the impact of the 21-day lockdown to limit the longer-term impact of the Covid-19 pandemic, there’s an overriding sense of anxiety. The jury’s out on what the next few months will bring. Many businesses are already having to make drastic moves like laying off workers. And self-employed individuals are inevitably going to be hit hard.
But some of the world’s most successful ventures have also come about from a crisis. For those businesses that are either established now or manage to survive, some of the behaviours entrenched now could benefit them for years to come. Small businesses, especially, are nimble. Among the many disadvantages they face, it’s one advantage they have.
The hospitality industry has been seriously impacted, with up to a third of restaurants expected to never reopen. At this point, one might reasonably anticipate a U-shaped recovery – a gradual rise back to recovery over 12 to 24 months.
There will be many casualties. But there will also be chances to strategise.
Embrace new technologies
Young businesses with thin margins are particularly vulnerable right now. But there is an opportunity for those that can embrace technologies and move online to diversify their earnings in the longer term. Covid-19 could fundamentally change the way we work. Remember, Uber, Lyft and Airbnb were all businesses born from economic crises.
With so many at work remotely, it’s likely there’ll be more widespread acceptance for flexible working conditions. This could mean reduced overheads as fewer desks are needed in the office. Additionally, new-found appreciation for virtual meetings could cut down future face-to-face meetings and travel time, even when restrictions are lifted. Many businesses are also moving to the cloud and using data to inform immersive customer experiences.
Some industries may radically transform. In healthcare, the use of telemedicine, AI as a diagnostic tool, chatbots, wearables (to monitor patient wellbeing from afar) and other innovations have been taken to the next level out of necessity.
Have a rainy-day fund
Have a cash reserve if possible. A rainy-day fund should ideally have sufficient reserves to cover the next three to four months. Be tough and tactical with budgeting. For example, if necessary, consider using money meant for bonuses to bolster the rainy-day reserve.
Keep your business top-of-mind
During the lockdown, keep reaching out to customers to keep your business top-of-mind. Consider ways to up your online presence and marketing efforts. When the lockdown is lifted, connect with your most loyal customers.
Facebook’s traffic has doubled recently. That shows the opportunity social media holds as people seek information and escapism.
Focus on the essentials and trim expenses. Limit your fixed costs (e.g. rent or a loan) and try to negotiate these down through mechanisms like a payment holiday and discounts. Consider how to make the move to a variable cost base.
Variable costs are more flexible – you can scale these up or down depending on your business’s level of output.
Reduce your offering
Having broad-based product lines may not be the best idea right now. Consider your 80/20 – does 80% of your profit comes from just 20% of your offering? Can you strip down to just these services?
For example, if you have a menu of 50 items, but the bulk of your profit comes from ten dishes, pare down to these. While diversification is often positive, be very careful. You probably don’t have the luxury of launching new lines or branches that don’t take right now.
Consider how to keep your people
The message across the board is that everyone might need to ‘take a bit of pain’ right now – and that should start from the top. Sacrifice should be equal across the board. Businesses may have to consider measures like reducing people’s hours and pay. And implementing forced leave. These are some of the alternatives to lay-offs, which come with significant costs.
The loss of staff slows everything down – including business recovery. Training new hires to replace lost team members is extremely expensive, once companies are in the position to recruit again. Honesty and openness are key. A team must be kept in the loop every step of the way.
Get your financial house in order
Sit tight and don’t ‘panic sell’ shares. To start selling is to realise losses right now. The external shock is different to 2008 as banks are not under the same level of threat. Aim for diversification and consider offshore investment due to the size and fragility of South Africa versus the global economy.
Covid-19 will crystallise and entrench many behaviours which could be beneficial for businesses. Small businesses are particularly well-positioned to embrace technologies and be more adaptable. This crisis could see many South Africans adopting e-commerce for example. Therein lies some significant opportunities.
Anthony Ginsberg is founder of GinsGlobal Index Funds.