Building a business to survive and thrive in a Junk Status economy
By Pavlo Phitidis
The recent downgrade of South Africa’s credit rating to Junk Status will have a dramatic effect on our economy changing our socio-economic environment and introducing new challenges to business survival. This week, on The Money Show with Arabile Gumede we considered what this downgrade means for growing businesses, and looked at ways you can adapt to not just survive these circumstances, but thrive beyond it:
What Does Junk Status Mean to South Africa?
A weakening currency as capital investment pulls out the country and increase in debt payment for money that we borrow abroad will suck money out of the economy. Inflation will rise in response to the weakening Rand and interest rates will go up to manage inflation. Both suck more money out of the economy. South African businesses and people alike will have to tighten up their belts.
What Can You Do in This Changed Business Environment?
Do not adopt a ‘wait and see’ approach. Being a victim is as much a choice as being a victor. Entrepreneur led businesses have the ability to quickly adapt to changing circumstances. Take advantage of this by pro-actively responding to the new business environment we face and play your hopes rather than your fears. Speak to your staff, customers and suppliers about what this new environment will look like and seek the best responses which you can work together to implement.
Wisdom is made up of foresight and insight and, if you’ve learnt a little wisdom from past economic events, you’ll have set up a reserve for your business. A reserve should cater for six months of your business’ overheads will give you a safety net and a runway towards finding new opportunities. Assess your business’ costs, and see where you can turn fixed costs into variable costs, moving them towards ‘per use’ contracts, rather than fixed payment schedules. For example, cancel that monthly retainer from a service provider and restate it as a pay-per-use or performance based fee. Variability in your cost structures give you the ability to “flex” in response to sudden positive or negative changes.
Just as the business environment has changed, so will the problems your customers now face.
Products and services: Consult with your customers to better understand how their environments will change and what new problems will emerge for them. Think about how you can solve those problems by doing things differently to how you do them today. Doing this proactively will enable you to get ahead of your competitors, and find new ways to drive value towards your customers.
Business processes: Investigate new technologies, which could help you automate some of your business processes. This will reduce your cost of delivery, increase your responsiveness and bring predictability into your service delivery. Technology (software and hardware) is cheaper now than ever before and affordable to any business. The trick is to build those systems manually first, then automate thereafter.
New opportunities: Reassess your client base and look for new local customers you may have previously overlooked, and start looking towards foreign markets. While creating and building relationships with an overseas customer base will require some capital investment, your ability to, cost-effectively, service customers abroad on a weak Rand could make you an attractive supplier. Finding export opportunities can help to bolster your business and drive growth. There are many incentives and grants to support both local manufacture and opening foreign markets through the Department of Trade and Industry (DTI).
Let Aurik help you find new opportunities and adapt to a changing business environment. We’ll help you build your business into an Asset of Value.