Startups

Managing Startup During Financial Crisis

This post is by Kirill Bigai, Co-Founder & CEO, Preply, Ukraine

Shown Above: Kirill Bigai

Times of financial depression lead to frenzied panic both in the country as a whole and the lives of individual companies: mass purchases of staples and sugar, people lining up to buy foreign currency, refinancing, and steadily rising debt.

The population is rocking on the waves of nervous tension and managers are sitting with their heads in their hands, frantically trying to think up a way to save their companies. This is exactly when you should stop and take a deep breath, for in moments of crisis a cool head and sober decision-making are worth their weight in gold.

The first thing we need to understand is that one’s own emotions should retreat to the background and that you need to maintain a rational approach at the helm.

The second thing is the speed of decision-making. Everything in our world today happens at unbelievable speed, and the faster managers can react to changes in the external climate, the more likely that their companies will weather even the most severe storms.

I cannot claim that our company Preply, a platform for local and Skype tutoring, appeared at a particularly calm and promising period. It might now seem that we are in a permanent state of crisis where everyone must stay on guard. As corny as it sounds, I believe that the stability of any business depends on how strongly its director believes in success.

If you rise to these challenges, you can rally around you a team of professionals who are prepared to withstand the harshest falls and ensure a successful future for the company. Like they say,

Good times give rise to good leaders, while bad times give rise to great ones.

But whoever you trust your company to during times of financial malaise, you should have an idea of the key steps of a “rescue operation”. They are difficult, sometimes painful, but they are definitely necessary.

Let’s change our strategy

Reluctantly as it may be, we must turn away from the plans we made in the pre-crisis era. In a time of serious financial instability they not only bring no benefit, they may even aggravate the situation. It is hard for any manager to take a step backward, but if this gives hope for a bright future, then it must be done.

It’s important to understand what task is important at any moment and how to deal with it accordingly, whether it is minimizing the risk of loss, laying the groundwork for a surge in development, moving out into other niches, attracting new investment, etc.

A crisis is a time to search for new stimuli for company development, and therefore one’s possible options and goals is unlimited.

When, in the late 1990s, Asia was plagued by financial crisis, the head of Coca-Cola’s Asia division Douglas Daft thought only about taking maximum advantage of the situation and increasing the company’s potential. While investments were on hold, stock prices had tumbled, and the market was shaken by panic, Daft assembled his top staff and made several important decisions.

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Coca-Cola gave up the idea of planning sales individually for different countries and began developing a unified strategy for the entire Asia region. It was during this same period that the company bought a plant in South Korea, purchased several local tea and coffee brands, and re-examined its relationship with its suppliers. This allowed the brand to quickly penetrate into Korean retail chains, as well as to strengthen its position in the market of other Asian countries.

By properly determining your first order of tasks and creating a set of priorities, you will understand how to properly allocate your company’s limited resources, and sometimes this will allow you to make strategic breakthroughs.

Tightening our belts

Saving is one of the most important ways of staying safe during a crisis. Reducing expenditures down to the basic needs of the business is indeed difficult, but it must be done. A better time will come for all those big marketing studies, renovations, relocations, corporate events, and investments that have only a weak effect on the company’s current activities, but for the time being it is best to avoid all this.

It is worth taking a fresh look at your contractors’ offers – there may suddenly be possibilities to save money without losing your position in the market, or to buy supplies at a lower price from competitors. If your business is based on imports, you have the option of searching for good domestic equivalents.

The example of fast-food giant Burger King is worth noting. After the investment fund 3G Capital bought 100% shares of Burger King Holdings Inc. in 2010, the company began restructuring. A year went by and Burger King fell to third place behind Wendy’s and McDonald’s, but soon the company’s profits began to increase considerably. To a degree this was linked to menu changes – the company had drawn new customers by starting to offer items for fans of healthy eating. The key factor, however, was the arrival of the young and ambitious CEO Daniel Schwartz. The new management decided to retain only 52 restaurants and hand over the other 12,122 through a franchise model. Thus, 3G Capital saved 400 million dollars on renovating and redesigning its entire network of locations. The directors themselves explained their decision by saying that franchise owners are better capable of dealing with restaurant management, but for Burger King it is now enough to have a small staff of 200 people to train future franchises marked by excellence.

Let’s show our cards

Company employees see and hear everything, but they don’t always understand it correctly. Often deliberate silence and sweeping problems under the rug will lead to undesirable gossip, speculation, and loss of valued staff. That is why it’s important to be open and honest with your employees. People have the right to know that raises, bonuses, prizes, or other incentives are not foreseen in the near future, and sadly you will have to bid farewell to some of them. Yes, downsizing is inevitable. You need to keep only those that your business process cannot do without. At the same time, however, it is good that each employee be notified that a positive outcome is likely, and that you all will have a chance to work together in the future.

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A crisis leads many managers to give up on the “office team” in exchange for freelance experts. This is indeed convenient. First of all, there is no more need to offer these employees a workplace, as they will be working remotely. Secondly, it can happen that freelancers have higher motivation and better skills than office staff. And thirdly, you can oversee all processes and hold meetings online, which can obviously save on expenditures and time.

Things aren’t great for customers either

We become reacquainted with our customers, get a handle on their preferences and behavior patterns. A business is focused on paying individuals, but during a crisis it’s not only you who are trying to save money, but your customers, too. Irrespective of earnings and losses, everyone starts to save money and think about their expenses. Now purchasing decisions more often depend on the real usefulness of a product. If we are talking about a phone, it has to have the necessary features and be as cheap as possible. For grocery baskets, it has to be filling and no-frills.

Customers’ demands change, and so you must keep an even more careful eye on market trends and be ready to adjust to these demands in time. It is in times of crisis that some structures have managed to increase their sales volume and significantly widen their customer base. This is what a well thought-out anti-crisis marketing campaign can bring for you.

Your promotional methods also demand optimization in a time of crisis. You should examine the effectiveness of the PR tools and advertisements that you use, within your new strategy, and of course you shouldn’t forget that a crisis is a time for sales, discounts, and customer loyalty programs.

Let us recall the textbook example of Pepsi. After the sugar market took a huge fall way back in 1921, it seemed like the famous beverage would forever sink into oblivion. The alert director Charlie Guth managed, however, to restore the empire and come out better than Pepsi’s competitors. The essence of this experiment lay in selling Pepsi in 12-ounce bottles at the same 5-cent price that Coca-Cola was selling its 6.5-ounce bottles for. Its astutely chosen slogan “Twice as Much for a Nickel” and strategy paid off completely. In a time when saving money was the main thing on most people’s minds, such a market approach was more than appropriate.

It’s important to realize that a crisis is, first of all, a turning point, an opportunity, and sage behavior during the crisis often opens new horizons for a company: it allows you to increase market share, it helps you optimize your business processes, it attracts new partners, increases your customer base, etc. Thus the future of your company will depend entirely on how you define and take advantage of the possibilities that suddenly appear.


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