11th February, 2021
Over the past 12 months, the number of Australian businesses entering administration dropped 60 percent. 2021 could therefore present more challenges for SMEs than 2020 did.
For most, 2020 was a year of challenges never experienced before. Tough, arduous, unrelenting, and exhausting. However, the underlying factors driving change and uncertainty aren’t about to go away.
In this article, I’ll attempt to provide insight into the unique challenges Australian and New Zealand decision makers face from the outset of 2021, with some thoughts on how to prioritise and plan a successful, sustainable road ahead.
2020 saw a dramatic reduction in the number of Aussie businesses going broke (or entering into administration) with the 10-year rolling average of 2,335 per quarter plummeting to only 946 for September 2020 Quarter (1,747 March 2020, 1,203 June 2020 respectively).
This massive 60 percent reduction means the economic slowdown we all experienced poses many more unique challenges for small-to-medium business in 2021 than perhaps it did in 2020.
2020 produced many hero stories of small businesses pivoting into new niche operating modes. For example, restaurants pivoted into take away food packages, retailers launched click-and-collect services and so on. And we all celebrated each initiative highlighted by the media, as this offered us hope and encouragement to keep the faith and persist ourselves.
On one hand, the massive reduction in numbers of businesses that naturally “fail” every quarter throughout 2020 highlights the success of the Australian Federal Government’s JobKeeper strategy. But, many of us in the world of business advice, consulting and mentoring believe that the true economic impact or ripple effect is in fact yet to play out.
Insolvency experts are expecting a tidal wave of voluntary administrations, restructures and wind ups. For many of us in 2020, we were lucky enough to remain employed.
With 60 percent of all employment provided by the small business sector, now is the time to prepare more seriously than ever before for the 2021 year and beyond.
Buying behaviour has evolved like never before.
Consumer spending patterns have evolved dramatically in an incredibly short period of time. Non-traditional mediums are picking up market share like a fishing boat trawling through schools of fish in spawning season.
The diversity of customer expectations in terms of how they prefer to interact (or do business) post-2020 will polarise service delivery methods and increase pressure on small-to-medium businesses to adapt to survive. Business owners unable or unwilling to innovate and meet these changing expectations and engagement patterns will undoubtedly feel economic pressure and the loss of market share.
The more one considers how dramatically buying behaviour is transforming post-2020, the more opportunities (or challenges) one sees for the business owner.
For example, tradespeople who fail to offer a “quote by video” service may find themselves missing out on consumer and commercial works whereby the customer believes a video call would offer the tradie an opportunity to respond quickly with an indicative quote without having to attend the site.
Restaurants that refuse to offer online menus for dine-in services may see younger generations preferring to attend trendy eateries like The Sporting Globe whereby you can order and pay upfront from your table using an app or a QR code without having to wait for table service.
Professional services firms that fail to offer their clients video meetings and turnkey digital signature systems may see more upwardly mobile clientele moving to more contemporary players that deliver speed, efficiency and the convenience of rapid turnarounds and online meetings through the deployment of leading cloud technology platforms.
Disruption harmed more businesses than it has benefited others. Business in some sectors may have changed forever. Certainly, across many industries, businesses became more agile, with the key lesson being that things do change and can change rapidly when certain economic forces are applied, such as a global pandemic.
2020 lessons learnt – from Forbes Magazine:
Microsoft Teams created virtual commutes – daily goalsetting and even meditation. The key insight here is, if the biggest (or very big) companies pivoted, hustled, and aggressively pushed ahead with innovative new value propositions, so should we in the land of small-medium business.
But 2020 was not all doom and gloom.
Boom industries include technology, medical, streaming entertainment, social media, Tesla/logistics, e-commerce, and “trusting” online brands expanded their market share (such as, consumers trusting Amazon and Facebook Marketplace).
There are standout examples of success in 2020. Zoom has become an icon and became one of the most mentioned pandemic related brands. Zoom founder Eric Yuan’s wealth grew $16 billion in 2020, Amazon – Jeff Bezos wealth grew $90 billion, Michael Dell up $16 billion, and Tesla’s Elon Musk +$140 billion.
For many, nothing is more constant in 2021 than more change and disruption. For many, late adoption (or no adoption whatsoever) of radical and innovative change creates something of a lame duck exposure. For example, accounting firms that did not relocate to the cloud pre-2020 and still running on office based server networks are uniquely exposed if another stage four lockdown is suddenly enforced.
Taking the time to gain clarity, reflect and plan, analyse your strengths, weaknesses, opportunities and threats (SWOT) is critical yet many are so worn out from 2020 that recuperating is a higher priority which is not recommended in this environment.
The biggest issue business owners now face is being termed “COVID-normal”. That is, a new level of risk and disruption with governments willing to lock down regions suddenly with no notice.
Being beyond our control, these scenarios create havoc for traditional businesses, whereby they have not yet developed alternate business models capable of trading during lock down protocols.
When it comes to specific industry sectors, it’s too easy to generalise tales of woe (or play the victim) instead of looking at what innovations lead to viability and sustainability during unique and uncertain times predicated on disruption and volatility.
Retailers that have invested in creating customer loyalty programs and built their own online communities became more viable in uncertain times because they can easily and efficiently maintain communication and direct customers at alternative procedures to achieve “business as usual” status.
Other key strategies are online or e-commerce channels and collaborative cloud platforms like Zoom or Microsoft Teams (video conferencing and project collaboration) for team meetings and customer interactions.
Put simply, any business that has been innovative prior to the year 2021 is going to be far more likely to already have many of these strategies as commonplace. Those who do not are temping fate and more likely to be in the higher risk categories, regardless of their specific industry.
Any business that has been fortunate enough to trade on with little or no disruption through 2020 may be wise to consider themselves a cash-cow profile.
A global consulting firm (Boston Consulting Group) created a well-known diagram to help executives understand the reality and trajectory of their own firms.
The key observation here (above) is that cash cows need a huge amount of reinvestment at some point to regenerate growth and gain new market share.
What we’ve observed from the global pandemic is that a state of denial regarding your business viability is not recommended.
The most challenging situation for business advisors right now is that every single business owner could probably do with more consulting and advice. It’s a case of too much opportunity and too little time.
For business owners, that means maintaining a close relationship with your advisors so that they understand your needs and can put aside enough time to work with you.
For business advisors, clarifying what you can and will do, knowing how you do it, and doing it efficiently and effectively is key in times of significant opportunity.
A lot more time needs to be devoted to strategic planning than most SMEs (small, medium, and emerging business owners) are likely to appreciate. And this type of business planning comes with a twist of lemon! That is, a whole new take on a SWOT analysis and what gaps or vulnerabilities your business has in today’s new COVID-normal marketplace.
From an aspirational perspective, we might all agree that to go where we have never been, we will likely need to do things we have never done. But how many of us realise that this all starts with a totally different mindset than perhaps ever before.
From the oldest written records in human history, there is evidence of the importance of philosophy; “I think therefore I am”. And this should indicate to us that our mindset really is fundamental to both life and business.
The key is realising that if being a business owner is like running a marathon, then, for many of us, the past 12 months included “hitting the wall” (a term marathon runners use to describe the enormous mental challenges that can occur during their participation in a marathon running race of 42 kilometres).
Mental toughness is now, in my opinion, the most critical success factor needed to success in 2021 and beyond. And in this regard, applying yourself as a business owner to maintain cashflows while also totally disrupting your own model (even if you’re successful) takes a certain amount of grit and resilience.
After all, who heads upstream in a raging river or swims against the tide when not forced to do so? In summary, denial won’t work. Neither will business as usual.
When it comes to sustainable business models, everything has gone up a notch and goes now. If you see something that is working for someone else, take note of it and ask yourself ‘why is it so?’. Your observation skills just may lead you to your own new model of innovating and disrupting the way you have always thought and done things.
One thing is for certain, we all need to be tougher, fitter and stronger, more agile and move innovative than ever before.
2021 is not for the fainthearted. Best of luck and good fortune to you in your endeavours.