Is it time for a business model shake up?

There’s one certainty that the Covid-19 pandemic has brought about, and that is many businesses are taking a second look at their business practices and some, at their primary business model – their whole reason for being.

Time to shake up your business modelAll businesses need to review how their employees conduct daily business life, especially if they are in customer-facing roles or large office-based teams. But, what about the broader impact this pandemic has had on business in general? How might this make you look at your business differently for the foreseeable future? What triggers may be responsible for this?

Berley is a business advisor

The team at Berley Chartered Accountants are more than accountants. Our experience with a multitude of different business over many years, means we are uniquely placed to assist business owners to look at how they can adapt and change their business models in the wake of the recent pandemic and help them become more resilient to the fast pace of change we typically see.

It’s business again, but not as we remember it.

An area of business management we at Berley have noted many times with clients is that of cash flow management and maintaining adequate cash in the bank to support operations in times of weak market conditions – the ‘rainy day fund’. Well, we’ve certainly had that recently, and it has tested businesses cash and overall liquidity positions severely.

Total closure of business premises and the inability to reach their customers saw some business go to the wall soon after, as they quickly ran out of cash, despite funding available. Companies in retail, travel and hospitality were hit hardest. While loans are possible, they are ‘loans’ and must be paid back. So, while the temptation is there to seize the cash, the prospect of mountain debt can be enough to put business owners off.

According to some reports from the City, up to half of the business owners that took advantage of the Government’s BBLS facilities may face difficulty paying them back, even defaulting. A reason for this is that the loans are likely being used just to pay debts and maintain essential payments, or to accommodate changes in the way they have to manage customer footfall in the immediate future. However, these loans may not be used to change the way a company operates significantly.  In other words, the loans are not being used to increase the value in the business and adapt them to fundamental changes in how they do business in the future.

For many companies, a return to business is far from ordinary. During the crisis, some businesses realised that the only way they could operate was through the internet or by running takeaway services. Those that appear to have thrived the most were businesses that were able to run on a distance basis, or through online channels and offer home delivery. Some companies did manage to adjust and add an ‘online’ channel to their model, although hastily added.

Even as the restrictions on businesses are relaxed, there’s the ever-present threat of them being reapplied. Not only that, but the precautions companies will have to take for the foreseeable future will likely reduce footfall in retail establishments and direct contact with clients. For many, customer volume is the lifeblood of their business, and such reductions will place them on a knife-edge.

Businesses most at risk and whom need to review their business models

McKinsey & Co recently released research highlighting the business sectors especially threatened by the Covid-19 outbreak. A summary can be found here:

Covid-19 business sector threatIt’s clear from this that a variety of different businesses are highly susceptible to pandemics of this nature. The rather obvious conclusion from the chart is that those businesses that rely on close personal proximity to engage their clients successfully or to operate effectively in teams have the most risk.

For these businesses, they must look at how their business models can adapt under the circumstances we have seen, especially as it’s likely there will be more in the future.

Adaption will look different in each business type. For instance: Many healthcare services rely on close personal contact – caregivers as an example. Solutions here mostly come down to improved safety equipment and procedures when interacting with patients. However, alternatives to private healthcare exist, especially for those in most need. An example is live-in care. This type of service, along with more advanced monitoring services, could offer solutions to companies prepared to adapt.

Other businesses may find it very hard to adapt; the travel sector, for instance. Mass travel is how pandemics spread. But, even this opens opportunities. Easily affordable travel had seen a boom in overseas holidays in recent times, but these have now been hardest hit. Because of this, the ‘staycation’ is likely to see a significant resurgence for the foreseeable future. Also, although not as fulfilling, virtual travel may offer some short term relief.

Business models may need adjusting more often

Businesses should regularly review the basis of their business against changing customer behaviour. Understanding the ‘customer journey’ and the intent behind it is essential if a company is to engage effectively and fulfil successfully.

The main pain points for businesses affected severely by the pandemic have been customer engagement and fulfilment. Although the crisis has brought these issues into sharp focus, a trend already existed that threatened many traditional retail models, as we saw with some high profile retail establishments shuttering their doors. The motivation to adapt to changes in consumer behaviour was already there.

With many traditional retail outlets, this means a brick and mortar shop window. As their weakest link during such crisis and given consumer’s online trends, a physical presence is a potential liability in the future. But, it need not be, if these businesses can achieve a balance. Many already have online portals but found it difficult to make up the loss from their physical shops. The question is why, when so many online businesses have thrived. Here are some possible reasons:

Existing commitments: Commercial property rent is a significant factor running a business through a shop front. As such, much effort is concerned with paying the rent, paying the staff and then making a profit. The online store came second.

Scale: The extent of a businesses physical operation can be a double edge sword. On the one hand, it can yield the type of back of shop operation that can support diversification in its sales channels. On the other though, that same operation may be difficult to adapt to requirements in online sales and fulfilment.

Complacency: When times are good, it’s tough to make changes, especially to a business that may appear to be working quite well. Companies can get a little lazy in their approach to long term security. As such, when it came time to react, they couldn’t as the business needs to go through a lengthier change process. Similar situations occur when an industry or product sector faces a new ‘disruptive’ competitor; a market entrant that can upset other businesses with a new paradigm that could force them into obsolescence if they can’t adapt.

A weak online presence: Companies need to be visible online. It’s not enough to have a website or shop on eBay or Amazon; although that helps. A considerable effort needs expending to make the online dimension of business work, especially if a physical side to the business already exists, as this can often take priority. This involves having a suitably funded digital marketing strategy and ongoing campaign to increase online visibility.

Given the business volatility we have seen recently, and how quickly attitudes can change, businesses need to review the basis of their operation more often and be prepared to adapt to such change faster than they have in the recent

Moving forward

The saying, “necessity is the mother of invention”, is very appropriate at the moment and a reminder of just how vulnerable businesses are to sudden change.

Change in our society is occurring at pace. Driven by several factors, significantly, in terms of technological advancement, attitudes towards aspects of life and the expectations these can bring from the market place.

Businesses must find a balance between established modes of business, and the expectations such change can bring. For some, this may be embracing online sales to a much greater degree, while maintaining a more traditional high street presence as a way to experience the brand for those who still want that experience. 

Other businesses may want to move entirely to an online model and perhaps gear existing facilities more to fulfilment side of the customer experience.

Those in the service sector can explore opportunities this change has brought about. Previously thought unprofitable services, may have a new opportunity.

Which ever industry you work in, there’s bound to be new ways to conduct business or in which your existing business model can be adapted. You just need a little help in getting there; and that’s where Berley can help as business strategy advisors.

We are small business accountants – call today on 020 7636 9094

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.