Successful Crisis Management in an SME Context

24 07-2020
Successful Crisis Management in an SME Context

?How do you handle a crisis as an entrepreneur, especially when you have never ever handled one in your entire business career?

The Covid-19 pandemic has caught all of us unawares. Especially those of us in the SME business community.  It is the first really big game-changing crisis that we have been forced to tackle.

Most of us started our businesses less than twenty-five years ago.  The socio-economic and political environment was largely supportive and we flourished. Of course, there have been hiccups along the way. But nothing too serious. Nothing that threatened our very existence as entrepreneurs.

Then Covid happened.

It was an unprecedented situation. Many of us registered zero revenue for the very first time. The way forward seemed to be totally foggy. Panic began to set in because we were having to grapple with a situation that we had no experience of. And we felt that we did not have the resources, infrastructure or expertise to tackle it.

Many of us began to be driven by our basic survival instincts instead of hard-headed business wisdom. We began thinking negatively and acting defensively, instead of thinking positively and acting pragmatically.

What does this mean?

Let me explain by telling you a story.

The other day a client called me. It was towards the end of the second phase of the lockdown. It was likely that he would be able to resume his business but he was a worried man. With nil revenues for two months, he felt his first move should be to slash costs. As employee salaries were his largest expense head, he concluded that he had no other alternative but to sack many of his staff.

Like all of us, my client is basically a decent human being. He doesn’t want anyone to lose their jobs. He knows they need the money. He is aware that it will be impossible for them to get another job in these tough times. Yet, he felt he had no choice. He thought he couldn’t afford to keep them any longer.

But, here’s the thing, he was so troubled in his mind that he decided to call me to talk it out before making any announcement. Just to see if there was any way out.

I heard him out fully. Then I asked him just two questions.

  1. How much cash does your company have at this time?
  2. How long would the cash last if you had zero sales

After checking with his accountant, he told me that they had cash for 2 months with zero revenue. But, and here’s the good news, they were doing around 30% of their normal revenue already.

I then asked him how long it would take them to double that number.  He said that he needed time to figure that out. Well, a couple of days later, he called me again.

He said that he had gone into a huddle with some his senior staff and they discovered that the changed environment had thrown up new opportunities. Nothing earth shattering but enough to get the cash flow going again.

Now, here’s the thing. He said that by tweaking their strategies a little, they could get back to 70% of their pre Covid revenue in just 3 months! At last, he could see a light at the end of the tunnel.

We now sat together and examined the impact that employees would have on his business given this ‘new normal’. We realised that instead of retrenching people in bulk, we could work out a ‘win win’ solution by implementing graded pay cuts.

People would still have their jobs. Revenues would return. And expenses would be manageable.

My client’s firm has 50 employees – 30 of them in Accounts/admin/operations, and 20 in sales or other client facing activities. We first segregated the employees into the following buckets

Bucket 1
Employees who are absolutely critical for the business
4 in Accounts
6 in Operations
10 in Tele sales

Bucket 2
Employees who cannot do any work because of the Covid 19 situation
5 in Logistics
4 in Sales
3 in Operations

Bucket 3
Employees who can do at least 40-50% of their work
3 in Accounts
4 in Admin
5 in Sales
8 in Operations

This exercise was really intense. We went into each role and employee deeply, especially in Bucket 1 – closely examining what is expected of the employees, what constraints they would face and their competence/ability.
The next step was to segregate employees salary wise, into three groups.
Group A
CTC less than 25000 per month

Group B
CTC of 25000 to 50000 per month

Group C
CTC of 50,000+ per month

Note : This grouping was based on the average payroll of this particular company. It may vary from company to company. 

Now we had a clear idea about where we stood with respect to the employees. With this in hand, we laid out the following grid with percentage cuts in salary based on both criticality of work and salaries.

Type of work Salary cuts
Critical 10% 10% 10%
40-60% work 10% 15% 20%
<40% work 10% 20% 30%
< 25,000 25,000-50,000 >50,000

We realised that we would need to let go of only 3 employees because of lack of performance or because their roles were not relevant for the new plan.

Wait…the story doesn’t end here.

The next step was to communicate this decision to the employees. This was the most critical aspect of the whole exercise.

So how did my friend do this?

He held a townhall with all the employees though video conferencing and discussed the situation frankly and transparently. In brief, he spoke about

  1. The current business scenario
  2. The need to make changes
  3. The method e adopted
  4. Expectations from employees and what can be expected of the management.
  5. The timelines for its implementation

And finally, this is the most important point, he also stressed that this was a temporary measure. That things would revert to the previous levels once revenues normalized in a sustained manner. He also put a timeline for this. He patiently listened to all queries and addressed them. He was in full control of the conversation.

Net result: Most of the employees were relieved that their jobs are still intact and were enthused with new business plan. They went to work with a will.

There were four key reasons for my friend’s success

  1. Thinking solution and not problem.
  2. Realisng that your people are your partners – that you share a symbiotic relationship with them; both need each other.
  3. Realisng that your people are your partners – that you share a symbiotic relationship with them; both need each other.
  4. And, finally, recognizing that you have a problem and getting help to solve it

Talk to us at KraniumHR.

We’ll be happy to help you turn your people problems into business success.

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