Your small business does not stand alone. It’s part of a broader network of companies that can be chained together — creating more value at each link in the chain between raw materials suppliers and your customers.
To cope with the challenges of the pandemic, start by thinking about how your company fits into this value network. Small business leaders — who employ some 60 million people (about half the U.S. private sector workforce), according to the Wall Street Journal — must march through each stage in their value network, keep what they need there and cut the rest.
To illustrate the concept of a value network, consider a local restaurant. It buys meat, vegetables, fruits and other foods from local food distributors and farms; it orders wine and spirits from local wholesalers; it partners with local table cloth and napkin services; it hires and pays cooks and waiters; it markets to local consumers; pays rent to a landlord; borrows from a local bank; and it contracts with suppliers of reservation and credit card processing services.
Here are five common links in a small business’s value network, how the pandemic is creating opportunities and threats in each, and what you should do about them.
1. Hold on to your most valuable employees, cut the rest.
How the pandemic affects your employees depends on whether your business is a Covid-19 winner (it makes a product that people need more in a world where social distancing prevails) or a loser (its revenues depend on customers spending hours close together in an enclosed space).
Covid-19 winners have an opportunity to grow faster — only if you hold on to your best employees and, if needed, can hire more people to meet the increase in demand.
Covid-19 losers must change how they operate — resulting in much lower revenues due to a strategy change that enables consumers to buy while social distancing.
A local restaurant may have shut down all indoor dining and shift to online ordering and pickup. That means the restaurant owner must decide which cooks and waiters are most valuable and let the rest go.
Other Covid-19 losers ought to make similar changes to their operations and implement staff cuts to lower their fixed costs.
2. Adapt to changing customer needs.
The pandemic is likely to change what your customers want to buy and how they take delivery of what they order.
If you adapt quickly and effectively to changing customer needs, the pandemic could be an opportunity. But for Covid-19 losers, adapting effectively, might also be a threat — slashing revenue as customers buy less often and pay less each time.
Consider the small restaurant. Prior to Covid-19, it kept people waiting to dine for 60 to 90 minutes. Parties ordered many courses and bottles of wine and eagerly returned every couple of weeks.
In the pandemic, those same customers shun restaurant dining. Every two or three months they might order a meal for their family and pick it up from the parking lot.
With lower revenues and profit margins, that restaurant owner must cut back on other costs enough to survive until the pandemic ends.
3. Shore up raw materials suppliers you need, pause the rest.
Covid-19 losers may no longer need all the raw materials they purchased before — or they may keep buying the same raw material but slash the quantity.
For example, that small restaurant would end its contract with the tablecloth and napkin supplier, cut way back on its alcohol purchases, and buy only the food ingredients needed to make the family takeout meals it sold.
4. Tell landlords and lenders how much and when you can pay.
If you are like this restaurant, you should know how much cash you have left over to pay your landlords and lenders.
If you have a good relationship with your landlord, agree on a reduction in monthly rent until the business climate improves.
Engage your bank in a similar conversation — commonly that means paying back interest but not principal on the money you borrowed.
5. Negotiate new terms with technology and logistics partners.
Similarly, Covid-19 losers should cut or cut back on the size of their contracts with technology and logistics partners. The small restaurant might cancel its reservation service provider and use its credit card processor less frequently.
Knowing how your business fits within its value network can help you envision more accurately how the future will unfold and adapt to survive the pandemic.
