How Crisis-Resilient is YOUR Business Model?
by
Thomas Schinkel
The other day I was asked to give a talk to a group of start-up entrepreneurs who had gathered at an Innovation Center for young entrepreneurs. The topic of conversation was how to make your business model more crisis-resilient. Early on, I asked the group if any one of them thought we would be relatively free of crises during the next three to five years. No one raised their hands, no surprise here! In other words, the audience’s expectations were clear. Crises will be with us for a long time to come. For clarity’s sake, let’s define “crisis” and “resilient”.
A crisis is any event that is, or is expected to lead to, an unstable and dangerous situation affecting an individual, group, community or whole society. Crises are deemed to be negative changes in security or economic, political, societal or environmental affairs, especially when they occur abruptly, with little or no warning.
Resilient means the ability to recoil or spring back into shape after bending, stretching, or being compressed. In other words, it’s the ability to withstand or recover quickly from difficult conditions.
Of course, crises come in many forms and shapes. In today’s world, we mostly think of global economic and financial crises, the likes of which we all witnessed during the now infamous period in history called 2007-2010. And there is every likelihood that this type of crisis will revisit us as the years progress.
But especially in the context of business, it is useful to broaden the definition and include personal, organizational and industry crises. For example, some industries have been in a state of crisis for many years. Commercial Aviation is a classic example of this sort of crisis. Individual companies can be in crisis as a result of technological changes that were not anticipated or not made in time. A case in point is Best Buy, for many years a high flying company in the consumer electronics space that now appears to be in a state of steep decline.
And then there are the crises that relate to individuals and their families who have often been committed to their family enterprise for decades.
For our purposes though in this article, let’s focus on what became the global financial crisis starting in 2008. Whenever there is a financial crisis such as the one we experienced from 2008 to 2010, many companies in a given industry suffer revenue loss and a decline in profitability. But there is also a small group of firms that appear to be the exception. Despite a downturn, their sales keep rising, their bottom line remains healthy and in some cases even improve. They have a characteristic in common that can best be described as “Crisis-Resilience.”
On the surface of it, it is very difficult to pinpoint this resilience to crisis as being attributable to any one specific factor, as if all of them have access to a set of magic silver bullets that protect them from the vagaries of the next crisis around the corner. These crisis-resilient businesses cannot be defined in terms of demographics or size. Some are owned and operated by older people, some by younger. Some are directed by women, others by men. Some are large, others are much smaller and often compete against players with far more resources and muscle. Geography is not a defining characteristic either. I see these firms all over North America and all over Europe. Is it limited to certain industries perhaps? Not really! Services firms, resellers and manufacturers, you find crisis-resilient companies everywhere.
After giving this much thought, I have come to the conclusion that many crisis-resilient business models result from a combination of harmonious actions informed by values and beliefs that approach risk in a very different way from the norm. On the one hand, these models set limits and sometimes say “NO” to business opportunities eagerly embraced by more traditional types of companies. This can cover limits on assortment, on market segments, on types of orders or numerous other parameters.
On the other hand, crisis- resilient business models have a knack for raising the bar to new extremes on other criteria, such as customer service or embracing new technologies. Some focus on internal business processes that cultivate standardization and repetitive skills, and many of them have a knack for “keeping it simple.” They set goals and clearly define standards for the business. This is often a matter of resolving in a creative way the seeming contradiction between setting “limits” and defining “extremes.” To my way of thinking, this is all about entrepreneurial instinct and intuition, not about strategy or tactics. The following table illustrates this creative dichotomy:
Examples of Entrepreneurial Standards
that Help Create
Crisis-Resilient Business Models
“A Creative Dichotomy”
| Setting
“Limits” |
Raising the Bar
to a New ” Extreme”
|
| 1. Assortment
|
a) Customer Service |
| 2. Market Segmentation
|
b) Logistics |
| 3. Debt
|
c) Real-time analytics |
| 4. Growing the Business
|
d) Quality |
| 5. Prospecting
|
e) Variety |
| 6. Credit Risk
|
f) Risk Management |
| 7. Recruiting/HR | g) Identity
|
| 8. Products & Product
Development |
h) Embrace New
Technology
|
| 9. Reward Systems | i) Pricing
|
| 10. Reseller
Arrangements |
j) Simplicity |
Source: Thomas Schinkel – April 2012
If I were the CEO of a large or mid-size corporation I would insist that the subject of making our businesses more crisis-resilient be “a recurring theme of conversation and deliberation” among my top team of leaders. And if I had aspirations to grow the business through acquisitions at home and overseas, I would encourage my M&A team to define the characteristics of crisis-resilient companies as clearly as possible and incorporate those characteristics into their search objectives in all markets where I wanted to expand. Of course, future crises are inevitable but there are many creative options for preparing your company by making it more resilient.
Thomas Schinkel
