Few things travel in a straight line in nature, especially the economy. While investors and consumers hope for calm, volatility is often the norm.
Knowing how to survive in volatile environments and markets falls in the lap of professionals such as Ayò Bánkólé. He is both a strategy and business transformation specialist, plus a small-to-medium-enterprise coach and founder of Caladium Consulting.
“Surviving volatile markets means the ability or capacity of a business to succeed in an economy with high levels of instability,” Bánkólé said. “Some of these instabilities include foreign exchange, government policies and regulations, competition or price wars.”
In his view, entrepreneurs can do many things to survive in harsh economic environments.
“It depends on the specific challenge you face,” Bánkólé said. “If you operate in an environment with a volatile foreign exchange regime, your business can lose millions overnight in a major devaluation.
“For a volatile foreign exchange regime, business owners may consider maintaining cash in foreign currency, depending on the size of their exposures to imported goods,” he said. “This will protect their businesses in case of a rapid crash in rates. Loans also should be negotiated in local currency.”
Bánkólé is a disciple of diversification.
“Businesses should always hedge their foreign exchange transactions using derivative instruments,” he said. “These instruments help lock down a fixed rate irrespective of rate crashes. Companies like Lafarge and Etisalat suffered massively from devaluation.
“Another tactic is to adopt innovative ways to cut down costs, leverage technology, reduce exposure to government transactions and adapt best practices in governance,” Bánkólé said. “This ensures you don’t pile up costs through fraudulent transactions. This is commonplace among small to medium enterprises.”
He said business leaders should design sustainable strategies to make sure their companies survive harsh times.
“You need to leverage strategic partnerships,” Bánkólé said. “They help you leverage the strength of others in areas where you are weak. You can also enjoy benefits from large corporations such as discounts and flexible payment terms.
“There are several other strategies,” he said. “Hedge your foreign currency transactions. Reduce costs. Diversify your products to reduce concentration risks. Adjust your pricing points to attract the middle to lower pyramid of your market because they are the larger part.”
Bánkólé disagreed with the notion that business leaders should never think of cutting marketing costs.
“Never doesn’t apply,” he said. “It depends on the industry and your strategic focus. You may want to reduce marketing costs if you are strained. You then adopt other leaner but efficient means of targeting your audience. Mass marketing is expensive.”
While certain measures can reduce uncertainty, nothing is guaranteed.
“Uncertainties and risks will always exist in business,” Bánkólé said. “It’s best to develop mitigating strategies that will protect you — insurance for hazards and safety; hedging for transaction and foreign exchange losses; product diversification to prevent concentration risks; and so many others.”
Entrepreneurs also should stay on top of forecasts, knowing information is their best insurance.
“Access to information is very important because data is king,” Bánkólé said. “It is the data you have that will help you make informed decisions and effectively plan for the future. Yet, every plan still comes with risks. Hence, risk-mitigating strategies are key.”
Even amid unfavorable market and economic conditions, businesses can remain competitive.
“Entrepreneurs have to constantly review the dynamics in their operating environments to identify what makes it unfavorable to them,” Bánkólé said. “One way is to adopt a flexible pricing mechanism that is attractive to retail customers and carves a differentiating customer service.”
Above all, he urges business leaders to avoid rash and emotional decisions as they ride out forever changing markets and environments.
“One of the top errors is cutting down on investment in people,” Bánkólé said. “Your people will save you if they have the capacity.
“Don’t reduce product quality,” he said. “You’ll lose customer trust. Reducing customer service quality also will lead to dissatisfaction. These decisions kill businesses.”