Why business survival takes more than optimism

Thursday, 01 October 2020

Dr Jana Matthews photo
Dr Jana Matthews
Director, Centre for Business Growth, UniSA Business School

    Confronting the realities and maintaining an optimistic outlook are crucial director mindsets as organisations navigate a new business landscape.

    The term “Stockdale Paradox” relates to a story of survival. Admiral James Stockdale was a prisoner of war for seven years during the Vietnam War, one of the highest-ranking US officers in captivity.

    With no news from the outside world, Stockdale had no reason to believe that his life would improve. He never doubted that he would get out alive, but he tempered his optimism with realism.

    In his book Good to Great, Jim Collins recounts asking Stockdale which of his men did not survive. Surprisingly, it was the optimists, who set unfounded goals based on what they hoped would happen.

    They said, “We’re going to be out by Christmas”. When Christmas came and went, they’d say, “We’re going to be out by Easter”. Easter would pass, then Thanksgiving. When what they hoped for didn’t happen, hope died and, sadly, they also died.

    As a leader, you need to have an unwavering belief that you and your company will make it through a crisis, but at the same time, you need to assess your current situation, confront the brutal facts and do everything you can to make sure your company makes it through.

    Getting through COVID-19 requires more than a positive mindset, and much more than hope. Great leaders know how to strike a balance between maintaining hope about the long term and being realistic about what is needed in the short term for the company to survive, rebound and grow again.

    The ability to capitalise on an opportunity or manage a crisis depends on the leader’s and board’s ability to recognise it, decide what to do about it, then execute quickly. Some companies do this better than others. Why?

    In July, the Australian Centre for Business Growth completed a landmark research study of the survival and growth of 583 “other small” and medium-sized Australian companies (five-199 employees) whose CEOs/MDs had been through one or more of the centre’s growth programs.

    We analysed all the data to find out whether company survival and growth was related to size, age, industry, investment in intangible assets, innovation prowess — or what? Our interviews with 16 CEOs provided us with the following insights:

    In business as in sport, a good defence is necessary, but not sufficient to win. Winning will depend on the board and executive’s ability to recognise then properly assess opportunity and risk.

    Alignment around mission, values and vision

    The companies growing through the pandemic are those whose boards and leaders had already worked through and agreed on the mission (company’s enduring purpose), a set of values (terms and conditions that define how work gets done) and had a clear vision of where they wanted the company to be in three to five years. Having clarity around these three basic principles enabled the CEOs and executive teams to shift and “tack” in a dynamic environment where new risks and opportunities were emerging on a monthly or even weekly basis — yet make decisions that would take them toward their three-year vision.

    Clarity and agreement on the mission, values and vision resulted in a three-year plan, but gave the CEO/MD flexibility to reprioritise initiatives — that is, to put some projects on pause and move others from year three to “now” while still staying true to the vision.

    Business by the numbers

    25% of businesses have decreased/cancelled capital expenditure compared to three months ago

    28% of businesses expect to invest in capital over the next three months

    35% of small businesses expect difficulty meeting financial commitments in next three months

    33% of medium businesses expect difficulty meeting financial commitments in next three months

    18% of large businesses expect difficulty meeting financial commitments in next three months

    71% of accommodation/food services industries likely to experience difficulty

    Source: Australian Bureau of Statistics Business Impacts of COVID-19 Survey (August)

    Systems/processes for timely data and quick decisions

    PrimeHyd’s enterprise resource planning (ERP) system collects and manages data that enables the CEO to check availability of stock online and make better decisions about when to procure supplies and how to price his products.

    A digital “sign in/out” system has made staff at Australian Green Clean more accountable and produced higher profit margins. Automation of payroll systems has reduced administrative time by 40 per cent, while mobile devices, social media and electronic newsletters have greatly improved the communication within the team.

    The CEO of Oceanside Services installed a system to ensure each technician’s vehicle is properly stocked with the right parts to solve customers’ plumbing or electrical problems. A sophisticated job management and scheduling system provides accurate reporting and data to enable co-owners to track efficiency and customer satisfaction — and identify their best performers.

    Waterline is using time management software to identify “scope creep”, discuss the deviation with those involved and/or get formal approval from the customer for the additional work being done. This process has generated $250,000 in additional revenue for the company.

    Having these kinds of systems producing the data needed for good management and control has enabled CEOs/MDs and teams to grow their companies and thrive in a rapidly changing environment where other companies are struggling to survive.

    The ability to capitalise on an opportunity or manage a crisis depends on the leader’s and board’s ability to recognise it, decide what to do about it, then execute quickly. Some companies do this better than others.

    Agile mindset, can-do attitude

    Leaders with an agile mindset do not wait for direction from the government, do not wait to see what happens, do not stand by and watch the movie unfold. They immediately become engaged and, by becoming actors in the movie, change the outcome — the impact of the crisis on their own companies.

    When the CEO of Staughton Group finished a call on a Sunday that outlined the potential impact of COVID-19, he immediately called his executive team together. They spent the rest of Sunday afternoon analysing the operational consequences of a pandemic and strategising how to manage the risks. This included dividing the workers into teams, creating three lunchrooms, suspending a product rollout to save cash, and initiating another product that would generate revenue quicker and capitalise on the opportunities the crisis would present.

    Within hours, the CEO was on the phone to the US distributor, announcing they needed to hit the pause button on the pending launch of the new product across 15 states.

    Monsoon Aquatics is a world-leading supplier of Australian coral and marine life, with state-of-the-art facilities in Darwin, Cairns and Bundaberg, and a growing aquaculture program. The company supplies a range of coral, fish and giant clams to retailers in Australia, and to wholesalers and public aquaria around the world.

    When COVID-19 reduced flights and hence customer shipments out of Darwin and Cairns, they trucked their shipments to Brisbane Airport for national and international flights. Meanwhile, they initiated online sales, quarterly shipments, and door-to-door delivery options for customers — all the while growing.

    When the CEO of Carpendale Group was unable to find trucks to move his grain to storage, he bought his own trucks. When there was no more room to store his grain, he built a grain storage complex. When the price of grain was lower than expected, he set up a platform to trade grain. When the company was unable to get the people it wanted to move to Goondiwindi, he opened an office in Toowoomba.

    These CEOs have an agile mindset, a can-do attitude, and have surrounded themselves with team members who helped them figure out how to solve or reframe the problem to become one that could be solved. Instead of “this is why we can’t”, the question becomes “how can we?”.

    The executives’ ability to solve problems, to make decisions quickly and pivot fast is directly related to their having a good executive team and board, and systems that provide easy access to timely and reliable data that identifies trends, leading indicators and the outcomes of past decisions.

    In business as in sport, a good defence is necessary, but not sufficient to win. Winning will depend on the board and executive’s ability to recognise then properly assess opportunity and risk by type, size and immediacy. That ability to make evidence-based decisions about whether to ignore, defend or embrace the risk and/or opportunity will depend on good systems, data, processes and a capacity to execute decisions quickly.

    These factors, plus a CEO/MD who understands how to grow, is what has given these companies their competitive advantage.

    Dr Jana Matthews is the ANZ chair in Business Growth and director of the Australian Centre for Business Growth at the UniSA Business School. UniSA Business School is a partner of the AICD.

    Case study: Sealite

    The story Sealite manufactures marine aids to navigation equipment such as channel markers and buoys, and also operates in the aviation space and defence sector. With offices in Australia, Singapore, the US and UK, it invests heavily in R&D and recently included asset management in its service offerings.

    Initially Sealite’s growth came from manufacturing a broad range of “best in class” products. Now it provides full turnkey solutions. In the aviation sector, for example, Sealite used to supply specific products to a systems integrator. Now it lays out entire airfields. This diversification has enabled it to survive in prior crises. When oil prices crashed in 2016, its marine sales dried up, but its aviation sales were robust enough to carry it through.

    Coping with COVID-19 Going into COVID-19, the company already had momentum. In March, it had record open orders across the business, and although future orders were down, winning a tender would have made 2020 its best year ever. Despite order intake being off in April-May, Sealite still managed a profit. CEO Chris Procter MAICD met daily with operations, finance and sales to monitor the rolling monthly forecast, identify orders at risk due to the impact on budgets and timing, and review the supply and delivery pipeline. He redeployed people as necessary, ran maximum overtime with no new hires, made only essential capital expenditure and shipped everything possible.

    Procter had calculated the factory could manage a 15 per cent compound annual growth rate. Avoiding carrying much debt, Sealite has not leased equipment and maintained a strong balance sheet. Reluctance to debt finance has led Procter to pass on some opportunities, but the company remains in a strong financial position.

    “Our mindset has shifted from manufacturing products to delivering turnkey solutions,” he says. “Insourcing, doing our own manufacturing and global expansion have given us a competitive edge in terms of costs and lead time.”

    Technology as a growth enabler Investment in digital tools at all locations is supporting remote workers. Technology has also enabled Sealite to develop new sales initiatives, such as hosting online demonstrations of its products and platforms. The implementation of systems, data, and the establishment of a pre-sales solutions development team has enabled faster quotes and lifted sales conversion rates.

    Controlling the manufacturing value chain Product diversification, geographic diversification and insourcing have enabled elastic price points and healthy margins. Procter believes control of the entire manufacturing value chain has enabled Sealite to deliver a better product and customer experience — and being an “essential service” to marine and defence has enabled it to stay operational. The marketplace has recovered since the global lockdown, and Procter is forecasting 15 per cent year on year revenue growth for the remainder of the fiscal year.

    Case study: Bluedot

    The story Bluedot is an R&D-focused private technology company founded by Filip Eldic and Emil Davityan in Adelaide. Now headquartered in San Francisco, The company specialises in geofencing (high-precision location) and payment services. With its proprietary software used by corporations such as Transurban, McDonald’s and KFC, Bluedot has raised $27m from angel and strategic investors, including Transurban, IAG and Silicon Valley venture capital firms.

    Coping with COVID-19 While some clients have paused or stopped projects in the past few months, the pandemic has actually accelerated the demand for technology perfectly suited for zero contact when picking up food or consumables, paying for tickets or tolls. Dunkin’ Donuts, for example, chose Bluedot to roll out the contactless purchase and pickup of food to its 10,000-plus US restaurants.

    Governance and executive alignment The company got its first angel investment shortly after graduating from an accelerator, and immediately established a board, which included observers, and held regular meetings. Board members offered strategic advice, helped the founders change from enterprise to channel selling, provided feedback on marketing collateral and websites, and made introductions to new customers, potential investors, executives, lawyers, accountants and investment bankers. As the team got better at selecting and retaining people, the hires have been a better fit. In software companies such as Bluedot — with most of its expenses being people and on-costs — lower churn and faster product delivery are essential to ramping revenue, cost reductions and growth.

    Innovation Its founders say Bluedot’s success is a function of creating a culture that supports innovation, to select people who fit the company culture and perform at a high level, and to make the right strategic decisions.

    Business model innovation has been nearly as important as product development innovation for the company. Davityan and Eldic experimented with numerous pricing models, underpinned by dozens of different underlying variations on a business model. They tested different strategies for selling variations of the product to different industries, for example, road tolls or contactless grocery pickup. But the most important innovation has been around customer success. Putting the customer ahead of the product, required a change in culture and a restructure of the entire organisation. This willingness to innovate, test, pivot, test again then scale quickly is paying dividends. A 60 per cent growth in revenue during the pandemic suggests the company is on the right track.

    “Over the past three years, we have shifted from an engineering-led, product-focused business to a sales-led, customer-focused company,” says Davityan. “This shift has required changes in our culture, people, systems, processes, marketing and sales — as well as our own leadership.”

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