The 11-year epic run on economic growth in the U.S. is all but wiped away by Covid-19. Rather than figuring out how to grow, most businesses are thinking about cutting costs (and rightfully so). At the top of your mind is probably how you can do the same to preserve your business.
So, what’s the best way to trim down? Furlough staff? Reduce marketing spend? Delay paying bills?
In the current environment, the situation is developing quickly:
- Some businesses completely shutting down
- Essential workers getting sick
- Employees must work from home (wherever possible)
This urgency means you can’t take the time to cut with a scalpel, but that doesn’t necessarily mean you reach for an axe.
It’s time to pivot.
It’s time to shift our thinking from top line revenue to maintaining cash flow while preserving our customer base. Here are three ways you can pivot during this economic downturn.
1. Think Cash Flow, Not Capital
Investment dollars, loans, even crowdfunding are all ways to raise capital. Up until a few weeks ago, there were a smorgasbord of ways to increase your company’s runway.
Today, not so much.
Cash on hand, aside from government loans to keep employees on the payroll, may be the only money you have to work with in the near term. This reality makes managing expenses and current clients top priority. It’s a fundamental shift for many, given how easy money has been to come by in the past few years.
Ideas for How to Improve Cash Flow
Review and Scrutinize Expenses
If you haven’t already, it’s time to go down a list of everyone and everything you've paid money to in the past 365 days. Pull an Expenses by Vendor report from your accounting system and go down the list. Assess everything:
- Discretionary Expenses
You don’t need Spotify for the office when everyone is working from home. Depending on how you restructure your company, this may include personal expenses, too.
Use this as an opportunity to review what services or subscriptions are no longer core to operations. In 2019, many of us signed up for new tools, monthly subscriptions and applications. Then we forget about them, but the charges continue, month over month.
Now's the time to find those items and cut them off.
Make the Most of Everything you Have
Every subscription making it past the cutting room floor is mission critical. It’s also important to ensure you and the team are leveraging each tool. If you’re using one app for messaging that also offers video conferencing — don’t use another service for that.
- Take a quick look at all of the features of every tool you currently use
- Cross reference those features with the other expenses
- See if you have multiple services/tools to do one job and choose the best one
Consolidate Staff (Where Possible)
Those same “good years” for businesses sometimes translate to increased staffing. Pre-hiring for projected growth and keeping people who shouldn’t be there (because they do “ok”) are common reasons for a technically bloated staff.
It’s highly likely you’ll lose some of your clients. (Fewer clients could be something you initiate, as we’ll see in the next section.) So, it’s not time to pre-hire and people you know should be gone, may very well need to go. But don’t just start laying off the team.
Think value first and dollars second.
Higher paid staff may seem like the smart cut, but if they’re knocking it out of the park with clients — it could be more costly in the end.
Headcount planning is one of the more challenging aspects of managing a business in good times, and it’s even more so in an economic downturn. At GrowthLab, we use Jirav to build out staffing plans linked to our clients’ financial models, giving them confidence that they’ve got the right set of people and resources for their needs.
Key Point: Cut, but cut smart. Think about everything you spend money on, why you buy it and how to better use it (if you keep it). Ask yourself: Are my customers, or is my business, losing value by cutting this service/subscription?
2. Pivot Your Services
Some businesses are seeing a massive chunk of their client base disappear, practically overnight. Entire industries are shut down (by law in many cases). But that doesn’t mean there aren’t customers out there. The trick is finding them.
Example: A print shop pivots from events to bulk mail
It seems like the peak of this virus is going to be in April/May. During these two months, print shops are usually busy — busy taking orders for:
- Graduation party invites
- Pamphlets and other materials for high school / college graduations
- Conference and event banners
All of those items are unneeded for the foreseeable future.
But you know what is needed now that everyone is stuck at home? Bulk mail. The print shop owner gets on the phone with his business clients and offers to put together old-school flyers. Suddenly what is old is new again!
Example: A water company pivots from yoga studios to hospitals
Boxed water — the kind that comes in paper containers rather than plastic bottles — is all about sustainability. That’s why this water company primarily sells to yoga studios and fitness centers - the market is most conscious of these decisions. But with gyms closed due to social distancing guidelines, there’s water, water everywhere, but not a customer to drink it.
Rather than letting their business evaporate, the owners sought out new customers in hospitals and government centers, which need to stock up on all sorts of goods, including cartons of water. These are not customers the company would ever have sought out previously, but in these uncertain times, that need presents an opportunity.
Key Point: Look at your mix of products and services, and see how those could be modified to fit industries are growing in the downturn. Be willing to rethink who your customers are.
3. Pivot Your Marketing
In a downturn — and anytime, really — one of the easiest line items to cut from your budget is marketing. But should you? It’s probably not a good idea to turn off the spigot completely, especially if you’re looking to attract a different type of customer. It’s better to pivot your marketing tactics to match your new strategy.
If you’re an accounting firm advertising to help startups get their finances in order for investors, it’s probably not a winning pitch. However, you could instead focus on helping them better manage cash flow and extend the runway of operation funds as long as possible.
Part of the marketing pivot is solved when you understand how to pivot your products and services. If your current customers stay on with your new model, chances are others will sign on for the same reason(s).
The marketing channels currently employed at your business are likely still good to go, and possibly less expensive, given so many have stopped buying advertising.
Ready to Pivot?
First, focus on reducing your cash outflows as quickly as possible. Then, reimagine your services to attract new customers. Finally, retarget your marketing to match those new customer personas, needs, and challenges. Do that, and you’ll have a better chance of riding out this downturn.
Korey is the Manager of Strategic Growth at GrowthLab, a Finance-as-a-Service company that serves founders and management teams with financial planning, accounting, and CFO support. Korey specializes in helping startups, emerging growth companies, and those in restructuring mode with things such as 13-week cash flows, annual operating plans, financial modeling, and more.