As most small business and franchise owners emerge from weeks of quarantine, similar questions hang in the air: What does the future hold next? When will consumers feel comfortable again? When will we get back to “normal”?
There are 30.2 million small businesses in the United States, according to the Small Business Administration. Depending on the economic forecast one follows, COVID-19 could claim as many as 1 in 5 of them over the next 12 months.
Early indications from China and other countries that have “reopened” are that consumers will be slow to come out as restrictions are lifted. I can personally attest from working with my clients and my own business; consumers are not spending at the rate or amount they did pre-COVID-19.
Those business owners and franchisors that plan to adapt and refine their model will be the best positioned to bring back sales to levels that approach pre-COVID-19 more quickly. In this article, I will look at what factors led some businesses to better weather the crisis and how those may be indicators for the future.
Factor #1: Off Premises versus On-Premise Sales
Undoubtedly, those businesses that set up multiple distribution channels better weathered the crisis. Look no further than the restaurant industry. Several national chains had partnerships with delivery services. While the overall profitability of these relationships is certainly a question, they provided much-needed cash flow.
Independent restaurants have historically shunned delivery services. For instance, the fine-dining segment, which traditionally is comprised of more independent restaurants, saw decreases in revenue of between 75-85% on average. However, the pizza segment, which is dominated by more significant players and has had multiple distribution channels for years, mostly saw decreases in revenues of only 5%.
As business models look to move into the next “new normal” many will mistakingly spend time trying to diversify their product mix. While this certainly could be a viable option, a more productive exercise would be to come up with strategies to expand the delivery of current products. While businesses come up with methods to use other channels to deliver existing services or products, there undoubtedly will be development of their concepts.
Business leaders should use brainstorming techniques such as Blue Ocean and mind mapping to come up with methods to deliver their current value to customers in multiple ways.
Factor #2: Digital Maturity
A strong online-ordering presence, digital loyalty programs, and customer relationship management tools have been lifelines for some businesses during this crisis. Levels of digital engagement among consumers have soared during the COVID-19 crisis. If trends in China are any indication, consumers could remain more digitally engaged even after the crisis. Starbucks in China, for instance, saw a 12% increase in the share of digital transactions once their stores reopened.
Most small business owners and franchisors don’t have the resources that many of their larger counterparts have. Hiring a digital platform director is a dream. I have talked and worked with too many business owners that don’t make an effort to connect with their customers through digital platforms. The unfortunate news is that the millennial and generation Z consumers were already headed in this direction…COVID-19 only sped it up.
The good news for business owners and franchisors is many tools can automate much of this process. For franchisors or businesses that hope to one day franchise, you are leaving royalty dollars on the table if you don’t put these systems in place for your franchisees.
Business owners need to document how they are engaging with their customers. Once they have a clear pictures, they will be able to map how to better engage with customers along their journey. For many business owners and franchisors, there is some low hanging fruit that can pay big dividends. If you are not engaging with your consumers on multiple platforms, your competitors are.
Factor #3: Documented Systems & Procedures
In my market, there are multiple trampoline parks. I am incredibly familiar with the industry since I operate a side business in a very similar, non-competitive space. There are 3-4 centers in our area, all of which have taken different approaches to reopening. One opened a week ago, one will open at the end of this week, and there is no word on the other two. Knowing at three of the owners well, I know that the two that have been able to reopen quickly had very documented operating procedures before COVID-19. They were able to alter those procedures and train their staff quickly so they could reopen.
Too many business owners and franchisors rely on just “wingin it”. It is somewhat understandable…owners of those businesses are often very involved and can often shift when and as needed. However, this lack of documentation of systems and procedures has led to a lack of systems. In other words, the business breaks down if the business owner is not involved.
The new playbook must include updated standard operating procedures that not only provide a safe environment but also serve to reassure potentially anxious customers. Make sure that as an owner, you document your processes going forward, so they are easy to train new employees and convey new systems as needed to your team.
Factor #4: Know your Data, Translate it to Your Customers
Old Navy is a master at using data to not only transform their model and make business decisions but also to reach customers. When COVID-19 hit, Old Navy (and to some extent, their parent Gap) quickly pivoted their marketing to engage customers with new messaging and offers that were individually relevant. For years, Old Navy has incentivized customers to be able to track their habits. As a result, Old Navy can easily distinguish between loyal customers, customers who spend money elsewhere, people who are first-time customers, and potential better customers.
Old Navy had already taken the advice in our first factor of this article. The company has spent millions of dollars building multiple distribution channels for their product. As a result, when COVID-19 hit, between their marketing and their distribution, they were able to sustain. They had a potent 1-2 punch of knowing what their customers needed and having a way to deliver it.
One of the first steps for a company is to determine how to collect customer data. Small business owners and franchisors don’t have millions of dollars to build fancy data gathering systems. The good news is a lot of the systems needed to start using this sort of intelligence in your business are readily available. Small business owners need to plan with the bigger picture in mind. For instance, ask questions like, how will you use this information? How will you segment your customers? How can you effectively and efficiently gather information? Start with creating a blueprint.
Create the Next Normal
Too many business owners will sit back and let the new normal come to them. That will be a wasted opportunity. Instead of simply reverting to business as usual, seize the opportunity to innovate the next normal, shaping your company’s future. If you are not using brainstorming techniques or you’re not crystal clear on your strategy, then start now. The actions you take now will go a long way toward preserving and prospering in your business long after the recovery.
My name is Matt Krieger, and I am the founder of Krieger Analytics, a CFO advisory partner for small businesses and franchisors. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.
As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), I am also involved in much more. I partner with my clients by coaching them on strategy, gaining clarity on their business, building efficient and effective processes, and making confident business decisions. Conversations are free, so don’t hesitate to reach out to me at email@example.com.