A black swan event is defined “as an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.” Instability and black swan events appear to be the hallmark of the 20s. It’s only 2022 and we have already experienced climate change-induced natural disasters, a pandemic, riots and sadly even war. You would be forgiven for wanting to throw your hands up in despair, while you run for cover!
We cannot predict the future, but we can prepare for uncertainty, in fact, our businesses’ survival depends on it.
Human beings are hard-wired to be creative and to problem solve; it’s the story of our evolution. As entrepreneurs, we need to harness our agility and ability to adapt to a new reality, by constantly asking, “what if?” What if there’s a sudden supply chain disruption? What if there’s a natural disaster? What if there’s a major world event that threatens our security?
Burying our heads in the sand is an option, as is panicking or giving up, but the smarter choice is to constantly seek ways to shockproof your business for when, not if, a threat occurs.
Look after the money
While there are always winners and losers in any situation, generally instability is bad for an economy. Add surging oil prices, plus inflation and the pressure is on. Business owners will feel this pressure on their bottom lines for sure. The golden profit ratio applies, and it is very simple, total revenue - total costs = a profit or loss. If costs are going up, then a business owner has two options:
- Raise prices (pass the costs onto the customer).
- Absorb the increase.
The first option is the most attractive, but rarely a practical solution when customers are also feeling the pinch. Raise the price too high and customers will simply go without or find an alternative. This leaves the second option, which means a reduction in profit margin or the danger of running at a loss.
Where does this leave you?
- Develop a habit of regularly seeking the best possible terms (price, quality and payment) from your suppliers.
- Be obsessive about reducing error and waste margins. Think of the stealth losses such as leaking taps, lights left on, printing unnecessarily.
- Maximise technology to improve productivity.
- Offer incentives to customers to pay early or on time. Cash is king.
- Save for the inevitable rainy days… if the instability is likely to be short-lived, it may just allow your business to carry a short-term loss but remain in operation.
- Insure against high risk and high likelihood losses.
- Constantly seek new or alternative markets to grow your business.
- Spread the risk by using a variety of suppliers.
- Be straight with your bankers. Show what are you doing to handle the situation.
Look after the customer
It seems trite to say that there is no business without customers, but it seems that many businesses forget this. Treat them well! Give your customers every reason to come back to you. As prices rise and customers have a smaller wallet to spend, make sure your business is top of mind.
- Find new ways to engage with your customers – listen to them, they like that!
- Look for ways to collaborate with other businesses to offer great packages… share the pie.
- Seek to understand their problems and offer creative solutions.
Look after your people
In times of crisis, there is a human cost, not just an economic one. Just as you, the business owner may be feeling exhausted and nervous, so are your employees. A good leader acknowledges that people are just human.
- Be transparent and share your concerns
- Ask how they are coping. How can you help? Support may take many different forms, not necessarily monetarily. For instance, allowing flexible hours so that parents can fetch children early and save on child care services or, perhaps using the company van to provide transport.
- Encourage employees to look for new business, reduce costs and make suggestions that may weather the storm. Develop a culture of rewarding creativity and responsibility.
- Communicate and when in doubt, communicate some more. Silence breeds insecurity and insecurity breeds inertia or rumours.
In any situation, even a disaster, we get to choose our response. We make the best choices if we focus on what we can control and what we can influence. The rest is literally out of our hands and will only give us an ulcer if we worry about it.
By Janet Askew
* Investopedia.com
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