Last week I talked about the importance of resilience in coping with life's tendency to throw curveballs at us and how resilience isn't a gift we are born with but, rather, a skill which can be developed with practice. Its importance in dealing with the tumult caused to all our personal lives from COVID19 can't be over emphasised enough.
The pandemic has also had a seismic impact on business, affecting all, big and small, new and old. But even before COVID19, the business environment was becoming more unstable and prone to shocks, whether through issues such as increasing globalisation or ever rapidly changing technology - so businesses have to be nimble and adaptable to cope with the vicissitudes from the external environment, making the topic of resilience extremely relevant.
The aim of this article is to focus on business resilience from the perspective of the entrepreneurs who have created and are running start ups and new ventures.
A resilient business is one which is able to overcome difficulties, adversity and ultimately thrive after overcoming those diffculties.
There are 2 main areas I will focus in this article;
What are the key attributes of resilient business people/entrepreneurs
What can be done by the businesses to become resilient
Traits of resilient business people/ entrepreneurs
There are a number of common character traits for business people who show resilience:
Unwavering self belief and belief in their business: They have an innate confidence in themselves and their business so will stay focused and unwavering even when major difficulties arise. They back themselves and show grit to overcome any problems.
Adaptibility: They are not afraid of making changes and understand the importance of flexibility. They are able to act quickly and decisively whenver necessary to cope with the dynamic business environment.
Problem solving skills: They have a skillset that enables them to find solutions to problems and even have the ability to see opportunities from severe challenges which sees their business becoming stronger in the longer run.
Sense of optimism: They have a positive mindset and maintain a strong mental attitude even when times are difficult fo their business.
Leadership skills: They have an ability to keep their employees motivated/engaged as well as the other stakeholders and are able to pull everyone together during difficult times. They possess an aura of calm authority which has a positive affect on all around them.
What businesses need to build resilience
However, in addition to these traits, businesses also need to have three key processes in place to ensure resilience.
Well thought through risk management processes
Effective cash management
Good relationship with stakeholders (i.e. investors, banks, suppliers, employees)
Focusing on risk management is vital
Every business needs to consider its risks and make sure these are rated according to impact and severity. It is important to make sure this exercise is done regularly to help with planning and to enable the business to make adjustments and changes as soon as it becomes necessary. Using COVID as an example, once the severity of COVID became apparent, the exercise of assessing the key risks to the business should have been carried out quickly and thoroughly.
Key issues such as impact to customers, sales, cashflow, supply chain etc should have been identified and thought through. This knowledge is fundamental to helping businesses prioritise its activities to minimise disruption. Ideally, more than one person should be involved in performing the risk management review - it's always helpful to have a debate and a second opinion - all senior management should have an input into this review as well key employees. It's also possible to engage the services of a specialist coach/consultant who has a background in risk management to ensure the thoroughness and completeness of this exercise.
In my career, I have spent many years focusing on developing risk management strategies for businesses, even carrying out large surveys on risk management among middle sized companies, the results of which have been published in National newspapers and journals. I have found enormous variations in both the quality of company boards' approach towards risk management aswell as an understanding of what effective risk management is. I found a clear correlation between the thoroughness of their risk management strategy and how the business is able to deal and act effectively with major unforeseen events.
One way to chart and categorise risks:
Effective cash management
All business directors know that cashflow is the lifeline of their business - any disruption to the business is likely therefore, to affect cashflows. So isn't this just about budgeting? Surely a good budgeting system and a discussion with the accountant is all that's needed?
Effective cash management is much more encompassing and covers 3 key areas:
Judicious and well thought out financial planning to ensure there are adequate funds to run the business due to the change in circumstances. This means asking key questions such as, "have we quantified the impact on our cashflows from the issues affecting our business? How much additional finance do we need over what period?" In addition, financial planning needs to factor in the results from the strategic and operational review if it is to be effective.
A comprehensive strategic review should be done to understand how much of the core business has been affected and how long will it last as well as making an attempt to quantify the impact. If the business has been permanently affected, then key changes need to be made in how the business markets itself and remains competitive. This is a key component in understanding the financial impact to the business.
The third element is an operational review of the business which should assess what changes in the day to day running of the business need to be made such as cutting costs or freezing of discretionary payments/expenditures. Again, this review is an important element of the financial review.
Good relationship with stakeholders
During difficult times, those businesses which have a good relationship with all of its stakeholders are much more likely to survive challenging times. Given the tumultuous environment, businesses need the support of their employees as well all the external stakeholders ranging from suppliers, bankers and investors. All play a critical role in helping the business survive.
If the business needs access to further funding, this becomes a much easier task if the directors of the business have already developed excellent relationships with their bankers and investors. Similarly, with suppliers, if the business has already established a good reputation with its suppliers, it is much more likely to be granted more favourable credit terms should it be needed. If the business need to make radical restructuring decisions, good relationships with employees makes implementation of those plans and other changes in ways of working much easier to implement and therefore much more likely to succeed.
Final thoughts
Exhibiting personal traits of resilience is an important part of establishing business resilience but is still insufficient. To ensure businesses are able to survive major turbulence and disruptions, businesses must be able to effectively implement each of the 3 processes; namely risk management, cash management and stakeholder management.
I would be delighted to talk in more detail about any of the issues I have described. Please email me at info@xtraclarity.com
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