February 29, 2012: The ancient Mayan calendar ends on December 21, 2012. For some, this signifies the end of the world. While I don’t subscribe to this way of thinking, current economic conditions may make one feel that the end is nigh.
With inflation expected to hang around 6% and with food, electricity and fuel prices rising, there is additional pressure on every Rand in the consumer’s pocket. Austerity measures are the order of the day. Everyone is tightening their belts. Sales are just not at the levels that they used to be. How should business owners respond to these challenging circumstances?
I took a look at what several of the gurus are saying, and the best bit of advice seems to be “get back to business fundamentals”.
Tony Manning, one of South Africa’s top business consultants, makes the point that business people are inclined to “buy into fashionable business scripture” forgetting the very fundamentals that their businesses are built on. He goes on to say: “Don’t waste your time looking for new fads,” and warns that if you ignore the basics of business, then you will “get killed in the marketplace”.
Rash decisions
In addition, business owners and managers are warned not to panic and make rash decisions. One should take time to analyse what the economic downturn means for your business and react accordingly. It will mean different things to different people. Some may find that there is a drop in turnover that is expected to last for the next 12 months, and for some, the market will never recover to original levels.
Businesses are especially warned to be wary of dropping prices to encourage sales, because it can seriously erode brand value. Whether you decide to cut costs or to move into other product lines, do so in the context of having considered what the longer term implications are for your business.
Business principles
Manning advises that this is the time when businesses often change tack and go after every customer. This isn’t a good strategy, he warns. He advises that one should only go after the right customers. The reasons why you never pursued the other customers are probably more valid now than ever before.
Now, it seems, is a very good time to take a long, hard look at your business. Many of the same business principles that were advocated years ago are still relevant today. Harvard guru Ted Levitt made an interesting point 30 years ago. He said that when you buy a quarter inch drill, it isn’t the drill that you are buying, but the quarter inch hole in the wall. He went on to say that if a drill can be produced that gives you a less expensive hole, then it probably doesn’t matter if your competitor’s drill has a rosewood handle and chromium finishes.
The final bit of advice gleaned was to be careful of over-optimism. Being too optimistic is as dangerous in this kind of operating environment as panicking is.
So, “don’t panic, but never hide from the truth” says Manning. If your business model no longer works in the new circumstances, then you need to face facts and make the necessary changes. Even in bad times you need a quality product, a realistic mark-up and you need to market your products effectively through a sound sales operation.
“Save costs but don’t cut corners, it’s just common business sense. – By Melanie Veness, Chief Executive Officer of the Pietermaritzburg Chamber of Business
NB: This column was originally published in The Mercury Network