We can’t create work.
No matter what marketing initiatives we start or how many new studios we set up, we can’t make customers engage before they’re ready. While we wait for business to return, we need to restructure our businesses so they’re healthy and prepared enough to weather the storm the next time a crisis strikes.
We’ve learned that our businesses can’t survive on their own in this kind of crisis. Our business models have failed us. But we’ve also failed ourselves.
Traditionally, we build businesses under the assumption that they will grow. We spend ahead of ourselves based on the presumption we’ll have work. But when gross profit doesn’t keep up, we collapse under the weight of growing expenses. A crisis like this amplifies the problem.
But it doesn’t have to be this way.
Yes, these circumstances are terrible. There’s no way we could have predicted, controlled, or stopped this. But we could have been better prepared… and we should be the next time this happens.
Since we can expect shutdowns to happen again, we need to rebuild our companies based on a less-risky, more-focused model. Next time we face a crisis, don’t make the same mistakes. As you reboot your companies, here’s what NOT to do:
1. Don’t Over-Value Short-Term Returns
When the economy is good, we’re tempted to make decisions based on one metric alone. We think, “I can rent this gear for the show and we can get 50% of the price back on it from one event.” That’s short-term thinking — and it’s dangerous.
In your reboot, save your cap-ex for definite returns. Having extra equipment in case you sell more isn’t a sure bet. When you make large commitments, it may backfire and undermine your business. Instead, invest in steady business with clear returns.
2. Don’t Over-Invest In Windfalls
Windfalls are a big chunk of business that appear from nowhere. It’s another job in addition to everything else. It isn’t real growth, and it’s dangerous if you over-invest in it.
Often, windfalls tempt us to invest heavily in one customer for one project at the expense of the other projects and customers. A windfall job is a nice bonus — but don’t buy new equipment or hire more people for these gigs. Instead, outsource as much as possible. If you bet on big customers, you will lose on big customers. Make the safe play.
Also, be wary of multi-year guarantees sometimes associated with windfalls. These are basically meaningless in our industry. Unless you’re a big organization, you don’t have the power to hold anyone to a multi-year contract. If it makes sense for them to change vendors, they can. You can build relationships and form agreements, but don’t bet your business on a multi-year guarantee.
3. Don’t Try to Be All Things to All People
Someone else has likely had the same great ideas as you… and that’s okay. We can share and learn from each other and still won’t create the same business.
Copy freely, but market selectively. Don’t try to be all things and chase all business. Anyone trying to market as a business who can do anything for anyone is too undifferentiated. Instead, focus on creating a differentiated advantage.
Here’s a simple matrix of options. Pick one from each column to start forming your differentiated strategy:
Make a choice for a clear niche, philosophy, and brand. Then, put your energy into it. You’ll have more power and make more profit if you can focus. It’s better to be extremely valuable to someone than provide little value to everyone.
4. Don’t Add Full-Time Workers
Be reluctant to commit to or add full-time workers. We are a seasonal industry — embrace it. Now is a perfect opportunity to adjust your philosophy on full-time employees.
Outsourcing is important. Use full-time equivalents and full-time employees as metrics to make sure you’re doing the right thing. Build a contract employee and freelance team. Plan ahead, reserve people in advance, and be prepared to pay out.
Yes, you’ll be competing with others for the same talent pool. Yes, freelancers will work for your competitor too. But in this new era, outsourcing is necessary for running a successful, seasonal business.
Do: Build a Reserve Fund
As you start to make money again, resist the urge to reinvest it in the business immediately. Instead, use it to build a reserve fund. While a reserve fund does not entirely eliminate the pain of a crisis, it does provide more breathing room as jobs cancel and you navigate a way forward.
Build your fund by increasing margins and lowering overhead. Lowering overhead is a non-stop process of continually finding ways to cut expenses.
Higher margins + lower overhead = excess cash. Save it! Don’t hire more employees or buy new equipment. (Budget those items if they’re necessary.) Instead, aim to save one year’s overhead in liquid assets.
Then, keep the money reserved. When you need funds, don’t borrow from it… borrow against it. Your money in the bank helps create a banking relationship where you can get approved for a loan if it’s needed.
Why Start Now?
Once you make these adjustments, you can make money at any size. You should be able to run a profitable business year-round — even in months with little revenue.
The next 24 months will go by very quickly… and it’ll take that long for normalcy to return. Between now and then, scalable business will begin to bring more consistent returns for the owner. You won’t need to wait 24 months to be profitable again, but that work starts now.
You’ve done the hard part already. Now, use the mistakes of the past to do something better. Now is the time to think about doing things differently and not doing the things we’ve taken for granted for years.
For more on info on navigating your business reboot, check out the full Week 11 (May 27) webinar replay of our weekly series: The Show Will Go On — Business Survival Series.
Sign up now and you’ll be registered for the entire series. You’ll also gain access to all replays of the previous webinars.