Much talk of pivoting but what does it mean ?
I’ve been to a lot of video meetings over the last couple of weeks where people have been talking about pivoting their businesses; But what does that actually mean ?
“pivot - verb
turn on or as if on a pivot.
he swung round, pivoting on his heel”
At Be Astute we do a lot of work with coaches, training organisations and networking groups. Most of those organisations have seen their normal everyday activities come to an almost complete halt over the last couple of weeks. Face to face meetings have become impossible; survival for some of those organisations is going to be tough.
For many this sudden slow down will be too much. Some will go into voluntary liquidation, eventually extracting some of the value from their businesses and moving gently into retirement. Others will not be so lucky and will see their investments disappear. Some will be lucky and find that the UK Government support arrives at the right time and keeps them afloat long enough to weather the worst of the storm.
The key to survival will be understanding where the organisations money goes and working out how to make it last as long as possible.
Capital expenditure will be curtailed for the foreseeable future, equipment will be mothballed, staff will be furloughed and non-essential service contracts cancelled. Those training organisations that use a high proportion of freelance training staff will be able to shed costs relatively easily. Over a normal year they will be buying in training hours from freelance staff to teach the courses that they are able to sell. Effectively acting as brokers; putting the trainers in touch with clients; and providing the organisation and assets required for the training to take place. Not great for the freelance instructors that find themselves underemployed but those organisations that manage their cash flow and resources well will survive.
Stretching out those cash resources will buy time for those organisations to reconfigure. Those that reconfigure most effectively (not just rapidly) will thrive in the new environment.
The lock down and knock on effects will doubtless push the economy into recession; but this recession is going to be different.
Why is it different ?
In the UK things have gone from normal to stopped in under a month. At this point we haven’t seen significant price shocks. Nothing like the oil price rises of the 1970’s; if anything the cost of running a car was actually going downwards at the end of March; there is a worldwide surplus of oil. Interest rates are at the lowest ever level. House prices are stable (maybe stagnant is a better word); the volume of transactions is low but that is matched by a very small number of people actually in a position to buy let alone move. The UK Government is pumping huge amounts of cash into the economy to keep the wheels turning so a repeat of the 2007-8 is unlikely.
As we stand today the majority of people fall into one of five groups;
There are people whose companies and employers have effectively folded or significantly contracted; they are not able to work and they have become unemployed. The lock down is going to affect businesses that deal face to face with customers or require employees to be together in a given location to work much harder.
There are those who are not dependent on employment for their income; retired people and so forth. Their position, lock down and increased vulnerability to infection not with standing, is financially largely unaffected.
There are those people that are able to keep working and still have an income coming in. Either because they fall into one of the essential worker categories or because their businesses, for whatever reason, just aren’t significantly affected by the current situation. Service companies with good business continuity plans should be able to continue to operate.
There are those people who are furloughed. Whilst being furloughed may reduce your income it also reduces your expenses and gives you a lot more free time. The government rules actually allow furloughed people to take up a new job whilst furloughed from their current job.
People who are in households where there has been a reduction in income due to 1 or 4 above.
So what does this mean ?
Whilst clearly people in groups 1,4, and 5 will have seen their incomes fall their will be a significant number who will see their disposable income rise because a lot of normal day to day expenses have been removed or reduced. Those in 2 and 3 have potentially seen their disposable income rise.
Disposable income is generally defined as the amount of money left over after the day to day essentials and taxes are paid for.
The table below from the Office for National Statistics shows where the average family spent their money in 2018-19 and how much they spent.
The lock down means household spending in some areas is significantly reduced; Restaurants and Hotels (8.8%), Travel (13.7%) and Recreation/Culture (13.1%) have all been significantly restricted by the lock down. By implication a sizable percentage of the population this year will not be going on holiday but will still have the cash that they would have spent on that holiday in the bank. Moneyfacts estimated that in 2018 UK families spent a quarter of their disposable income on holidays.
So what does this have to do with pivots ?
Pivoting is about changing your sales and marketing strategy to go after the unspent income.
That might just be a case of keeping your business ticking over until the end of lock down then taking advantage of all the unspent family holiday budgets; gearing up for the Autumn and Winter holiday market now. To do that you need to preserve your business assets and maintain the relationships with both your previous customers and staff. There is no point in surviving lock down if everyone has forgotten you exist; you need to keep the Web/Media/Social Media presences going. There is nothing quite as motivational to someone stuck under lock down as knowing their favorite seaside hotel will still be there when its all over . Social media posts of beaches in the Spring sunshine tell potential customers you are ready to pick up where you left off.
It might mean taking your business further online than it has ever been before. Our experience with the training sector is that people are prepared to learn online and at the moment have the time to spend doing it; its worth noting that furloughed staff are allowed (and encouraged) to carry on CPD related activity.
Tools like Skype, Google Hangouts and Zoom all make it easy (and very cheap) to setup an online learning experience; its a way that training and coaching organisations can continue to interact with current and previous customers. Online training has fewer geographical limitations; people can join from anywhere. For some parts of the training market this switch to an online format may well become a permanent feature as it offers significant cost savings for both training providers and learners. So now is the time to put in the hard work building and maintaining the companies presence via social media and word of mouth (word of mouth still works in the land of Zoom calls). Many trainers are currently offering short sessions online to encourage participation and grow their potential customer bases awareness of their offerings and capabilities.
We work with a number of sailing schools and sailing instructors. They are all pivoting to delivering content online. Running Zoom sessions for students that want to use the down time to brush up their skills or work towards a formal exam or certification. A number of organisations have previously experimented with online delivery of sailing instruction content; restrictions from the awarding bodies have prevented the awarding of certificates in most cases for the majority of online courses. The awarding bodies are now starting to relax those restrictions.
So students can complete a whole sailing theory course online; Instructors are working to different models; the online model means that they are no longer restricted to venues and weekends where the course can be delivered face to face, where students come from a specific catchment area.
Another feature of the current lock down is the number of retailers that have pulled stock back from high street shops. Clearly there is a security risk associated with having expensive stock on display in deserted high street shops, but, its also very difficult to fulfill customer orders if the stock is locked up in a high street shop; especially if the source of replacement stock is under lock down and not likely to deliver new stock any time soon. People will still have birthdays in lock down and as long as Royal Mail, DHL, FedEx etc are in business people will be able to send gifts by post. Pivoting might just be about pulling that stock back out of the shop and beefing up your e-commerce presence; but it all helps to help a business weather the storm.
You need to think about how you are advertising your product. There isn’t a lot of point advertising on bus shelters or tube platforms at the moment; similarly we’ve seen a lot of companies pull their pay per click advertising. The focus has very much become around the social media presence projecting a positive image of your organisation.
But perhaps the most important consideration is how you use your staff. There is clearly a temptation to furlough everyone or worse still make them redundant. But that has a number of implications for how you run your business. The furlough rules actually allow you to run a 3 week off 1 week on scenario for a staff member. So perhaps that is a better option. If you have a well defined month end process then perhaps you furlough your accounts staff for 3 weeks then bring them back to run the accounts at the end of the month ? Is that a better scenario than struggling with the process yourself. Or maybe you want to run staff on alternating 3 week furlough cycles ?
But you do need to understand how that affects your cash flow; our understanding at the moment is that employers will still need to pay the furloughed staff; they will then need to claim back the salary paid from the UK Government. So you will need to have the cash to pay the staffs salary in the short term; there is also a question about when the UK Government will be reimbursing the furloughed staff costs.
Staff are one of your key assets; they know how your business works so you need to look after them. If you want to successfully pivot then you need their knowledge and skills to make it happen. But managing the cash flow will be key to allowing you to do that.
To summarize;
There are many other ideas that I could talk about but the principle is simple and boils down to understanding the market you operate in, what you can offer that market and whether anyone will buy that offering at an economic price.
The key to pivoting though is to understand that the “market you operate in” element has changed significantly in the last 4 weeks and you need to be open minded about how you adjust your position in relation to it.
Bill Stock 7th April 2020