The Value of a Contingency Plan

By Kenneth Surbrugg, Director of the Center for Entrepreneurship at Missouri Southern State University

A few years ago, I was jogging on a treadmill next to someone that I knew. Of course, they wanted to chat and catch up, and the only thought running through my head was to finish my workout without dying.

It reminds me of a conversation I had with someone about their business a few years ago. They were on the business treadmill, just trying to reach another milestone, doing it all, and trying not to die. The business reported good revenues, had loyal employees and customers, and good supplier relationships. They didn’t spend a lot in advertising, and they really didn’t have an active social media presence. Business was good, so why rock the boat?

In other words, they were content. Why grow? They made enough money, and the owners maintained a comfortable lifestyle. Employees weren’t threatening to quit, and they had loyal customers in light of some competition. What could go wrong?

Most small business owners, I imagine, envy this position. Just keep plugging along, selling the same thing year after year to the same customers, and make money. Who wouldn’t sign up for that?

But what happens when it breaks down? For example, what if the cost of the products being sold go up? What if employees want higher pay? What if one of the key employees leaves for another job, which offers higher pay and better benefits? What if a national competitor comes into the market and tries to undercut your prices and steal your employees?

As we were talking, the small business owner just shrugged it all off. There was no sense of urgency to prepare for contingency within their business. As they told me, life was good, and it could continue to be that way. But with a little planning and understanding, the small business owner could prepare for any of these real-life scenarios.

For starters, most of us don’t want to admit that anything bad will happen. We like to believe that the status quo will remain unblemished. However, this is unrealistic. And when change happens, it usually happens quickly. You get an email from your suppliers telling you that prices are going up next month or sooner. An employee asks to see you and they want to talk about a raise. Another employee comes into your office with their two-week notice. Someone reaches out to ask if you heard about the new national competitor moving into the area.

There are two ways to prepare for these, or any other business issue. One, you can not make any plans and just try to react to whatever comes up. Or you can choose to be prepared. You can monitor input costs and retail prices to see what is happening in the external environment. You can keep job descriptions current and communicate with your staff (listening included). You can monitor wages and do your best to be competitive.

More importantly, you can reach out to customers to discover how they are doing and what you can offer to make their lives better. There was a service-based business that did this, and they discovered that customers wanted an additional service, and they were looking for a business that offered this particular service. The company listened to their customers and started to offer this extra service. The added revenue more than covered the extra costs, and the company saw higher profits and satisfied customers.

The question becomes this: do you want to be reactive or proactive in your business? Employees will leave and some will want a raise. Prices will go up and customers will shop around to try to find a better deal somewhere else.

To finish this story I started earlier, the business owner decided to follow the reactive strategy. Sure enough, within six months, one of their key employees quit and a key supplier gave notice that they were raising prices. In response to this news from the supplier, the company had to raise their prices. Within two months, one of their loyal customers decided to move their business to a national competitor. Needless to say, the business suffered. The owner had to pivot, scraping and saving just to keep the business from dying. They finally found a new employee and the business recovered some of the lost sales, but only through an intensive, and costly, sales effort. They are not back where they were, but as the business owner told me later, the reactive model to a crisis is not a smart way to run a business.

Be prepared and look outside the business for opportunities and solutions. Who knows, with the right planning and over time, you might become the competitor moving into another town.

Keep innovating.

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