Lockdown.
One fateful word that spelled the end for many thriving businesses around the world. The thing about a crisis is that it’s unpredictable, malleable, and ruthless. While numbers are still emerging, experts forecast that the economic downturn in the U.S. alone cost nearly $4 trillion. One report suggests that nearly 100,000 businesses have gone under as a result of the pandemic and the ensuing lockdown. And the damage is not limited to small businesses alone. Major retailers and service providers such as JC Penny, Gold’s Gym, and Hertz, have filed for bankruptcy this past year. Without a doubt, the pandemic has brought on a socio-economic crisis unlike any we have witnessed this century.
Despite these circumstances, however, other companies have managed to not only stay afloat but expand their businesses. Companies that were able to adapt to the abrupt change in circumstances and pivot to a new direction. The vacation rental provider AirBnB was agile enough to change its structural and operational processes to match the new reality. Clothing brand ASOS innovated continuously in the middle of the crisis.
History is full of examples of businesses who knew to be adaptable in a crisis and therefore survived. GM, Boeing, Apple, even the Rockefellers, have all faced and overcome major crises in their time. All such businesses share three key qualities—they studied and adapted to a changing landscape, they acted on their learnings, and they never stopped innovating.
Shift your mindset
When a major industry-wide crisis rolls over an organization, dramatic changes happen both internally and externally. Your company, clients, employees, and vendors will all be finding their own way to deal with the situation and you need to take stock to see what options are still available to you. If the crisis is large enough, like the pandemic we are currently facing, it may be time for you to take stock of the landscape as a whole. The rules of industry that existed when you started your company may no longer apply. Is your business model still viable? Are your customers and clients still capable, or willing, to work with you? Are your employees capable of working under the new circumstances?
Without a shift in mindset and a reassessment of the situation, your company cannot move in a new direction. Agility is key, as is ideating on the move and building an organization that can pivot to change quickly.
Airbnb transforms itself
A year into the pandemic Airbnb’s business was diving headlong towards rock bottom. By confining all potential travelers to their homes, COVID had brought the travel and tourism industry to a screeching halt. Airbnb’s revenue fell by 72% and quarterly losses were recorded at over $500 million. The company was forced to lay off a quarter of its workforce just to keep the lights on. For a business that depended entirely on travel, there couldn’t have been a bigger disaster.
Thankfully, Airbnb’s CEO Brian Chesky and his team kept a cool head and managed to steer the company away from the brink. They studied the lay of the land and realized that they had to make substantiate changes to their business model in order to survive.
First, they changed AirBnB’s focus from short-stay and tourism-related hospitality to home rentals. Chesky had realized early on that, “Travel as we knew it is over. It doesn’t mean travel is over, just the travel we knew is over, and it’s never coming back.”
They transformed their business model from short-stay to long-term rentals, of 28 days or more, and focused on serving customers looking to rent homes for extended periods.
Second, they took a look at customer needs and introduced flexible booking and new refund policies. Since people were reluctant to make travel reservations given the uncertain times, they instituted a blanket-refund policy. They offered last-minute cancellations and full-price refunds for people whose travel plans were cut short. They also introduced a new flexible booking system which gave customers a lot more freedom to choose when they traveled and where they stayed.
The results of this transformation speak for themselves. Airbnb went from a 50% cut in their valuation, and laying off nearly 2000 employees, to filing for an IPO within three months where they were valued at $100 billion. Additionally, they carved out a niche for themselves in the housing market, one that represents the future of home rentals. By keeping an eye on the landscape and being agile enough to adapt to the unpredictable, Airbnb has come out on top at a time when most businesses are heading in the opposite direction.
Wake up and smell the disaster A crisis reveals a lot about the fundamental strengths and weaknesses of your organization. It is important to use this time to identify these fundamentals and then act on the lessons learned. As a leader, you need to ask yourself questions such as—
- When we were on top, what were we doing right?
- What goals do we struggle to accomplish now?
- What are we missing?
- What can we learn from our competitors?
- What can we learn from our customers?
In the short term, this will help locate and address pain points across your organization. In the long term, you will be better prepared to face the next crisis.
After finding the answers to these questions, act on them. This is often the hardest part.
Implementing crisis management solutions that may be spread across the length and breadth of the company is difficult, requires careful planning, and it’s tempting to implement stop-gap solutions. But the longer you delay the inevitable, the worse the situation will get. Take the time to fully understand the state of your organization, and once you have a plan in place, do not delay in executing it. Remember that the lessons you learn from today’s crisis will help you navigate the next one. It’s right around the corner.
The Marvel Marvel
Like every comic book character, Marvel had a moment in their history that could be described as their darkest hour, a point of no return. In 1996, after more than four decades of growth, Marvel found themselves contemplating bankruptcy. A series of bad investments, a bursting comic book bubble, and questionable leadership, had seen Marvel’s stock value collapse from $35.75 in 1993 to just $2.375, three years later.
Despite this enormous, company-wide crisis, Marvel managed to stay afloat and went on to become a multibillion-dollar organization and a movie-making giant over the next ten years.
How did they do it? Not by doing things the old way.
Top boss Avi Arad, took a look at the failed attempts to license Marvel movies and decide to change things up. Up to that point, Marvel had chosen to license its characters to movie studios that were making sub-par films that were damaging the Marvel brand. Arad decided to take back control of the movie-making projects and have Marvel make its own movies.
They would commission the scripts, hire the directors, and negotiate with the actors. The final product would then be licensed to a studio to finish principal photography. Arad also stopped Marvel’s expansion into unrelated businesses, and brought the focus back to its core properties, hiring the best writers to improve their comic book content.
If Marvel had ignored the lessons that were staring them in the face and continued down a path of unnecessary diversification, they would not have made it to the end of the century. Avi Arad’s willingness to identify and learn from Marvel’s past failings helped turn a sinking ship into the largest movie and comic book franchise ever.
Innovate. Innovate. Innovate.
Some say that a crisis is the worst time to innovate because you need to channel your resources into survival and proven avenues of success. Why would you try to launch into something new when you are fighting to stay afloat? But the truth is, a crisis might be the best time for a new direction.
To keep the company moving forward and maintain customer engagement, you have to add value to their relationship with you. A crisis creates a real sense of urgency, letting you prioritize your objectives and focus on facing the biggest challenges. With singular focus and by allocating your resources to address these challenges you will be able to boost innovation. They say that necessity is the mother of invention. Crisis is the mother of innovation.
ASOS rips up the playbook
U.K based online clothing and cosmetic retailer ASOS is a great example of innovation under duress. Since its inception in 2000 ASOS has primarily produced party wear for young adults. They made affordable, smart-casual clothing for nights out on the town.
And then the pandemic hit.
As nightclubs, theatres, and restaurants, across Britain went into lockdown, ASOS quickly realized that their main source of revenue was no longer viable. If nobody can go out, why would they need occasion clothing? CEO Nick Beighton decided that the only way to tackle this challenge was to rip up the playbook and start innovating in a whole new direction.
Within a space of a few months, ASOS pivoted from being a fashion retailer to making casual clothing designed to be worn around the house, like pajamas, in response to what Beighton calls “the customer offer to meet demand.” They also expanded their customer base, targeting professionals of all ages, now working –from home.
In the six months following this innovation, ASOS saw sales grow by 24%, with profits increasing to over £100 million (141 million in USD). They also expanded on sales worldwide by 19%. Perhaps most importantly, they managed to expand their customer base with 3 million new customers, many of whom will continue to shop with the brand well after this crisis ends. By focusing on innovation, ASOS was able to not only weather a devastating economic crisis but come out on top.
Conclusion
During the height of the pandemic, when lockdowns were in force throughout the country, we were all talking about a new normal. The pandemic had changed the way the world worked, and we would have to find a way to adapt to this new reality. With lockdown coming to an end and businesses contemplating re-opening, it is quickly becoming apparent that there is no “new” reality.
What we have instead, is a constantly evolving reality.
While there can be no return to the pre-pandemic ways of doing business, the pandemic era of working is also passing us by. Remote working is here to stay. So are the online marketplaces that sprung up this past year. ASOS is not likely to go back to a fully occasion-wear type of clothing line, not since the new direction has proved so lucrative. Marvel will be not selling off its intellectual property in a hurry. And Airbnb is moving into the long-term rental space for good.
In this new, ever-evolving reality, adaptability and innovation are going to be more important than ever. Nobody knows when and where the next big crisis will hit us. The only thing we can predict is that businesses that don’t use these opportunities to adapt, learn, and innovate, will not survive.
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