How to think strategically through a crisis
The coronavirus crisis poses many dangers. Most obvious are physical health impacts. But less apparent, and more widespread, are the long term effects on everyone’s mental health. We’re being bombarded by a deluge of information every day, most of it terrifying. This, combined with the heightened stress caused by lockdown, is playing havoc with our reasoning, decision-making and productivity. In China, week four was a particularly low point for many in Wuhan. And here we are, nearing the end of our own fourth week.
In times of crisis, it can be hard to stay calm and optimistic. However, your business is relying on you for steady leadership and a clear strategic vision of the future. It’s a big ask.
Take proactive steps now and your business will stay strong and recover faster once the crisis subsides. The fact that China is already showing signs of economic recovery means there may be light at the end of the tunnel.
Here are a few ways to think strategically through this crisis.
Sanity check your current strategy
Is your business on the right path? Or does it need to take a detour on its current roadmap? Most of my conversations with business leaders this week have been about current strategies and whether they’re still correct. Is this just an execution problem? As we come out of the other side of the crisis, will it be slower but the same? Or does it require a complete re-think? Some clients are looking at taking a different path because of customer changes they can already see happening. Some are recognising that they need more recurring revenue and are making strategic judgements on how to make this a reality.
I was talking to a furniture manufacturer last week who’d just taken an order for bedside tables for the NHS. Completely different from their usual work but their factories are still in production so they can help. Other businesses are almost entirely furloughed but are using this time to plan their comeback. Without doubt, the coronavirus crisis has thrown strategy into sharp focus, raising big questions and difficult decisions.
Double-check you have the right core customer
I’ve written many times about the importance of getting core customer right. It’s central to successful strategy – everything else flows from this. Your guiding principle should always be, ‘Who are the customers that will buy from us at maximum profit?’
And yet so many businesses give no time to working this out properly. I find there’s an inverse relationship between the size of company and number of core customers they believe they have. So often, I’ll meet CEOs of £1.5 million companies who tell me they have 10 core customers. Contrast this with many £100 million companies and you’ll find they have complete clarity over having only one core customer. This tells you all you need to know about the importance of getting this right.
The things that you currently do are unlikely to change dramatically after the coronavirus crisis. But you can’t sell capability. Instead, you need to fully understand your core customer and the unique problem that you can solve. And that problem may have changed. You may need to come up with entirely new messaging this side of Christmas.
One of my clients is a leading performance and wellbeing company who specialise in crafting programmes of personal and professional development to boost productivity. In the past week, we’ve reviewed their core customer and the problem they’re solving, relating this to the current crisis.
Their business tends to be busy during traditional, post-holiday periods like September and January as they help get employees back to work and productive again. They’ve recognised there’s a parallel with the current problems relating to remote working. Their customers will need help with the transition between remote and office working, both during and after the lockdown restrictions. So my client is busy game-planning and preparing programmes to plug this need. They’re second-guessing the likely impacts on employees – from listlessness to stress-exhaustion – and working out the likely cultural shifts in the brave new world after the coronavirus crisis.
In 2007, I took over as MD of IT Lab. Great timing! Just before the global financial crisis was about to hit. We were losing £65K per month and were close to bankruptcy, with a measly Net Promoter Score® of -7. They had never before defined their core customer, service proposition or culture. I started from scratch with the whole gamut of scaling up tools I’d learned during my time at Rackspace. Who was our core customer? What were we selling them? What did we want this business to look like in the future?
By restructuring to focus on service, we managed to put prices up. I went to see our biggest clients personally to tell them we were too cheap and had tough decisions to make. I asked them about the service they currently received and asked them what they really wanted. By selling that vision, we successfully increased our prices and only lost one customer. In 18 months, our NPS® increased to +55 – a quite phenomenal turnaround.
Have you nailed your company’s attributes versus competitors?
As well as core customer, I take all my clients through a process designed by Shannon Susko called 3HAG. This focuses their mind on the attributes of their business versus their competitors like no other tool I’ve ever used. It can really come into its own in crisis situations as it clarifies your view of the marketplace and your position in it versus your competition. It will help you decide where to focus over the next 36 months.
3HAG thoroughly analyses your business environment. On one hand, you map out all the ways your company generates leads, the vertical markets you serve and the channels that you use to go to market. And on the other, you map your cost base and suppliers. This brings into focus the importance of certain groups of customers and these groups may well have changed as a result of coronavirus disruption.
When you add the percentage of leads and cash, you start to identify the really important relationships. Executive teams often think that their marketing or sales team are already doing this work. But when they look into it, they can see they’re not thinking this strategically. They’ve been given a plan and are implementing it in a highly tactical way. But it’s the wrong plan, with the wrong customers and the wrong messaging.
Last week, I spent an entire day working through this with one of my clients (it would usually only take a 90-minute session). We were trying to get to the core of the new problems they can solve for a different customer. They recognised that the buying habits of their core customer had changed as a result of this crisis. The new economic reality had brought this into sharp focus. Now they need to accelerate the acquisition of revenue for their new core customer.
Create brand promises with guarantees
Back in 2001, as the dotcom bubble was bursting and weeks before the crisis of 911, I joined Rackspace as their UK Managing Director. In that recession, we grew the UK business to £30 million in five years. One of the reasons we succeeded was spotting that our customers were buying differently. They became more conservative and cautious – pretty typical behaviour during an economic crisis. They still needed to buy but they wanted to reduce the risk in the purchase.
This is where brand promises with guarantees can really give you an edge. They’re how you make it easy for people to buy your product. At Rackspace, our brand promises with guarantees were 1. ‘Zero downtime network’ 2. ‘Answer the phone in 3 rings or less’ and 3. ‘Fix your hardware in under 4 hours’. If we failed to deliver on any of these guarantees, it cost us money. This was at the core of offering an SLA with teeth.
These guarantees were our catalytic mechanisms. Writing for the Harvard Business Review, Jim Collins refers to their power. They are systems that create pain so that when a brand promise is breached, it costs money. This forces your whole company to come together as it realises that failure is expensive.
Take advantage of new opportunities
Don’t be afraid of taking full advantage of any opportunities that come out of this crisis. I interviewed Jack Stack recently for a future episode of my podcast, The Melting Pot. He’s the best-selling author of ‘The Great Game of Business’ which introduced the world to ‘open book management’ – a new way of running a business that created unprecedented profit and employee engagement. He told me that each time there’s been a recession or economic crisis, he’s doubled the size of his business in the following five years. In the last recession, he bought a company with 60 mechanics for next to nothing, along with a building, at a rock bottom price.
Recessions are the time when you can buy assets at the bottom of the cycle. Instead of paying twelve times the value, you pay four or six and in five years those assets will be back at their original worth. It’s companies that can be agile and take advantage of these opportunities that will succeed.
Be prepared for tough decisions
There’s often a serendipitous element to smaller businesses that do well and start to grow. Because they’ve been started by entrepreneurs with deep roots, there’s an intuitive understanding of the market, core customer and the problem they’re solving.
But when there’s a market shift or an economic crisis, these businesses need to start planning to evolve. Now is the time to step back and work out what you’re going to do and where you go from here. This can often involve taking some tough decisions.
When I joined IT Lab, they were running internal IT for SME customers in London, some of whom didn’t value service and constantly looked for cheaper prices. 650 of these customers weren’t even on a retainer or contract. And yet they received the same treatment as the higher value customers who paid a retainer.
So, we restructured and massively reduced the service level for our lower value customers. We decided we didn’t care. If they rang, their phone call was routed to just one person. This drove all of their service tickets off the service desk, reducing demand and allowing us to deliver a much-improved service to those who were paying. In fact, after these changes, a third of our company ended up looking after our 10 best clients.
It was this change of focus that led to us winning the lucrative Café Nero contract. We realised that we only needed to win a few more Café Neros to double our revenue, so this is where we concentrated all our efforts.
Some businesses aren’t prepared to take these tough decisions and these are the companies that will falter when times get tough. I particularly remember a prospective client I visited in Kent a few years ago. When asked what outcome he wanted from our meeting, he said, ‘A plan that shows me how to double my company in the next three years’.
We discussed his 120 customers. Five of these had grown during the time they’d been with him and now generated a large share of his profit. If he picked up another five similar customers, then bingo. His company would double in size. But to do this, he’d need to reduce his service for smaller clients. He wasn’t prepared to do this. Strategy is about choices. Three years later, I bumped into him and – no surprise – his business hadn’t grown.
Validate your updated strategy
Going back to my recent work with my performance and wellbeing client. After working through possible scenarios and future client needs, I suggested they took their revised strategy directly to their core customers to double-check that they perceived the same need. This validation is essential to ensure that the purchasing attributes you’ve identified are correct.
This reminds me of a highly illuminating insight given by Clayton Christenson, a Harvard Business School professor and disruptive innovation expert. I just love the simplicity of his approach. He was asked by McDonald’s to help them with their marketing strategy for milkshakes. In the past, they’d held traditional focus groups with customers and run different pricing and promos that hadn’t yielded results. Instead, he focused on the ‘job’ that the milkshake performed for customers. He said, ‘Let’s go and watch people buying milkshakes.’
One of his team spent 18 hours observing this buying behaviour and questioning people as they left McDonald’s. They discovered that at least half of all milkshakes were bought before 9 am in the morning by commuters, travelling alone. And the milkshake was the only thing they bought. Why? Because they are viscous, take 20 minutes to drink and are filling enough to sustain them during a long, boring commute to work. This knowledge transformed McDonald’s’ marketing approach. Once they knew this, they were able to innovate on the solution for this core customer.
Any time spent on strategy now will be a sound investment. It will help you navigate through the stormy seas of this crisis and position your company to take full advantage once calmer conditions return. Good luck!