Is your business performing well? There are two ways to answer this.
First, is what you’re getting out of your business worth what it’s taking from you? Using my Triple-F model, we could measure this as the finances invested and extracted, freedom your business takes or gives you outside your business, and fulfilment in your work and the difference you make in the world.
If you could invest everything you’ve put into your business somewhere else, could you get a better return? Are you satisfied with your Triple-F score?
The other angle is to consider how other businesses are performing and how your business compares. This isn’t about keeping up with the Joneses, but assessing what’s possible and realistic. If your specific market has a proven ceiling of selling only 1,000 widgets a year, then a goal to sell 1,001 widgets next month might be an impossible target.
I can’t help you make the first assessment – we’d need a direct conversation for that – but a few trends in the local small business environment might help you answer the second question. If every business is struggling equally, it may not be realistic to expect much more from your business, right?
Actually, not quite true. While most businesses are struggling as a result of lockdown restrictions, some are thriving. Where might your business fall on the scale of “struggling” to “thriving”?
We first need to sift through a lot of noise. There’s plenty of hype about how bad lockdown is for business, but who is calibrating “bad”? Everyone seems to know someone who knows someone who had to close down. How do we measure “economic crisis” and other hyperbolised headlines?
A BusinessTech headline, “Lockdown forced nearly half of small businesses in South Africa to close,” seems to be quantifiable. The story cites research by Finfind: “an inability to operate during the lockdown forced the closure of 42.7% of small businesses.”
Digging into it, though, there’s no reference to a baseline or timeline that informs the statistic, only that 1,489 businesses responded to the survey. This renders the “42.7%” unreliable. (In statistical terms, it’s nowhere near “half” – I guess precision doesn’t sell newspapers.)
By contrast, Stats SA reported in March 2021 that company liquidations for the calendar year 2020 were 2,042, which is marginally down on 2019’s 2,035. This is surprising because all the negative news would suggest liquidations ought to have rocketed.
Nonetheless, the Finfind data could be valid because Stats SA counts only the closures of formal businesses, i.e. those registered with CIPC. A 2017 Trade & Industrial Policy Strategies report (ironically referencing Stats SA), counted 670,000 formal small businesses in SA and 1.5 million informal businesses. Informal businesses are typically micro in size (less than 10 employees), which are typically the most vulnerable, so maybe this is where “half” of business closures is happening?
Alternatively, you might be fortunate to be in the “right” industry. Economist Mike Schussler tweeted a chart on 21 Mar 2021 that showed 4 industry sectors with healthy growth: furniture and appliances, hardware, used vehicles, and pharmacy. Industries losing heavily are those related to fuel, retail, and new cars. (Interestingly, travel, tourism and accommodation don’t feature in the chart.)
If you’re in a “lucky” industry, you might be thriving or, at least, holding steady. But these are the macro stats; there’s more relevant data that can help measure what “bad” means for your business.
How you trade is critical predictor of survivability. As I wrote previously (Prioritise Customer To Survive), regardless of size, industry or growth stage, if you need physical proximity to your customers and they can pay only in cash or by EFT, you’re likely going to be challenged by the COVID-19 crisis.
If you can sell and deliver online, you have a better chance of surviving. In a 2020 Facebook survey of 86,000 small businesses in USA (Later), 51% of respondents depended on being in the same place as their customers.
In South Africa, with a lower adoption rate of online trading and less reliable infrastructure – load shedding, internet access and data costs – we should expect a higher proportion of face-to-face SMEs and, hence, a much higher ratio of distressed businesses.
My heart goes out to entrepreneurs who invested their life savings in B&Bs, coffee shops and restaurants – if you haven’t closed down, I’d love to hear how you kept things going.
In a field study by UBU (ITWeb, 15 Mar 2021), in which 60 small business owners were interviewed from a once-bustling Bellville small business precinct, 85% had suffered a negative impact due to lockdown restrictions. Respondents included retailers, restaurants, coffee shops and spas. Specifically, “over 70% of businesses suffered a revenue loss of more than 25%…while almost 30% of respondents said their total revenue had dipped more than 50%.”
So how are businesses coping?
Most SMEs are focussing on cutting costs through payroll reductions, with retrenchments and short time the most common, unfortunately for workers. Other tactics include moving to smaller premises or other rent reduction methods. After wages and rent, other costs and cash flow solutions could be possible with your suppliers, like a moratorium on price increases, or softer credit terms.
But cost control is merely a stopgap. There is no “normal” to return to after COVID – the real adaptation is not to merely survive, but to prepare for the new normal and re-grow your business. According to the UBU study, “[Businesses] may not find retaining their customers to be a challenge, they certainly are finding it difficult to attract new ones...”
I’ve met with many entrepreneurs who gave up their rented shop space and now trade from their home or garage. For some this is a transition step to going online; only a few intend re-opening a physical shop. This introduces an entirely new marketing challenge in generating online versus foot traffic, followed by new ways to convert visitors into sales and then fulfil the sales.
While our core business model might stay the same, the way we do business might be overhauled completely.
Some businesses have introduced a delivery service, something many owners had never contemplated before COVID. Have you noticed the swarms of delivery bikers zooting around the streets? And it’s not limited to the food industry, either: I know of some bicycle shops that now offer home service options. Who knows, we might see the return of GP home visits!
Lastly, if you’re looking for inspiration for innovation, SME South Africa published a thought-provoking list of “10 Innovative COVID-19 Business Solutions We Loved”.
If you believe you can keep your business going, then go all in to make it work. Times of chaos and transition are often ripe with opportunities – is this your time to transform your business so it serves you better in the new normal?
(Image credit: SME South Africa, https://www.pexels.com/@thatguycraig000)