Against the stream. How to provide explosive growth to a business in a crisis
Alexander Kuklev, co-owner and head of the Novosibirsk company Benkoni, who managed to increase profits several times over in five crisis years, tells how small businesses can survive the crisis and grow amid the economic downturn.
For many entrepreneurs, the economic crisis is associated with a transition to a survival mode. It is believed that to grow amid a general recession is impossible. Especially for those companies that work with products is far from essential.
We entered the corporate gift market literally on the eve of the crisis. According to generally accepted logic, our project was supposed to crash in a few months, with a maximum in a year. Indeed, the cost of gifts for customers and business partners are part of the cost of marketing. And in an unstable crisis situation, marketing is cut down first.
Despite the forecasts, we not only stayed afloat, but received explosive growth. In five years, Benkoni’s profit has increased seven-fold, and turnover — eleven. It turned out that even in difficult economic conditions, a business can grow rapidly, and not just survive.
Reorient to the economy segment
First of all, the economic downturn is hitting the middle class. This is true for both individuals and legal entities. We started working with this particular segment. Before the crisis, the average budget for one gift was 500 rubles. Gifts with a budget of 1,300 rubles were in good demand. There were orders in which the cost of one gift was 5,000 rubles or more.
The crisis has changed the situation dramatically – the average gift budget has decreased significantly. And even today, the situation has not returned to the pre-crisis level. Until now, companies from small and medium-sized businesses have not considered concepts that cost more than 800 rubles. And the average cost of one corporate gift ranges from 200-300 rubles.
Faced with a sharp drop in budgets in the middle price segment, we realized that we urgently needed to reorient ourselves. The choice was between the “economy” and “premium”, which are least affected by the crisis. At that time, we were not able to work with “premium”. Therefore, we decided to focus on corporate gifts of the economy class.
Transferring the company to the economy segment was not easy. We had to review not only the assortment matrix, but also technological approaches. The fact is that companies rarely choose gifts based on the principle “oh, beautiful, let’s buy”. The main factor of choice is the price. If the management determined that one gift should not cost more than 200 rubles, then this budget also needs to be stacked.
Therefore, we had to drastically reduce the selling price, leaving the quality of gifts at the same level. If Benkoni worked with purchased goods, reselling them in small batches, we would hardly be able to fit into the current market situation. But in due time we made the right decision by creating our own chocolate production. It was it that gave us room for maneuvers in the transition to a new market. By adjusting the technology, we were able to put in the price not only branding, delivery to the address and our own profit, but also expensive high-quality chocolate.
Properly reduce costs
Faced with a crisis, management, as a rule, begins to reduce costs. I know firsthand that they often start saving on office paper (we print on both sides, reduce the font size), on tea and coffee for employees, on drinking water and toilet paper.
We also worked and continue to work with costs. I so often remind employees of the need to reduce costs, that this idea has probably already become part of their genetic code. But we do not save on paper, coffee and drinking water. We are constantly looking for new ideas, innovative technological methods and work schemes that reduce the cost of the product. In this case, we are talking about both material and intangible resources.
During a crisis, for example, we spent a lot of time optimizing labor costs. No, we didn’t go according to the scheme “let’s reduce the time for a smoke break or put a guard with a dog in the workshop in order to customize the employees”. We started with a review of basic operations. We found out which of them do not create additional value in the manufacture of the product. And the “useless” operations tried to reduce to a possible minimum.
So, we abandoned the un motivated movements of goods and materials in the workshop. We revised the organization of jobs in order to exclude unnecessary employee movements during production operations. We bought high bar stools for the masters of the confectionery shop to make them comfortable working. Changed the design of individual groups of goods in order to simplify the process of their manufacture.
In addition, we purchased new equipment and supplies that were more convenient to use. They also standardized production processes. Standardization has significantly reduced rejects, increased the speed of production and made it possible to obtain the same products throughout the print run.