By Peju Kukoyi
I was speaking to a couple of small and medium scale business owners recently and all I hear was how much more difficult the business terrain has become, how the dollar volatility, high fuel and electricity costs are making life miserable for them, in terms of their businesses. One even suggested she may have to temporarily close her business and get a paid job. Yes, the economic environment is tough now and it would take a determined and strategic business owner to survive unscathed.
The government of President Ahmed Bola Tinubu came in on the wings of a number of reforms to help stabilise and transform the economy. First the government announced the removal of fuel subsidy in its first day in office. This was followed by the flotation of the foreign exchange market to allow the forces of demand and supply to determine price. Following the subsidy removal, fuel prices have continued to trend upwards from N195 per litre before the removal. Today, fuel costs N617-N640 per litre, depending on which part of the country you are. The dollar has had similar effect as it continues to rise. The dollar is currently exchanging for around N757 N870 to a naira, depending on where you source your dollar. Many fear it may rise to N1,000 to a dollar at the rate it is going.
The ripple effect of these reforms has seen prices of good and services skyrocket because almost every commercial or business activity in the country is dependent on either the fuel or foreign exchange market. Due to the poor power supply situation, many business owners rely on fuel to run their businesses, particularly in the manufacturing sector, which almost entirely needs regular supply of electricity to power its machinery. Also, many businesses import raw materials to run their operations and they need dollar to import. Thus, the cost of operations for the average business owners has gone up significantly, which is affecting profit margins despite price increases.
Rising prices have affected consumers too in terms of their purchasing power. Reducing purchasing power meant people are buying less goods and services, which also affects businesses in terms of their inventory levels. Anywhere one turns, it appears to be a losing battle for businesses. But smart businesses must still find a way to survive. In this piece I shall discuss five survival strategies every business owner must adopt at this time.
Cost cutting measures
This strategy is as old as the history of human enterprise. It is tested and seemingly reliable. As a business you must know your costs centres if you have a well-structured business. Typically, the major cost centres are in personnel salaries and allowances, energy and other utilities, logistics, sales and marketing, rent, and maintenance. Staff is one area businesses usually focus on first. While it is reasonable to want to trim your workforce at this period to reduce the salary burden, I want to advise against that. Businesses usually trim the workforce and expect the lean staff to keep operations running at the same levels pre-trimming. What this means is that many employees will be expected to perform multiple tasks without a commensurate increment in their salaries. While this may work in the short term, or even the medium term, the long-term effects are unhappy, overworked, underpaid workers. This is not good for morale and commitment and may lead to a high attrition rate. Remember, the staff too are feeling the pinch of the economic crunch. Rising prices and an unmoving salary have reduced their purchasing power and they are worried how to pay their bills. Staff trimming should be a last resort.
What you should do first is look at areas of your operations that you can cut down on without laying off people. For instance, years ago, banks buy cars for their marketing personnel and each marketer went out to source for customers. But due to rising costs, they devised the idea of pool cars and marketing in groups. So, for instance, rather than buy 10 cars for 10 marketers they buy 5 for the 10 and pair them in twos to a car. The cost of fuelling and maintaining five cars was gone.
You can adopt remote work model or a hybrid to reduce the cost of running and maintaining the office. Importantly, shuffle your workforce leveraging on their individual strength to deploy them to units where they could be most effective. I once had an experience with a PR organisation which was struggling with high costs. The company had two rented offices, many clerical staff, a facility manager, and left a lot of paper trail. We advised they use one office, which it did. They trained their clerical staff to handle a routine aspect of the business called news monitoring, and trained their facility manager, who showed interest in writing, on writing press releases. And it reduced its printing to reduce its paper trail. The business saved millions without sacking a single staff. It can be done.
Coopetition
I have always been a firm believer in collaboration. Thus, while you are in competition with other SMEs, there are several opportunities to collaborate and run some businesses together for mutual benefits. When businesses collaborate, they can easily reduce costs, which is shared, they can get items cheaper because they are purchasing in bulk. All their costs are shared: marketing, advertising, logistics, and so on. Each partner in the collaboration brings in its unique strength. For instance, a cloth maker or fashion designer can collaborate with a jewelry maker, a bakery can collaborate with a restaurant, a home décor company can collaborate with a construction firm, etc. Notable examples of coopetition are: Pfizer-BioNTech on COVID-19 vaccines; UPS and DHL (this collaboration is particularly interesting and makes a strong case for coopetition. DHL was losing money when it entered the US market to compete with the likes of UPS and FedEx. After years of struggling in the market, DHL approached UPS for help. UPS was smart enough to see a business opportunity and agreed to the collaboration. On the outside it did not make business sense because you want your competition to collapse so you can take up its market. But there are other dynamics at play. At the end, it worked out perfectly for both DHL and UPS).
Increase your online footprint
More than half of the worlds population are online. As a business owner, if you are not where the market is then you are missing out on the party. Studies have shown that people start their search for products and services online before they ever think offline. You need to have a strong online presence that will position you for new markets. Exploit your online collateral like your website, social media handles, blogs, etc to get new leads and make conversions. The beauty of online marketing is that you spend less than you would have spent and you get loads of leads, if your content are high quality. Get a good IT person or a PR who can help you optimise your online presence.
Use data for targeted marketing
This is the age of big data so use it. Data analyses will help you know what your target audience really want as opposed to guess work or presumptions. Knowing what they want will help you concentrate your efforts on developing such a product or service. Knowing your audience also enables you to be more targeted in your marketing spend.
Customer service or experience
Several years ago, Nigerians were trouping in their thousands to GT Bank because of its top notch and unique customer service. The customer experience was so good that people became unpaid marketers for the bank. It worked then and it will continue to work. People want to know that as a business you are accessible and that you deliver in a timely manner and have seamless after-service connections. This is the time to concentrate on giving your customers the best possible experience that they can get anywhere when they engage with your business. If you must spend on retraining your customer service centre personnel please by all means do that. Once a customer is satisfied, she not only does repeat business she becomes your unpaid marketer.
As you navigated this tough business climate, remember, you cant afford to stand still and do nothing.
