This article was originally posted in Harvard Business School’s Working Knowledge on May 4, 2020.
Businesses are starting to plan their re-entry into the market, but how do they know what that market will look like? Frank V. Cespedes warns against putting too much trust in forecasters.
“Predictions are risky, especially about the future,” according to a popular expression. Still, business is inescapably about the future—that’s what managers’ decisions are about. In the current crisis, we have daily grand predictions about “new normals,” and managers must restart their business and make decisions based on assumptions about the future.
The problem: Most of these prophecies about what is to come are basically straight-line extrapolations of a few weeks of data or sermons about what that prophet believes should happen. These won’t be of much use to business leaders making cold, hard decisions about returning to the market.
Here’s a common prediction: Social distancing forces people to do more buying online and communicating through social media, thus accelerating a permanent, big shift after the crisis to more ecommerce and virtual models. The evidence, however, is not so clear-cut.
“A PROBLEM WITH MEGATREND PREDICTIONS IS THAT, EVEN IF THEY TURN OUT TO BE GENERALLY ACCURATE, THEY’RE NOT MANAGERIALLY USEFUL.”
In the first month of social distancing in the United States, online sales at Walmart and Target indeed surged by double digits compared with the year-earlier period—and so did in-store sales as well as sales of jigsaw puzzles and walkie-talkies. It’s not clear what we learn from panic buying. So let’s look at what was happening online before the virus of 2020.
Ecommerce has been part of the internet for 30 years. Books.com was selling online while Jeff Bezos was still working on Wall Street. After decades of tax-free sales, ecommerce was just 11.4 percent of US retail sales in 2019, according to the Department of Commerce.Meanwhile, social media usage on the major platforms had been essentially flat over the previous four years. (In fact, social media usage had declined among Americans less than 35 years old, and the only age group using Facebook more were people 55 or older, according to Edison Research.) As a marketing medium, online channels were cluttered and increasingly viewed with suspicion as media attention to foreign hackers raised awareness of cybersecurity issues.
Combined with the ability to block ads, the growing costs of acquiring customers online, the experience of “Zoombombing,” and controls on consumer data by EU regulators and others, it’s unclear how much buying and selling will be done online in the future.
So, what’s a manager to do given the uncertainty of both predictions and prophets? Here’s some advice to CEOs, CFOs, sales managers, and others who allocate the major resources in most firms. Whatever else you do in thinking about the future of your business, pay attention to the following:
Shorten selling cycles
The crisis demonstrates, painfully, the importance of cash. In his famous essay “The Yield from Money Held,” the economist William Hutt described cash in your pocket or on the balance sheet as “a fire engine when there are no fires.” Or, as the song in the musical Oliver puts it: “Money in the bank, that’s what counts / Money in the bank in large amounts.” The selling cycle is usually the biggest driver of cash out and cash in: Accounts payable accrue during selling, and accounts receivable are mainly determined in most firms by what’s sold at what price and how fast.
In surviving and recovering from a crisis, increasing close rates, the efficiency of a sales model, and its segment focus are strategic issues, not only sales management tasks. Consider: when commerce resumes, what’s the impact on your business from shortening selling cycles and accelerating time-to-cash by one week, two weeks, or more? If you don’t know, find out now and work to shorten ramp-up time and increase productivity in your sales team after the crisis.
Consistent messaging to customers
A problem with megatrend predictions is that, even if they turn out to be generally accurate, they’re not managerially useful. Companies sell to customers, not to a trend, and priorities must be set. Make sure that key customers are aware of supply disruptions or other problems. Do not assume that, in a global pandemic, “everyone knows.” They are absorbed with their own business issues.
Big accounts drive a disproportionate amount of a company’s revenue (the 80/20 rule), and reliance on large customers has grown. Publicly traded US companies must disclose any customers that account for more than 10 percent of their revenue. A study of this datafound that, in many industries, these buyers represented 20 percent to 25 percent of sales by the second decade of the twenty-first century, up from less than 10 percent two decades earlier. In other words, even before the pandemic, there was a big change in the customer portfolio of many companies.
Your salespeople must send consistent messages, not ad hoc responses. Don’t leave this aspect of crisis management to emails about your “commitment” to customers, or telling salespeople to “stay focused and take care of customers.” That’s an invitation for fragmented responses, multiple promises, and longer-term costs to the brand and strategy. Managers must manage. In an extended disruption, it may even be in your long-term interest to find supply alternatives for a customer. Few quota-carrying salespeople will or can do that.
Use data, don’t hoard it
Important data is account profitability, your cost-to-serve customer A versus customer B. My experience on boards of directors and in work with leadership teams is that “vision” discussions are fun, and quarterly financial results are tracked closely. But despite much talk about big data, the customer information required to survive and then restart the business after a major downturn is often lacking.
One reason is that, in many firms, the relevant information is effectively the “property” of an individual rep, not the company. That makes it difficult to set account and segment priorities. Use the current frightening hiatus from business-as-usual to get this data and establish a process for keeping that front-line information flowing and timely. Otherwise, “customer focus” will remain a perennial slogan, not an organizational reality. Oversight over this activity is as important as it is in the capital budgeting process, innovative ideas in the virtual crisis war room, and the speech about resilience.
It’s unclear whether social distancing has made people more eager to transact online, or whether it simply demonstrates the limitations of communicating virtually. The historian William McNeill documented in Plagues and Peoples how epidemics were a recurring norm, not the exception, for millennia. Meanwhile, buying and selling have been social as well as economic transactions since the Greek Agora, the Grand Bazaar in Istanbul, malls in the twentieth century, and through decades of internet use. Will months-long confinement change that deep-rooted human behavior?
Get back to basics
Finally, for what’s it’s worth, here is my prediction: The coronavirus will eventually abate and few will remember the many false predictions made during a crisis—but you will still have to live with your business decisions.
Do your best to separate hype and headlines from market-driven data and options. When much of the world economy is shut for weeks and possibly months, cascading bankruptcies and higher debt loads probably mean a tightening of purchasing decisions and capital expenditures in many consumer and B2B markets. Your business-development efforts will need to be more focused and productive after the crisis. Start now and take care of these customer basics before you possibly follow a prophet into the wilderness.
About the Author
Frank V. Cespedes is a Senior Lecturer in the Entrepreneurial Management Unit at Harvard Business School and author of Aligning Strategy and Sales.
