The Basics of Crisis Management For Startup

There is one fear any business owner shares — to lose their business, their child, the part of their life that they dedicated a lot of time and energy toward. And yet, by giving into this fear, they fail. Fear breeds panic, which causes bad decisions and missed opportunities — to the point when it’s not the crisis that kills the company, but the fear of it.

Nassim Taleb’s describes a certain quality in his book Black Swan. He defines it as antifragility — an ability to grow from uncertainties, panics, and crises instead of giving into them. So how to develop this quality? We will explain how to save the things you care about instead of running around and screaming that the sky is falling.

On Dangers of Passivity

Before we begin, there is a misconception that needs to be disproven straight out of the gate. It is called “We just need to wait things out” and it is probably the stupidest idea anyone ever had.

You can not “wait a crisis out”. Just ask Blockbuster, or Toys’R’Us, or even Gamestop — for which it’s already too late, despite all efforts made by Reggie Fils-Aime. When the markets are changing, you change with them — even if it means that in one year your entire business model must be completely different. And if you are not willing to, you might as well dissolve the company right now.

In times of crisis, you can be quick or be dead. There is no third option. And now that you know it, let’s get down to basics of proper crisis management.

The Basics of Crisis Management

If you are reading this article, you probably want “magic” practical solutions that you can apply right now and fix things. We will get to them. However, you need to understand the theory before you can reliably apply it.

Marketing vs. Management

There are two parts to the story of every business — what the market wants the business to be (the external factors, a.k.a. marketing), and how the company’s owner sees it (the internal factors, a.k.a. management).

Marketing defines what a company can do. It dictates volume, dynamics, consumer psychology, competitive environment, product development, sales system, brand development and reputation, conquest strategies, etc. These are factors that no company can really change on their own — bar very few exceptions, i.e. Apple launching iPhone and turning the entire market upside down.

Management, on the other hand, defines what a company is. Its business processes, its finance management, its HR policies, its employees, its infrastructure, its marketing strategy — all of it is management. And these factors can be changed, even if it will often come at a great cost and with lots of pain.

Sometimes, marketing and management come up at odds. And then everything starts to fall apart. Here’s a good example:

Imagine a movie studio that is bleeding money. To fix it, they decide to make movies for teenagers — which is a viable marketing decision. However, the producers of that studio have only peripheral ideas of what teenagers are like — yet they believe they know best. The result is a superhero franchise filled with skateboarding, outdated memes, and electronic dance music.

That movie studio was Sony Pictures and that franchise was Amazing Spider-Man. By the second movie, it failed so bad that Sony International considered selling Sony Pictures off until Marvel offered them a co-production deal. It was a valuable lesson to everyone — when life is tough, you need to focus on what the market wants, instead of what you want.

Markets in Times of Crisis

During crises, the market volume becomes smaller. The consumers no longer have as much the money to spend, and even if you manage to retain your market share during bad times, this share will not being you as much money as before.

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This means, that as the market shrinks, you need to grow. And you need to grow fast, because you are losing your available resources with every passing minute. You need to be aggressive, ruthless, and effective.

It’s a trial by fire, and only the strong will inherit what is left.

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The In(f\t)ernal Machinery

Any external crisis is bound to expose and emphasize the issues on the inside. They are your own local crises that you might not have noticed before — or considered insignificant, since other things were going well at the time.

You can divide those issues in four categories:

1. Financial issues. You don’t know how to handle your company’s assets, your sales are low, and your company lives paycheck-to-paycheck.

2. Marketing issues. You did not capture a stable market share and are not attracting enough customers right now. You are selling low, your margins are shrinking, your expenses are getting too high.

3. Operational issues. Your management decisions are wrong and your business processes are ineffective. You are wasting time and resources on inconsequential things instead of fixing the real issues.

4. HR issues. You have a bad, ineffective team filled with toxic people. Your corporate culture is hostile. You are bleeding talent and not getting enough back.

These issues flow from one into another. And sometimes, the trick to solving them is finding the real problem — for example, you can have no money because your marketing strategy is a joke, which happened because the CMO is a self-absorbed control freak, and he was hired only due to being CEO’s brother-in-law. And until you solve the root of all problems (fire the CMO and put the CEO under investigation), you will not be able to make things work.

When you’re entering a global market crisis, you need to fix your internal issues ASAP. If you don’t, you are putting yourself at a disadvantage before a fight for your life.

Adaptability as an Epitome of Effectiveness

Now that you hopefully understand the theory, let’s talk about more practical approach. Namely, let’s discuss nine core rules of staying flexible and effective during crisis.

1. Don’t Panic

Or, at the absolute least, don’t look like you are panicking. You are a leader, a boss, and you know what you are doing. Tell it to yourself in the mirror, if that’s what it takes, but don’t you dare show anyone that you are panicking.

Instead, try to think positive and encourage others to do so. Channel the panic energy into something constructive and turn it into an advantage.

2. Control the Cash Flow

Net cash flow is a difference between all monetary income and all payments. A company may have liquidity on hand (since it has good gross cash flow) and still operate at a loss. And when it comes to crisis management, the most important thing is not to get into cash deficiency. That’s pretty much a death sentence.

It is crucial to have financial savings that can cover 2–3 months of mandatory corporate expenses. The company should have a financial management system in place and a properly set up accounting system so that you can evaluate the effectiveness of your business. However, there is no time to establish this during a crisis. Your plane is already falling, and you can’t just walk into the cargo space and tie the containers down.

What you can do, is design a cash flow forecast that accounts for three scenarios — pessimistic, moderate, and optimistic. You should determine the decision point and revise the forecasts regularly — weekly if liquidity is sufficient and daily if it is not. And if you start having regular issues, start thinking about cutting down on the expenses.

3. Establish the Chain of Command

You need an organized and established structure inside your company. Each employee must understand their role and how they help others reach your common goal.

In disorganized companies, one employee can have multiple roles — i.e. a copywriter can also be a Customer Satisfaction Manager, or an SMM specialist. Such hybridization causes people to lose focus and not understand the limits of their responsibility. Results are commonly rather sad.

4. Learn Your ABC

You can not afford to lose the entire company. Therefore, maybe it’s time to clean house and trim the fat down. Make a list of all your employees and divide them into three categories:

A — people that are crucial for the company’s survival. For example, your C-level officers, your team leaders, your IT admin, etc.

B — effective workers who are needed, but maybe not right now.

C — people you can lose without any particular issues.

Once you have the least, consider how exactly you are going to let people go. You don’t want to suddenly lay them off day-to-day and create a massive burst of panic. This would greatly disrupt your remaining workforce and might even cause a chain reaction that will lose you members of the B — or even the A — team.

Warn them at least two weeks in advance, discuss the situation personally (if there are too many of them, consider delegating to their department leads) and give them good recommendations. Severance packages will do you good too, if you can afford them.

5. Get on the Level with Your Team And Hold Regular Meetings

In times of crisis, you need to establish a single informational field. Transparency of what is going on within the company is key. Even if you are not telling your employees absolutely everything, you need to be seen in person at least weekly. For example, on weekly company-wide progress reports. Also, stay positive. This will unite and encourage your employees.

If your employees are working remotely, establish a task management system for all projects. If you can not afford JIRA, look up Kanban and how to use it with Trello — it’s not a good solution, especially for large teams, but it works in a pinch. Discourage giving tasks to the employees without proper documentation.

Contact your employees regularly. The worse the crisis gets, the more contact points you need. When times are tough, you can not afford conflicts within the team, so get into solving them proactively.

6. Adapt Your Business Model to the Changing Market

Your company’s growth formula is your business model. And when crisis hits, you need to squeeze out of it every bit you can — and redesign it completely if you can’t.

For example, you can find out that competitors are not budging and you can not grab their shares of the market at a sufficient rate. However, you might be able to expand into other, similar markets. As a great recent example, Suntory Beverage & Food Limited (a.k.a. Jim Beam) reorganized several of their distilleries to produce disinfectant agents.

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7. Define Your Growth Possibilities

There are nine questions that each business owner should be able to answer, if they want their business to succeed. If you have not done this before, consider answering them now.

1. Is your target market large enough for the company to grow?

2. Do you understand and know your target audience? Are your products valuable to them? Can you make them more valuable?

3. Do you know your competitors? How often do you track their marketing performance?

4. Do you have a competitive strategy? Is it sufficient? There are several ways to remain competitive:

5. Differentiating. Making your product the best on the market, or at least a definitive choice of its majority. For example, Apple.

6. Focusing. Finding a market niche and holding it down by offering a unique proposition. For example, Blackberry.

7. Cost reduction. Become the default choice of those who can not afford option A. For example, Xiaomi. This is the strategy that shows best results during crises.

8. Do you have multiple channels that attract new customers?

9. Do you have products you can up-sell and cross-sell?

10. Do you hold the loyalty your customer base and are you able to grow it constantly?

11. Do you manage your customers’ satisfaction, and does your brand have a good reputation on the market?

12. Do you do develop your company’s brand in an organized, pre-planned manner?

13. If you answered “No” to any of the questions — you know what your pain points are. Consider working on them immediately, because every second counts.

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8. Increase Marketing Effectiveness and Aggression

There are two parts of marketing — Inbound and Outbound. Inbound covers marketing techniques that generate new leads for your company and attract new customers.

When things get tough, Inbound Marketing might not be enough. This means that you need to get into Outbound Marketing — the more aggressive way of getting new sales. It dictates, that instead of waiting for the customer, you can find them first and convince them to buy from you.

If you do not think you can do that, don’t worry. Most likely, you are already doing 90% of the work with your Inbound Marketing strategy. After all, they are not that different:

Inbound Marketing Funnel

Outbound Marketing Funnel

Define your market. See how many users you can theoretically reach.

Define your market’s needs. Figure out what they want and how you can sell it to them.

Stimulate your customers to reach your company. Launch a new marketing campaign, but more ads, breach into new ad markets, etc.

Start reaching out to your customers. Cold calls may not have the best success rate, but they work — especially if you have something to offer.

Generate new leads (make your customers give you their contact information, or a permission to contact them in the future once more). This is a crucial step, since it’s much easier to sell to leads than to the random customers.

Start selling. Figure out the best offer you can give to your customers, as well as the best way to explain the benefits of your offer. DON’T COME OFF DESPERATE OR NEEDY.

Manage your customers. Figure out how to get them to come back and buy from you again. Consider creating or expanding loyalty programs and promotions.

As you can see, there is exactly one step that is different. So provided that you already have a sales team, the only obstacle you have is the lack of selling scripts for cold calls. And there are plenty of viable templates online.

Finally, consider buying and installing a CRM — Customer Relationship Management — system. It will help you keep track of your customers, learn their personal needs, and figure out the best ways to sell to them.

9. Personal Effectiveness

There are several skills you will need to learn if you want to maximize not only your company’s performance, but also your own:

Control your environment. Look at the people who surround you and limit your interactions with pessimists. People you are saying that “everything is over and it’s time to sell-off at a loss” are thieves who are stealing your confidence and energy. However, they also might be realists who have more data than you do, so check out if their words are true now and then.

Control your emotional state. Remain calm and focused — or at least seem that way. Remember that a lot depends on you right now, and you need to give a good example to your team.

Control your personal time. Use Trello to track the tasks you have and the tasks you are doing, use Pomodoro to make sure you are resting at least sometimes, and cull the unnecessary tasks with prejudice. You need all the time you can spare, as long as it doesn’t come at expense of your own life.

Conclusion

Paraphrasing a certain aerial pop-culture icon, crisis is a ladder. It’s a chance to reshuffle the market in your favor and abuse the mistakes your competitors are making. And while it may often require you to make sacrifices, they will be worth it, in the end.

It’s during crises that the largest fortunes in the world are made. So stay aggressive, don’t be afraid of power plays, and instill confidence in your team. You are getting through all this and you are coming out on top.