Coping with uncertainty when the chips are down

With every New Year, we will all look forward to the future with hope and optimism — at least on the stroke of midnight of December 31. But 2012 is most likely to be more challenging than the year gone by. The EU is grappling with sovereign debt issues and its reverberations have already led to slowdown in Asia and concerns that the fragile recovery in the US may be derailed. Factor in the uncertainties from the Arab Spring, it is unlikely that the GCC can be immune to a possible slowdown. Oil prices may fall, tourist traffic may slow, and banks globally may become more selective in lending. Given that SMEs (small and medium enterprises) are relatively more vulnerable, what should they do to cope with such persistent uncertainties? The first step obviously is to make sure they address liquidity issues as quickly as possible. They must deleverage, restructure or reschedule, raise some finance in anticipation of difficult times, review and tighten their working capital cycle (even if it means missing some opportunities). The importance of this cannot be adequately emphasised. But this alone will not be sufficient. Cutting costs SMEs must also find ways to increase their business, while simultaneously cutting the cost of doing it. This is definitely easier said than done, and so the real question is, how can SMEs in the UAE go about actually doing this? The answer: Innovate and collaborate using the platform of ‘customer intimacy'. This quite simply could be the best approach for increasing business and cutting costs. Customer intimacy is not about relationships — it is about a deeper understanding of existing and potential customers driving your actions, including innovation and collaboration. If you analyse the sectors that SMEs are predominantly present in, you will observe that most of them can be grouped into clusters, of course with some exceptions. Some such clusters relate to construction, automotive and media. While some businesses in one cluster directly compete with each other, others are complementary and can serve to support each other. If they choose to collaborate, the opportunities are many - they can share customer data, jointly explore new and different markets, share marketing costs and so on. But is such collaboration feasible? Will it really work in practice? The answer to both is "Yes", provided it is handled properly. We all know that for any collaborative arrangement to work both parties must benefit. So you have to follow some principles in working out such an arrangement. Firstly, make sure that your businesses are truly complementary. Also, that you are similar in the size of the customer database so that one party does not feel that he is being shortchanged. Secondly, make sure that there is chemistry and culture match between the two owners and the two CEOs (if the owner is not the CEO). If this is missing, no matter how convincing the business case, it will fail. Thirdly, develop a clear game plan as to how to create value through collaboration. Fourthly, create a transparent mechanism for review and improvement. Lastly, do not try to do to go too fast; build on success stories. Here are some examples of what is possible: set up representative offices in Saudi Arabia and Qatar where all expenses including manpower can be shared. Joint marketing efforts can be carried out as well as participate at trade events. The same applies to digital marketing, etc. There is really no limit. Many applications The other part that SMEs can really leverage on to grow their business while cutting costs is technology. With the growth of cloud computing, software as a service (SaaS) is exploding. SMEs can now access many applications that were previously available only to large companies, with a small variable cost. Of particular interest is the development of SaaS offerings in sales lead management and the CRM space. The conventional wisdom is that SMEs do not need such fancy tools; they know all their customers; there is no value addition from such tools, etc. Not true at all. There are many cases where valuable customers and customer information is needlessly lost, and repentance sets in during hard times. Such tools also facilitate customer intimacy, ie, a deeper understanding of your customer and leading to an increased share of wallet through widening business offerings to that customer. In conclusion, SMEs will have to proactively think and behave differently to increase their chances of survival in the increasingly uncertain times ahead.