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The Death Spiral of Mexican SMEs

April 14, 2020

We are an unprecedented stage of humanity, in which the traditional approaches to managing a startup are insufficient, at best.

5 min read

The opinions expressed by collaborators are personal.

The   Death Spiral   of Mexican SMEsThe Death Spiral of Mexican SMEs

Today, I can only agree with the main thesis that was transmitted a few years ago by the directors of Sequoia Capital , one of the main venture capital funds in the world.

They introduced an especially interesting concept that has a lot to do with the economic effect that SMEs in the world are suffering today, called “ Death Spiral ”.

Where does the Death Spiral come from ? It is a phenomenon in which a group of ants that have lost track of the main group, form a circle that rotates continuously until they die of exhaustion.

There is no doubt that we are in an unprecedented stage of humanity, in which the traditional approaches to managing a startup are insufficient, at best. Day after day “containment barriers” that were theoretically unmentionable, and that defined the limits of our small entrepreneurial ecosystem, are overcome.

The traditional magnitudes give a sinister image (GDP, unemployment, etc.) of the panorama of the coming months, impregnating all the layers of our society with a pessimism that every day is becoming more endemic.

“Can we say that we were not aware of what was coming? Being critical, I think to some extent we were, but it was certainly more comfortable to let ourselves be carried away by the bonanza. ”

Leave complacency

Now the time has come to leave complacency behind and look beyond. To do this, the first thing we must do is to realistically analyze the situation of our companies and sectors in the current environment.

Various “experts” are appearing who give excellent recipes for our companies to navigate in the best possible way, but are these recipes really novel?

I will not reveal any mystery indicating that, in my opinion, they are not, which does not take away a bit of their merit. By making a synthesis effort, we can identify the following common patterns of action to face the sad spiral of death for SMEs.

  • Analyze in a super critical way the offer of services and products of our organization, identifying the most profitable ones and promoting them. We must also identify those that are not strategic or do not offer a good return, and if necessary, get rid of them (unfortunately it is common for this information to be based more on perceptions or ideas than on clear knowledge of the return, costs or profitability of each one of services).
  • Reinvent the operations spending strategy (OPEX), identifying all fixed costs that may be eliminated or outsourced, and therefore become variable costs. At this point, I would like to stop and highlight the very interesting opportunity that opens up to the on-demand hypersector, in areas as promising as human talent on-demand , your company as a service (SaaS) or embedding in new digital communities, among other.
  • Rediscover our customer management, approaching them, getting to know them better and, above all, discriminating between the “good” and the “bad” (not only based on the hackneyed classical criteria of profitability and solvency, but others such as the projection or strategic proximity).
  • Exponentiate our effort in business generation, through a super commercial focus accompanied by a reinforcement and reorientation of the free marketing strategy. It is important to look for initiatives capable of generating clear and above all fast returns.
  • Critically evaluate whether our workforce meets the real needs of production or income in the short / medium term. In this sense, I cannot help but anticipate that removing a part of the workforce is not always the best strategy, but being realistic… perhaps it is better to propose a new policy for the distribution of income from company resources?

Related: Life on demand, the real opportunity for entrepreneurs behind the crisis

Photo: Depositphotos.com

No more exceptional measures

All these measures should not be exceptional approaches to adopt in times of “skinny cows”, but rather a guide of responsible good practices to follow in our future as entrepreneurs, especially during the times of “fat cows” or should we not question all those points systematically in our companies, getting rid of the least profitable / strategic lines and questioning the need for each expense?

Although it seems anachronistic, analyzed from the short-term financial perspective, it is now when some of the most interesting factors for a golden age of innovation are given, if we are able to look further:

  • Availability of specialized resources at a reasonable cost.
  • Need to do things differently and optimize processes.
  • Competition focused on reducing your spending profile.
  • Availability of only staying with the most valuable staff.

In short, unless you have the right financial muscle (and even so), if as an entrepreneur you don't want to enter the death spiral, you should stop guiding your short-term strategy, which should become governed. only for the currency.

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