Leadership & Strategy
Struggling SMEs brush up on survival skills
So you’re a struggling SME. Join the club. According to our recent survey almost a third of SME leaders currently classify themselves as “struggling through”. Or as some respondents said, “just about surviving”.
A big drop in revenue
While this group includes firms in a wide range of situations, struggling survivors have two things in common: a dent in your revenue stream and a drop in demand. For some, that’s down to the sector you’re in, such as non-essential retail. For others, like business-to-business service providers, it’s because clients are tightening their belts and reducing discretionary spend.
Still, here you are. You’ve been nimble in your decision-making and managed to keep some operations going with a narrower range to a smaller customer base.
We’ve spoken to other business owners who say they’re just about surviving to find out what they’re focusing on in the short-term and how they view the future. And in the light of lost revenue and tight cash flow, how can they even think about bouncing back? Here are the key challenges and opportunities they identified:
Challenges for struggling SMEs
- Keeping cash in the business. The financial position for Struggling Survivors isn’t as precarious as other segments (Hibernators for example) as the average cash cushion is 12.6 weeks. Instead your focus is on making sure revenues don’t fall much further or fall too fast. The cost of adapting to social distancing is also a concern.
- Cost efficiencies and small tweaks. You might not have made the dramatic innovations that businesses in the pivoting category have made. Instead they’ve been making a series of small but significant changes: to their operating model, products, marketing, processes and supply chains.
- Predicting customer confidence. A lot of Struggling Survivor questions start with “when?”. When will business pick up, when will clients be happy to spend, and when can we reopen those parts of our business that require physical fulfilment or face-to face service? Your scenario planning skills are helping you plan for different answers.
Opportunities for struggling SMEs
- Staff loyalty as an asset to recovery. You managed to keep most of your staff on board, even if you’ve had to change roles, reduce hours or even cut pay. As you move into recovery, highly engaged and grateful teams will have a strong sense of shared responsibility and motivation to pull the business through together.
- Operational leanness. Strugglers Survivors have trimmed all the fat. You’ve shaved overheads, streamlined processes and are keeping a close eye on cash flow. When market demand is unpredictable, tightly-managed operations are an important lever for profitability and regrowth.
- Agility and pace. Many businesses in this category adapted to a new way of working within days of lockdown. Big decisions were taken at pace, with the barest of facts to inform them. This ability to move quickly, save what you can with minimal drama, has equipped you to find and follow quick wins.
What’s next for struggling SMEs?
There’s a lot of talk about bouncing back, but for some businesses, recovery isn’t going to be feel much like “bouncing”. Strugglers and Survivors have gone into a mode of cautious alertness that allows them to protect what they’ve built while taking small steps forward. As you edge through the next 12 months, your sharpened skills will help you seize opportunities as they arise and make incremental but vital changes.
Like all surveys, our research puts businesses in clear-cut segments. In reality though, the lines between Hibernators, Struggling survivors and Pivoters are not static. Even today’s Thrivers might find themselves in a very different place tomorrow with changing guidance from government and the ebbs and flows of lockdown. Over the next 12 months you might move in and out of these definitions as we all regroup and figure out what the future holds. (Eventually let’s hope you’ll all be thriving.)
As you work through your own rebuild puzzle, here are the phases you might move in and out of:
Struggling survivor stories
A global events management firm with 75 staff, Istoria saw bookings evaporate overnight. The business has furloughed 16 staff, cut executive pay and is considering future innovations to see the company through the crisis.
CEO Same Rowe highlighted the importance of keeping a close eye on company finances. “We spent the first few weeks talking to our bank, financial advisors and lawyers, exploring which government support would work best for us. This helped us furlough as few staff as possible and cut costs wherever we could. Surviving is going to be about keeping cash in the business.”
Sam also noted the importance of communication and keeping morale high during a difficult time for employees. “We’ve increased the number of line manager catch ups and started things like virtual pub quizzes – it’s never been more important to communicate that we’re all in this together.”
Istoria also shows how dynamic firms in the struggling survivor segment can be: one firm hand on cash flow and one eye on opportunities to incorporate innovations over time. “We are looking closely at the future of the industry, what new products can we offer. Out of bad times a lot of good things can happen. Our sector might be impacted for a long time so we’re seeking out work and new opportunities that might benefit us in the long run.”
Watch our full interview with Sam
Papersmiths is a small chain of stationery and bookstores that mothballed its stores in London, Brighton and Bristol closed at the end of March. All 30 employees have been furloughed.
At first glance this might seem like a story of hibernation, but CEO Sidonie Warren has never been busier since she set herself up at home to sell stock online. This digital strategy is keeping revenues up and is a great example of new leanness many strugglers are adopting to survive. ”I’ve pulled every cost lever possible in terms of negotiating with suppliers and landlords, asking for payment holidays and extensions, returning stock for credit notes.” She’s also applied for government grants, deferrals, and loans.
Sidonie also talks about business during survival as a series of small tweaks. Instagram and email marketing have been working so well she’s had a challenge to keep up with order fulfilment. She’s making tweaks to the ecommerce website too to reflect emerging customer needs under lockdown, focusing more on working from home, self-development and journaling products.
A daily focus on “cash in” and and “cash out” also marks Papersmiths out as a Struggling Survivor and Sidonie’s firm grip on her numbers is a factor in the business’ survival. Even before lockdown, Sidonie already had a closedown plan because she knew the exact point at which it would actually cost more to stay open. “Managing cash flow is the best thing I’ve learned as a business owner. There’s new maths to do every day.”
Watch our full interview with Sidonie
Key Production Group is a 30-year old manufacturing business creating bespoke packaging for the music industry. Its order book dropped significantly after lockdown and 16 out of 56 staff were furloughed.
The first factor that puts Key Production in our survivor category is the way it reacted with speed, taking big decisions at pace and early on. This isn’t the first crisis the business has weathered and the experience of CEO Karen Emanuel has allowed her to steady the ship this time. “The way people consume music has completely transformed in the past 30 years and we’ve managed to survive a lot of difficult times. So now, we’re not making any big changes; our structure and processes are proven. We’re looking for smaller efficiencies or adding little extras to customer service.”
Karen’s experience in carefully riding changing demand is something that’s also helping. She talks regularly to customers to see how their businesses are doing and get a feel for when things might pick up for them and in the industry at large. “I’ve been trying to gather as much information as possible to forecast, forecast, forecast. We’re looking at every scenario. What’s it going to look like and what can we do to mitigate it? I’m speaking to clients, looking at hard data and there’s a little bit of gut feeling in there as well. It’s not been as bad as we thought and we’re getting some projects back up and running, bringing four staff back in at the beginning of June.”
Key Productions also offers a good example of keeping staff engaged and motivated as Karen’s used precious cash to top up salaries. “Thank god I’ve kept a lot of working capital in the business just in case or a rainy day. I suppose that’s actually my retirement fund,” Karen laughed, “but I thought it was important to retain everybody. My staff are fabulous and at the end of all this, if they’re engaged, we’re going to do get out of this so much better. We’ll rise above together.”
Listen to our full interview with Karen