When we think about the businesses that thrived during the pandemic they all have one thing in common – their ability to adapt and overcome. But changing tact in the middle of a global pandemic isn’t easy, it takes courage and determination from entrepreneurs and their surrounding teams.
While some lenders naturally and understandably pulled back during the pandemic, and are doing so today in the turbulent economic climate, we were able to support a range of experienced businesses with new growth strategies and bold visions when the virus hit.
This meant partnering with some of the most innovative and compelling entrepreneurs across the UK. These entrepreneurs taught us a thing or two about agility, fluidity and resilience – all of which are needed in abundance as we reach the highest level of inflation since 1981. Paired with supply and labour shortages and record gas and energy price hikes, small and medium businesses are currently under huge strain.
Although the pandemic and 2022’s climate are different, they both require businesses to evolve in bouts of uncertainty. And businesses that thrive, where others may fold, all have similar things in common – here’s what they are, and why they’re conducive to success.
Last month Microsoft reported a $100m loss from plummeting ad spend on LinkedIn, the business networking website it owns. Its rival Google managed to escape losses, but has warned of a significant slowdown in ad spend too.
It makes sense that during a recession, when disposable income is tight, people aren’t flocking to buy non-essentials. So is paid ad spend a waste of vital cash for businesses? It doesn’t seem so.
Businesses that survive and even burgeon during downturns often have an offensive outlook, seeing the dip as another opportunity to differentiate. Investing into marketing gives them the opportunity to increase their share of voice, while their competitors are likely to withdraw. Research shows that businesses which take an offensive approach and invest on marketing spend are more likely to achieve superior performance, even during the slump.
That’s not to say going gung-ho with ad spend is the answer, just like all areas of the business, there will need to be a focus on investment gains and losses – a pragmatic approach that is neither defensive nor too aggressive.
Marketing in a recession requires laser-precision and careful consideration. Businesses that win will alter their value proposition appropriately to react to the market and economic trends, utilising context and their value-add as their main selling points.
When the dot-com crash happened in 2001, a large portion of the tech industry was hitting rock bottom. Apple however, was quietly increasing its research and development spending and investing heavily in new products and features that would revolutionise the music world. In 2003 they launched the iPod alongside iTunes. A year later they had sold over 4 million, eclipsing the sale of macs, the product that they had made their name with.
Not every business can be an Apple, but their story is a compelling one. Investing in R&D during quieter sales periods can help businesses come out stronger on the other side stronger. A lot of successful businesses we’ve worked with have used financial support to invest in critical areas that will help them leapfrog over the competition when economies return to stability. Why? Although cutting down on R&D may help businesses stay in profit, it can stagnate growth significantly in the years after. Consumers are constantly looking for the latest tech and products and in a saturated market, only those with something special can win.
If consumers are cutting back on non-essentials, how do you make your product indispensable? During coronavirus we saw mass redundancies and wage cuts as businesses scrambled to survive periods of no trading.
But as supermarkets profits grew, so did ecommerce in general – not because people needed new fancy dresses for their living room discos, but because they looked to the internet as an essential tool to cure boredom. And what’s more essential than lifting up morale?
Spotify Premium, a luxury compared with its free ad-based version, pivoted into an essential expense – how else would you share new lockdown themed playlists or fill drawn out days with the discovery of new artists?
Creating essential products isn’t about creating new products then. It’s about proving the value your current ones provide. Rather than focussing on what you are, e.g. a music streaming platform – of which there are many, it’s a focus on what you give to people – e.g. the potential to discover thousands of new artists at the click of a button. Or, unlimited music, without data limitations.
Aside from changing your proposition, there are ways you can pivot your product or service to become invaluable – like Bruntwood SciTech a joint venture between leading property business Bruntwood and Legal and General that specialises in supporting high-spec offices and leading laboratories in key innovation districts up and down the UK.
Their experience in property allowed them to expand out into the life sciences to support new science and technology projects throughout and beyond the COVID-19 pandemic – a vital time at which governments and investors were injecting funding into biomedicine and new lab space.
Diversification and innovation
Some of the strongest companies that will continue to succeed post-pandemic are those that are able to adapt to a changing business environment and changing customer needs. New demands from consumers are also common to arise in light of a pandemic, as individuals assess their demands and find new needs as they reevaluate what is important to them.
One business that successfully pivoted its offering in lockdown was Ottolenghi, the famed restaurant and deli chain by eponymous Yotam Ottolenghi and Noam Bar. After lockdowns hit the hospitality business heavily, it pivoted to provide loyal followers the Ottolenghi experience at home with dinner boxes and meal kits. Through this shift and other strategic moves, the business was able to achieve a positive EBITDA and is now operating at higher earnings than pre-covid.
Co-founder Noam Bar told us:
“The pandemic tested restauranteurs in ways we never imagined, but by continuing to deliver an exceptional experience to customers – whether in our restaurants or at their homes – we’ve been able to turn this incredibly challenging period into an opportunity to take stock and further improve the efficiency of our business model.”
With a cost of living crisis emerging as the pandemic eases, companies that are offering greener and cheaper ways of finding energy solutions are able to meet the rise in demand not only for eco-friendly products but entirely sustainable homes. For example, Green homes builder Verto provides zero carbon emissions smarthomes and is changing the blueprint of new home requirements. And being able to step in and meet this desire for more friendly homes, they set the standard of the industry for years to come.
Find out more about Verto’s carbon-zero homes, backed by OakNorth here.
Invest at the right time
An important part of any business growth is knowing when the right time to invest and the right time to pull back is. Typically during recessions there will be a balance of both. Creating leaner and more efficient areas which allow you to invest in important growth areas such as expanding into new product areas or different markets.
Harvard Business Review refers to businesses that cut spending in some areas but take advantage of smart investments as ‘progressive businesses’. These businesses tend to perform better than other businesses in a downturn. That’s because they make the right investments at the right time – taking advantage of dips in property prices, stocks or other business failures with new acquisitions, and remaining close to customer needs with increased product research and tech advancements.
Businesses that don’t want to stagnate their growth can consider financing partners that can support them with the cash they need to outperform other competitors. Unlike other lenders, we’re not afraid of providing funding to businesses at a time when they need a cash injection – not just when it’s convenient for us.
The lack of lenders willing to back business and provide funding is a problem our Head of Debt Finance Ben Barbanel has previously identified, and continuing to lend in uncertain times is necessary to continue to meet companies’ future growth potential.
With this approach to lending, we were able to help Brasserie Blanc with a bridging loan that propelled them to a stronger position post-pandemic. The foresight and understanding of their business allowed them to make the right decisions that would see them through tougher times by utilising debt finance correctly.
Looking for a financing partner that supports businesses throughout economic cycles? Find out how OakNorth can help with flexible business loans from £250,000 up to tens of millions.