“Luck is what happens when preparation meets opportunity.”— Seneca
Way back in the distant past – like early 2020, being among the very best at something was the most assured path to success. You want your products or services to get the highest customer reviews. 4.5+ or bust.
Things have changed a bit since then. Think black swans – a whole flock of them.
Many businesses today are learning the nasty way that being the best at something – something that the latest black swan messes with – can be fatal.
What to do? Why, just double down on what you have always done but with a few tweaks.
Wonderful restaurants who now have very few seated diners are moving toward becoming meal preparers – virtual eateries as Bloomberg recently termed them – for non-diners. Essentially, a “just kitchens” business. Web orders only. Zero or less ambiance. Warehouse, basement or second floors will do just fine.
The COVID flock of black swans has permanently changed eating habits worldwide. Dining is no longer a social event but simply a necessary chore like brushing your teeth. Now you can dine while pretending to attend your latest Zoom call.
Restaurant to kitchen business – in just a year.
You can probably see a few things wrong with this picture.
Restauranting and kitchening are two very different businesses. One deals heavily with creating and delivering great social dining experiences. The other deals with faceless efficiency and deliverable menus. Somewhat different, yes?
What we do is what we will always do, sort of
Today, restaurants are struggling to survive, with heavy fixed costs and regulations and conditions changing frequently. Masks, separation, COVID testing – what next?
The problem here is that food service businesses are dealing with only a single customer base. Still lots of eaters around but their habits are changing dramatically. One strategy is to chase these changing habits as quickly as possible. No more costly ambiance stuff but just ease of ordering and pickup or delivery.
How long do you think that your food service business can survive doing kitchens?
These quick responses should be viewed as ways to buy survival time while you diversify your revenue sources, which may take time and money. And probably different skills.
Diversify into different markets
Black swan events can badly damage all kinds of markets. The COVID black swan certainly did. Painful and extensive damage – very real to almost everyone in business.
Okay, so how do you figure out which markets to diversify into?
Unless you are one of the lucky folks who has a fully functioning crystal ball, the answer is simply that you can’t.
All you can do is to diversify away from your present core business and try to aim at something with a different customer base. What you need is a few revenue sources or business units that are largely market-independent from your current core business.
Acquisition or partnering may be a way to start quickly
If you have reasonably deep pockets or a substantial financing ability, buying your way into diversification may be most effective. Your only problem may be targeting suitable markets.
This approach can buy the expertise and market knowledge needed to survive. Your main challenge will then be integrating something new into your current monolith.
Maslow’s hierarchy of needs is relevant here
Baring the appearance of a Yucatan asteroid kind of black swan that completely messed up the dinosaurs’ happy existence, we can think about diversifying into businesses near the bottom of Maslow’s hierarchy. Bottom two seem most relevant today: physiological and safety.
Physiological needs are the basics, without which you will probably expire. Air is abundantly available in most places but presently accessible largely via masks of questionable effectiveness. Water so far is relatively unscathed by the COVID black swans but water purification products may be a potential target for your diversification.
Food businesses, at least near the bottom of the chain – food service, delivery, and the like – are probably a bit too iffy at the moment. But up the chain in food products and distribution, things may be a bit more promising.
Shelter may be another possibility but it is so location-dependent that real estate businesses may be another not-now target.
Sleep is definitely important but Zoom and its competitors have pretty much cornered that market.
Clothing seems well-covered also by the few remaining brick-and-mortar retailers and the exploding online crowd led by Amazon. This market might be one to flag as opportunity-based, with so many once-great retailers dying off. The trick in this case is to figure out how to avoid dying off as well.
Reproduction is definitely well cared for.
Safety needs, one level up the hierarchy, seem promising to some degree since the main driver here is fear. We certainly have an overabundance of fear today so safety-fear-fixer businesses have to be hot.
Personal security in the form of guns and accessories are probably not a good market given the currently intense pressures to remove them. Home security, however, seems much more attractive. Lots of competition and innovation-demanding, however. Decent target.
Employment security is definitely a major need these days but figuring out how to address this need as a business is unclear to say the least. Actually, your efforts to ensure survival of your business will help keep folks employed so you already have this one covered.
Resources security, by which I assume is meant financial resources, seems way too wild these days to even think about.
Health security is a real current need and probably one of the best targets for diversification. This is a major worry or fear for so many today. It comes and goes a bit in intensity but almost surely will remain a top need forever or longer.
Enough already. You get the idea. Seeking diversification in upper levels of Maslow is probably not a particularly good idea in black swan times.
Diversification “bargains” may not be
Lots of great bargain businesses out there these days so I read. Umm … why are they selling at bargain prices? Solid businesses are usually sold at full price, or maybe even a premium. Is the owner selling to retire to Tahiti? Selling to unload a dog? Lots of bargains but probably few if any worth buying. You surely don’t want to buy someone else’s problems.
Bargain price sign often means “beware”. Especially today.
Why? If an existing owner and management cannot make a business work, then it might just be a business that does not work. For anyone.
What is your timeframe?
Acquiring solid businesses takes time. Often, lots of time. An owner in a rush to sell may be a big red flag. This is not to say the quick-sale opportunities are largely dangerous but only that they require extra-careful evaluation.
The first order of business for this kind of diversification is to decide on your target businesses. You will be looking for areas of business that will not likely be impacted by a black swan event in the same way that your existing core business or businesses might be.
This is not as easy as it might first appear. You have to figure out how any new business might be integrated into your current structure and management practices. You are likely to find that quite a few high-potential target business areas simply will not realistically fit.
Starting this search should probably not wait for motivation from the next black swan. It seems likely that almost any business has the potential for a black swan event impact so you need as much lead time as you can manage.
Is your business vulnerable to black swan events?
This is of course a trick question. Black swans are not foreseeable in their nature and impact until it’s too late to do anything but scramble to survive. The real question is what are your most serious vulnerabilities to any nasty event or situation?
Answering this question is a staple of larger businesses today under the rubric of risk assessment. This is something that every business should be doing and updating routinely.
Your can’t figure out how to protect your business, including how to diversify away from its weaknesses, if you haven’t done this critical management exercise.
Unforeseeable events of unknown nature seem to be coming along regularly in these difficult times. One of these seems likely to impact your current business. Since you have no idea about the timing or nature of what is coming, diversification is probably the only effective remedy.
BizBuySell, which bills itself as “… the Internet’s largest and most heavily trafficked business for sale marketplace”, has a very interesting report “BizBuySell Insight Report”. Although aimed at smaller businesses, its insights may be much more generally of value:
– Pandemic disrupts exit plans for many, as buyers flock to high performing businesses
– Transactions spike in Q3 as CARES Act loan forgiveness program expires
– Pent-up supply expected to fuel market in 2021, while federal stimulus drives demand
– Analysis based on 7,612 reported transactions and poll of 2,800 business owners, buyers and brokers”
“Many owners felt that 2020 was the wrong time to sell due to the pandemic. What resulted was a disproportionate level of buyers compared to sellers. It feels like more sellers will feel comfortable selling in 2021,” said Baas. “Plus, Baby Boomers will only continue to retire and sell.”
Bob House writing in Inc magazine focuses on COVID-19 driven opportunities “How Change Offers New Opportunity for Buying a Business, During and After Covid-19”:“Businesses that are currently doing well during the pandemic include:
– Grocery stores, liquor stores, other ‘essential retailers’
– Medical and health care businesses
– Cleaning services, laundry, waste disposal
– Locksmiths, auto repair”
“Asset Sales Provide an Additional Opportunity Whether for retirement, a change in lifestyle, or because of financial difficulty as a result of Covid-19, many owners are selling their businesses as an asset sale. Rather than simply shutting the place down, an asset sale provides an exit route for businesses with zero cash flow. In some instances, this involves only equipment and inventory, while in others, it can include business permits and real estate.”
“Through an asset sale, a buyer is acquiring only the business’s assets and not having to pay for cash flow. This can save both time and money, and in many cases requires only a few short months of downtime before opening up. Some landlords may also be willing to negotiate lease terms, since they do not want to lose a tenant.”
The regularly insightful McKinsey and Company looks at B2B sales businesses in the new online business reality: “These eight charts show how COVID-19 has changed B2B sales forever”:
“More than three quarters of buyers and sellers say they now prefer digital self-serve and remote human engagement over face-to-face interactions—a sentiment that has steadily intensified even after lockdowns have ended.”
“Safety is one reason, of course. But self-serve and remote interactions have made it easier for buyers to get information, place orders, and arrange service, and customers have enjoyed that speed and convenience. Only about 20 percent of B2B buyers say they hope to return to in-person sales, even in sectors where field-sales models have traditionally dominated, such as pharma and medical products.”