A business crisis is an event that threatens the success and health of your business by hurting its reputation, damaging its operations, negatively impacting its finances, or harming its employees.
Key characteristics of a business crisis include:
Most business owners will encounter a crisis at some point in time. They may be small, they may be big. Rest assured, if you're in business long enough, you are going to face them.
Business crises come in different forms, such as financial crises, personnel crises, organisational crises, technological crises, natural crises and confrontation crisis. Regardless of the type, a business crisis is an abnormal or extraordinary event that threatens an organisation's profitability, reputation, or ability to operate, and requires a fast and strategic response to keep the business alive and come out the other side better positioned for the future.
I've had to deal with my fair share of business crises over the years, none more so than during the COVID pandemic. My specific experience during that time brings me to the first stage of Navigating your own Business Crisis.
My fitness company grew every year between 2013 and 2019. They were great years. When the pandemic started impacting it in early 2020, we dismissed it as a short term issue. Most people did, including many experts. At worst, we expected 3-6 months of pain before things got better.
In total, COVID directly affected the company for more than 3 years.
Within 6 months, things had gotten far worse than expected and we had failed to act. It took us 6 months to acknowledge the problem was more serious than we assumed it would. We needed to make fast changes and hard decisions for the company to survive.
Acknowledging there is a problem is the most important step. Business problems will not go away on their own. Hard, fast and strategic decisions need to be made.
Throughout my time building companies, I have encountered many business owners and often see a stubbornness to change in the face of a crisis - like a changing market or a new technology. Sadly, those unwilling to change and adapt, are often first to fail.
In the early days of the internet, many small businesses dismissed online shopping as a fad. Stubborn in their mindset, they sat back and watched as Amazon and smarter competitors wiped them out. Same goes for businesses who haven't adapted to online advertising and are getting crushed by new players in their market.
Stubbornness to change during a business crisis can kill a business completely. Acknowledging the problem and removing your ego is the most important step.
Einstein's Theory of Insanity is true - "Insanity is doing the same thing over and over again and expecting different results".
Once we have overcome our own egos and acknowledged there is a problem, we must quickly begin assessing.
Assessing the problem should result in a clear understanding of the cause of the problem - not the problem itself. For example - If your businesses in suffering from a Cash Flow Crisis, the lack of cash flow is the problem, but there may be many different causes:
Work through all the root causes and order them by impact. Eg. which one of these causes is having the biggest impact on the problem? You'll start to see where you should be focussing your energy, allowing you to be strategic and proactive, instead of un-focussed and reactive.
A Cash Flow Forecast is the most important financial document in times of crisis. A week to week future forecast of cash coming in and going out of the business will help you to make fast, strategic decisions.
Looking at your projected cash balance, based on the future flow of money, helps you to see when cash is lowest, even negative. This allows you to make faster decisions in advance, improving the future cash flow of the company. Decisions like:
Having a detailed and regularly updated Cash Flow Forecast will help you see what's happening clearly, so you can focus your efforts in the right places. The key is to make sure every single payment is documented. No surprises.
There are dozens of possible decisions that can be made at any one time. Your aim is to focus on the decision/s that will have the biggest impact on the problem.
Before you can manage a crisis, you have to understand what's causing the crisis. This is why the Assessing stage is so important. Once you are clear on the causes, it's time to resolve them. Strategically.
Done right, developing a strategy to survive the crisis should also put the business in a position to thrive on the other side. Survive and Thrive. That’s what we’re aiming for.
You should end up with a list of ideas, in order of likely effectiveness and lowest effort/cost.
Focus all your energy on the top 1 to 3 ideas. No more than 3. It's impossible to execute all ideas effectively at the same time. Choose the fewest ideas that will have the largest impact. (Read up on Pareto's Principle if you need more convincing of why less is more)
Finally, remember - A goal is not a strategy. A goal is what you want. A strategy is how you get it. You must develop the strategy. Then execute it.
Along with the Cash Flow forecast, there should be a regular set of management reports, at least monthly, to ensure things are moving in the right direction.
These reports, along with reviewing our metrics (below) will help you to monitor progress and make fast changes when things aren't working the way we expected. If a strategic decision you thought would have immediate impact, does not - you should see this playing out in your reports and regular reviews.
A company is only as strong as its weakest link, especially in times of crisis.
Every staff member should have a clearly defined role within the business, with clear responsibilities and expectations. Difficult decisions will need to be made. It's important that every member of staff needs to be there and has a clear role to play in the business and in any strategic decisions being taken.
A set of metrics should then be developed to make sure everyone is on the same page. Metrics at both a company and individual level. For example:
Once your metrics are clear, regular 1-1 meetings should take place to make sure metrics are being improved and that staff are getting support to achieve those metrics. 2-way feedback is crucial.
Finally - one of the hardest decisions leaders need to take is letting people go. Often those are the most important decisions to make. The survival of the business must come above individual relationships. If that means you need to take on more work to reduce monthly costs - so be it. If done right, making strategic decisions to target specific problems will give you the best chance of surviving. Then your focus can move to building a team of stars, giving your business the best chance to thrive and avoid significant crisis in the future.
Good Luck!
It costs nothing to have a short discussion with our team. We can provide you with strategic DIY advice over the phone, or arrange a quotation to do it for you, leaving you to focus on your new customers.
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