I have spoken with several hundred Australian business leaders over the past nine months. These conversations have spanned from when COVID-19 first hit mainstream consciousness, through various lockdowns, and now during the current flare-up and Stage 4 restrictions in metropolitan Melbourne.
Most execs I speak with (predominantly CEOs in the local B2B technology sector) have adopted a ‘wait-and-see’ mentality regarding growth and market position. The majority are going into a holding pattern, with a view to reevaluating once lockdowns disappear, and we return to some kind of normal.
This bearish, reactive mindset is at odds with what history teaches us: the best time to recover from a crisis is during a crisis.
We can demonstrate three verifiable reasons for Australian B2B tech firms to pursue a growth strategy through a downturn:
- Customers that buy now are looking to invest – especially in tech
- Competition in Australia has been temporarily lessened
- You have an unprecedented opportunity to cement your position
Please note that Point 1 is primarily true for B2B sectors, but not necessarily untrue in business to consumer markets. For example: a couple applying for their first mortgage in the middle of COVID are sending a very strong signal they are comfortable with investing despite uncertainty, and are arguably a desirable customer for a lender to have on their books by virtue of this fact.
Customers that buy now are looking to invest – especially in tech
My primary analysis of the COVID downturn is restricted to the B2B technology sector, in Australia. For comparison, we can review the survey of B2B businesses by McKinsey Consulting across 11 countries in seven sectors, and across 14 categories of spend. These findings reveal three emergent themes:
- Spend. While many companies are generally reducing spending, a significant number of firms are increasing their spending levels compared to pre-COVID rates.
- Digital. Thanks to a reduction in face-to-face sales and interactions, B2B companies see digital interactions as 2-3 times more important to their customers than traditional sales interactions.
- Remote. Looking at a global average, nearly 90 percent of sales have moved to a phone and/or videoconferencing led model. More than half of surveyed leaders say that remote selling is equally or more effective than sales models used prior to COVID-19.
If you lead an Australian software or IT services firm, the lesson is clear: good, resilient customers are looking to invest, and that investment could well be in your space – in technology related initiatives.
Competition in Australia has been temporarily lessened
One of the strongest indicators of a competitive downturn in Australia is the actions of our competition regulator. Normally, the ACCC is focused on protecting competition and ensuring a fair and equal playing field that is free of racketeering, collusion, monopolies, and the like. In response to COVID-19, the ACCC has released a revised policy that seeks to preserve businesses in order to introduce healthy competition once the outbreak is over.
In late March, we saw the ACCC authorise financial institutions to coordinate loan relief in cooperation; allow airlines to synchronise flight schedules within regional Australia; permit medical technology suppliers to manage the supply of medical equipment; and wholesalers to work together to ensure continual access to pharmaceuticals – to name just a few examples.
The most relevant point is that the change in the ACCC’s enforcement priorities is partial and temporary. These changes will revert to normal post-COVID, as competition lifts once more. The conclusion is clear: now is the time to pursue growth and market share, while the competitive landscape is weakened.
You have an unprecedented opportunity to cement your position
We can visualise a crisis-led downturn as a kind of seismic shift that has destabilised the foundation of our current business and go-to-markets. We have to force ourselves to rethink what comprises a risky decision and set aside our operating assumptions.
Fast movers will win market share
Inaction is one of the riskiest options we can possibly choose in a downturn, not least because it puts our own future in the fickle hands of the market, or worse, our competitors. The best time to start a business is during a downturn, thanks largely to the reasons of competitive dynamics explored earlier in my article. For those of us running established businesses, we should look to seize market share, especially if our primary business has a good long-term outlook.
Dominate, diversify, or die
If your primary line of revenue is coming from a receding market, you have an immediate and important decision: dominate, or diversify. Let’s take the example of a services firm that is focused on the mainframe computing space: this market is relatively small and undeniably in slow decline. This firm can choose to dominate its sector by solidifying a number one position in the mainframe services market, or it can pursue a rapid entry into alternate, adjacent revenue streams through the downturn. The third option is to watch the business die a slow death as a me-too player in a declining market: hardly a choice at all.
Resilient companies invest during downturns
Looking back to the US subprime mortgage crisis and subsequent global financial crisis, McKinsey data showed that resilient companies on average increased their selling and general and administrative spend by 1.5 percent (as a percentage of 2007 revenue) during the downturn, while non-resilients remained flat. “Winners” also continued to re-allocate resources, by investing in capabilities such as reading demand signals to determine where and how customers would shift their spending.
Whether we look at historical crises and downturns, current global trends, or local movement, the answer is clear. We don’t have the option of inaction or adopting a holding pattern, unless we want to give up market share and weaken our post-COVID position.
Now is the time for strong businesses to shore up their future by investing in growth. This window of opportunity will only last another 6-12 months at best. The strongest indicator I can suggest is the duration of JobKeeper payments. Once heavy Government support of the economy subsides, we will quickly see a bloodbath of competition as businesses feel the sudden and sharp need for cash.