scratch. Even losing 90% of all your business is still a lucky escape;
– there is no room for complacency, thinking that your business will be spared by the crisis;
– reinventing must be your first order of business.
Substitution or destitution?
“Now I am equipped for any economic eventuality,” I was saying to myself. “My business has been growing as much as 10% annually for ten years running, it has developed and become strong. Almost 300 employees make a $20 million worth of products that are sold, among others, in export markets generating revenues in foreign currency, the warehouses are well stocked and there are still reserves of production capacities.”
I survived several crises, learnt a lot and thought I knew everything. And yet I could not foresee that my business would be on the brink of ruin, that there would be a question of either bankruptcy or survival…
Following the 2014 crisis, I had to close down a highly profitable, modern company producing technical (specialty) glass.
Kinds of crises
– Global, rocking the whole planet and entire civilised world. Such crises drop business activity through the floor in many countries. One such example is the global financial crisis of 2008 driven by bankruptcy of Lehman Brothers, one of the largest banks in the world.
– Nationwide, one good example being Pavlov Reform of 1991 when the Soviet government decided to exchange the 50 ruble and 100 ruble banknotes.
– Industry-specific, with something suddenly going wrong in one or several industries.
– Business-specific, with certain businesses becoming hostage to various administrative decisions.
The American financial giant Lehman Brothers, founded in 1850, had not raised the slightest doubt in anyone over its competence or resources before the crisis of 2008. Yet the storm cracked and the entire global financial system faltered.
And so did Russia: the capital of Russian companies depreciated, all foreign currency debts of Russian businesses doubled in rouble equivalent, the demand for every single type of goods and services dropped three- or fourfold. In an attempt to salvage their savings, people made an equivalent of their annual spend over just one month, and entrepreneurs faced a tricky challenge whether to procure or produce something to make stock for the next year at all.
Attempts at predicting crises remain worthwhile, but it is a lot more important to understand what needs to be done when dark clouds have gathered and there is a storm coming or, even worse, when you missed storm warnings and it has caught you unawares in the open ocean.
“Business Resection” or Ways to Cut Spending
Take urgent action!
No matter how well you have planned for it, the crisis will strike suddenly – just as with too much alcohol, intoxication sets on suddenly and the brain is shutting down. You may think you are drinking in a measured way, and you do not drink much generally, and you have had enough bite after, and yet – bam! – you miscalculated…
You wake up in the morning to the national currency losing 20—30% of its value or oil prices more than halving, and everything has fallen apart at the stock exchange… Your debts are now doubled; the suppliers, who were so favourably disposed just yesterday, have become your enemies demanding to return their goods. Not the money that has lost some of its value already and keeps depreciating daily, but the product that you have already processed or put up for sale.
You forget about food, about the holiday package you have bought, and you immediately cut short your honeymoon trip. You can feel the shackles on your wrists chaining you to the oars, making you a galley-slave of the crisis. Incidentally, most entrepreneurs do not realise that it is impossible to handle the economic storm – it is as good as deliberately getting in the way of a herd of bison rushing for no apparent reason from distant pastures in your direction.
The economic agony in troubled times resembles chaotic movement of information from one pseudo-analyst to another who is no less “informed”. They are vying with each other in predicting the timescale and depth of the slump, recalling all the crises since the Great Depression. People, with and without money alike, begin thrashing about. Some, to keep their money; others, to dodge unemployment.
Most entrepreneurs act in the same way. These are the laws of the crowd and the psychology of how people behave in the same misery. On a sudden, they need a leader – someone who knows which way to turn. Even those who have forgotten what a TV is about keep turning it on to watch the news. Old business pals are at once able to find an opportunity to get together, even if, for various reasons, they have not seen each other for many years. The world is losing its mind, and an entrepreneur who is unprepared for these changes is going insane too.
A different scenario is also possible: when the crunch comes, adrenaline levels in society begin running through the roof, and a young businessman toughs it out, rolling with the blows of crisis waves hitting against the side of his ship amidst an ever intensifying storm. He will neither furl the sails nor down the masts. He is banking on luck or his own dedication, determined to fight till the very end.
Raging ocean reaching up to the sky. Wave after wave. And no one around.
The staff, being washed overboard with each new wave one by one or by the dozen, keep calling out to their employer, asking not to leave them, not to stop paying salaries, not to shut down operations. The captain is stubborn as a bull and wants to preserve traditions, to remain a recognized leader. He believes that he’d better perish himself than betray his people. So noble-minded. But stupid.
At the very first signs of a crisis, any entrepreneur must immediately whittle down the scope of his business, namely:
– reduce the floorspace;
– downsize production staff;
– stop redundant machines and production operations;
– scale back the supporting infrastructure;
– delay all (!) outgoing payments from several weeks to three months;
– accept all advance or full payments for both current and future shipments. Take all the money that someone is giving you at this time;
– take any orders, even making little economic sense, at the cost price, or even complete loss makers, as long as there is work;
– sell all slow movers at any price – by the time the crisis reaches its peak, you need cash, real money instead of useless junk;
– sell off cars and all unnecessary equipment. Offload unnecessary real property; like it or not, it will surely be cheaper for many
