In times of economic crisis, companies struggle with their sales and marketing, even cut costs in that field. In a crisis, the income and turnover decrease while costs remain at the same level or will even increase, and cash becomes an important asset. Surviving a crisis is about keeping more income than costs. A straightforward ABC, not a really special insight we are sharing here.
We are in a worldwide crisis, with a recession ahead of us. The coming months, maybe even years, will be a period of income and turnover reductions. Companies will minimize. And some companies will go bankrupt too. The first and utmost reaction of most companies is to cut costs. This is easier, and mostly under your own control. And with that, other companies’ income streams as well as people´s incomes decrease, which means consumer spending’s decrease accordingly, well, you can do the math.
There another, but indeed, more difficult way to improve the income versus costs ratio, and that is to increase your income. Again, an ABC. However, the difficult part is to have your customers spend more while in a crisis and hence cost-cutting period. How do you manage this?
It would help if you started by rethinking your value proposition. Companies do spend money, even in times of crisis, but only if the value offered is higher than they spend. Sounds easy enough again, but it isn’t.
We like to share how we think you can offer value for your customers in times of crisis. It would help if you started thinking like your customer, as being one of them. Think and act like them, stand in their shoes. What does matter for them in crisis times, and where can your services help and add value? Let’s look at it from a timing perspective, how your (target) customers think and act during the period of impact. I have highlighted value words you might be able to work with:
- Short term (1 – 2 months)
In the crisis, we are in, the short term is and was focused on care for their employees, keep the operations up and running, and create stability and clarity. Service providers see this by a huge order flow of laptops and Office365 environments. When that period has passed, it is about securing cash (flows). Have money in the bank. In crisis periods, even the best-paying customers might change their behaviour, for the same cash reasons by the way. The third activity is that companies will cut costs. Seize contracts that will have an immediate effect on their spending and costs. Priorities are the high amounts and flexible contracts with minimal or no effect on daily operations. Think of contractors, rental equipment, but also services that you can downscale like electricity, cleaning, internet; you name it.
- Mid-term (this book year)
After the initial period to stability, companies focus on keeping their book year results healthy and will start to rationalize. This is all about keeping a positive cash flow at the end of the line. Both operational margins, net profit, as well as cash flow indicators, should have a positive balance. Cost reduction schemes or solutions should have an impact within the months of the book year, preferably with a positive business case in that same year. Although never a popular theme, employment is under pressure. Temporary labour contracts are under review and labour contracts that show a positive balance within this book year when being cancelled are also under review. Becoming efficient while keeping operations up and running has a high focus. Companies also focus on securing their income streams. Customers will be contacted more often, up- and cross-sells are considered as well as special offers for the pending deals in the funnel. All dependant on the lead times of the portfolio, companies will look at low hanging fruit, create income against a minimum of spend.
- Long term (1 – 3 years)
The long term is a period that a lot of companies are not viewing whilst in a crisis. Why invest or work on long term scenario’s when you are in a survival mode? From the rationalisation, companies are operating in a lean mode, very efficient, effective, but…. not performing activities that are important for the long-term stability of a company. Downscaling has led to cost-effectiveness and a healthy financial situation for the short and mid-term. For the long term, however, when the business will increase, and demand will grow, the organisations are confronted with scaling challenges. Having an organisation that can adapt and scale easily will lead to a situation that a company can cope with a future crisis. This requires time, so having orientation around their future value is needed now. Next to organizing and preparing for the future, companies that seize their commercial activities due to cost-cutting reasons during a crisis will face a gap in their funnel. Not investing in marketing and sales will lead to cost-saving goals but will also lead to a decrease in new leads and opportunities. As with their operations, restarting these activities are time and cost-intensive. Future new revenue growth should come from a healthy funnel and therefore, a continuation or even expansion of commercial activities during the crisis.
These insights are just an outline of what (should) happen at companies during a crisis. The modern company should be agile, adaptive, fast in reaction and have a customer focus, but… how many really are? The scenario’s I have shared are merely ideas that may happen within companies now.
But, even if they don’t occur, you may want to use them. During these crisis days, the management of companies or the internal advisor and crisis teams need advice. They seek solutions and ideas to help them with their challenges. An open door as this may be, it still is true. Just sharing the above scenario’s may help and can bring new ideas on their table.
A suggestion you can share already from your side is to think along with their cash position. Minimize or even refrain from any upfront or initial project payment. Calculate any initial fee you would normally charge in the beginning, into a monthly set-up. A small and very logical idea, but not always top of mind of IT companies to begin with.
So, it best to take a breath, investigate what your target group is or should be doing, and then derive your proposition. How? We will share tips on building your short, mid and long-term value proposition in part II.