The Covid-19 pandemic has wrought not only personal and social damage but it also seriously hit the world economy. Small businesses, which are usually the most vulnerable to crisis impact, suffered the most. Catering and tourism, together with trade and services fields that require business-customer face-to-face interactions, were the first to feel the consequences of a changing world. The pandemic also brought significant losses to entertainment and transportation markets due to worldwide lockdowns and social distancing measures. Many small businesses (SBs) were closed or even dissolved by their owners due to the severe challenges they faced. The majority of leaders were not ready to respond quickly and revise their business strategy to continue operations in an adverse environment. Amid such economic obstacles as lack of capital and supply chain issues, the pandemic made permanent changes to customer buying behavior that requires a proper SBs’ transformation led by their owners. Although the pre-Covid-19 leadership style was working well, the shift to servant leadership is needed to ensure survival and further thriving of SBs in the post-pandemic world.
This leadership approach focuses on the psychological health of employees and well being of local communities that are essential contemporary social challenges. The main issue small businesses face in the wake of Covid-19 is a new consumer buying behavior. E-commerce has increased its popularity during the last decades, while Covid-19 became the primary catalyst for its further development. The main challenges SBs faced during coronavirus outbreak will be presented next in order to determine the best methods to address them in the post-pandemic world.
Small Business and Covid-19
The leaders of small and medium-sized businesses (SMBs) faced a plethora of serious challenges caused by Covid-19. This time of hardship has a different impact on businesses in various fields. For instance, representatives of the food industry lost significantly less than small tourist agencies did during the pandemic, mainly due to a higher adaptation and stable demand. According to the survey conducted by Facebook and Small Business Roundtable (2020), the most significant challenges are uncertain future, lack of flexibility, customer behavior, lack of capital, online communication, supply chain issues, and digital payments. Many of these challenges would be partially mitigated following the end of coronavirus crisis, while others should be addressed by the leadership to enhance positions on the market.
The pandemic accelerated already started transformation processes in business that change the way how people think, what they want, and how they would purchase it. Although supply chains would be fully restored shortly, the same could not be said about consumer preferences and their newly-acquired buying habits. Today organizations’ leaders play the most crucial role as they have to organize fitting internal transformation to adapt to new ways of doing business, provide local social assistance, and support their employees.
It is difficult to balance operational and financial challenges with an obligation to support households, employees, and suppliers. Many enterprises, especially personal businesses, were closed, anticipating the negative impact of lockdown measures and legislative changes. In March 2020, the majority of small businesses (SB) closed their facilities and stopped operations to comply with local ordinances. Only 7% of respondents (managers and owners) revealed that they received interruption insurance, while others had to adapt or just sustained losses (Facebook & Small Business Roundtable, 2020). During the lockdown, approximately 30% of people who had a job before the coronavirus outbreak reported to not working at all due to the shot down of their companies and layoffs. Even though organizations remained open, the majority of employees faced income reduction, while the number of personnel was reduced. Businesses that have been operating during pandemic reported to feel a shortage of capital to maintain their operations, organize remote work of their staff, and address increased family demands. The main financial challenge lies in the fact that the sales went down while fixed costs and rent remained the same.
Moreover, half of the service-oriented SMBs in the US revealed that they have negative cash flow, which means that their outflow was higher than inflow after paying bills and wages. To balance the situation and stay afloat, enterprises elicited money from personal savings, community donations, and consumers’ gift cards. It was a time when SMB’s demanded zero-interest loans and other financial assistance from the governments to survive.
Problems regarding operations and availability of supply chain emerged as a consequence of the latest upheaval. The early mentioned survey reported that 67% of retail and 50% of catering businesses suffered from delayed shipments and limited access to specific products (Wright & Blackburn, 2020). It is where leadership comes into force, making their businesses more agile and flexible by finding new channels of supply and shifting to alternative delivery procedures. The economic turmoil caused by coronavirus makes small and personal companies to encounter issues connected with hindered logistics and supplies. They also find difficulties sustaining remote work for a long time.
Business leaders consider a lack of demand and concerns regarding cash flow as the main challenges to sustain during the reopening stage. Although reopening policies have weakened local ordinances and society began to ignore restrictions, consumers still assess companies in terms of safety and overall economic situation that would determine their spending. Organizations tend to use personal savings or zero-interest loans from financial institutions to conduct proper reopening. It brings another challenge as business owners are not sure if they would be able to pay financial assistance back. From the perspectives of SB’s, governments had to offer salary subsidies, tax referrals, and accessible loans that would mitigate pandemic’s adverse influence.
To conclude this part, such crises as this pandemic damage SB as its management is under pressure for timely response, threaten trust and company value, and challenge its business goals. SMB’s are more vulnerable to such events because they own less capital to prepare, limited resources, higher dependence on governmental institutions, and weaker market positions in comparison to corporations (Madanchian & Taherdoost, 2019). In general, small businesses suffer from a lower number of workers, reduced sales, failed contract terms, cash flow issues, and conventional management that is not able to adapt in short terms. It leads to a high financial and consumer loyalty loss or even to the enterprise dissolution during the crisis. Covid-19 pandemic also added restrictions regarding social distance measures that possessed the technology challenge and significantly altered consumer behavior. This particular challenge for post-crisis leadership would be further discussed in detail to find out its repercussions and possible strategies to mitigate it.
Consumer Behavior as the Main Challenge
The biggest challenge that Covid-19 brought for SMB’s, especially for retail ones, is the change of consumer behavior. It is not a secret that month is enough for people to become accustomed to the new ways of doing things, using products or services. The pandemic lockdowns accompanied by hysteria have influenced consumer attitudes and purchasing habits for more than four months all over the world. This hardship taught people to value primary products that make life easier; they become conscious buyers who prefer local things instead of imported ones.
Major global events such as September 11 (2001) and the global financial crisis (2008-2010) always leave a mark on history and even change social trends. All of them had epicenters, while Covid-19 became a genuinely collective challenge due to the nature of the virus and the higher level of globalization achieved during the last decades (Mkheimer, 2018). According to Ramya and Ali (2016), social, cultural, personal, psychological, and economic factors are the main shapers of consumer buying behavior. The stimulus-response model suggests that customers’ decisions change in response to marketing and other stimuli. In times of coronavirus crisis, other incentives (political, economic, and social) overpowered marketing factors such as product, price, promotion, and place. As a result, a buyer’s personal characteristics interact with the altered decision process that produces new outputs in the form of decisions over product, brand, dealer, and purchase amount/timing. Economic factors like personal income and social distancing contributed mostly to the change of behavior.
The new habits will probably endure in the post-crisis period changing the ways people shop, think, and work. According to Wright and Blackburn (2020), people still do not feel comfortable visiting public places in the upcoming months due to remained health concerns. Consumers, as far as possible, would avoid public transport and crowded locations preferring to make appointments at their or their friends’ homes. Thus, changes spotted in the wake of the coronavirus outbreak, especially concerning omnichannel services, would sustain. Chat and virtual consultations, home delivery, and in-app ordering become very popular during lockdowns, and it is highly likely to be used by consumers in the future. For instance, 45% of respondents currently practice home delivery and expect to continue it after the outbreak (Wright & Blackburn, 2020). In other words, social life today is more family- and home-centered; thus, companies should consider this trend to develop new services and products.
Furthermore, employees expect more effort from their employers to care about their health and economic conditions during the upheaval. A large number of workers (45%) perceive their employer’s response to the outbreak as neutral or negative, while 12% of subordinates accuse their leaders of failing to respond (Facebook & Small Business Roundtable, 2020). Owners of such organizations should act responsibly in order to preserve valuable staff and an excellent reputation.
Business Leadership Transformation
In general, leadership is a relationship established between those who manage and aspire to lead and their subordinates, who opted to follow and pursue shared goals. The quality of how people collaborate and work within an organization determines the level of success of its leadership. Before the coronavirus crisis, weak and inappropriate leadership skills were cited among the main causes of SBs failures (Madanchian & Taherdoost, 2019). Although Covid-19 brought a plethora of pressing issues for business owners that could not be directly resolved by its management, great leaders have to find ways to guide their firms even through particular crisis time.
Leadership styles have a strong impact on employee’s job performance and overall company’s success. Excellent leadership helps to align staff with the firm’s objectives, values, and mission, whereas corporate social responsibility (CSR) enhances trust relations with customers and strengths brand loyalty. The autocratic, authoritative, pacesetting, democratic, coaching, transformational, and laissez-faire styles are among common business leadership styles. According to Mkheimer (2018), the main roles of leaders include forming visions, values, and employees’ motivation. Companies used to apply transformational, charismatic, and transactional leadership styles to accomplish it.
The latter style is about using the system of punishments and rewards by the leader to promote employees’ compliance. This carrot and stick approach enables transactional leaders to motivate followers in the short-term within a leader-follower reciprocal relationship. Transformational leadership encourages and stimulates a continuous innovation process among management and staff that brings changes to the organization needed for further development and successful growth. Micromanaging is usually abandoned under this method, whereas employees enjoy more freedom to be creative and independent in decision making within assigned tasks. This approach mainly concentrates on followers’ development and the firm’s performance. In its turn, charismatic leadership rests on heroism or exemplary character of a person that encourages followers to do their best. Although charisma style is capable of establishing organizational commitment, alignment of individuals’ efforts with strategic objectives, it is not applicable for continuous innovation and business success.
These styles may be successful for the majority of SBs, which operate in times of stabilized social and economic life. However, the evidence proved that at least 100 000 owners decided to close down their small enterprises between March and May permanently (Bartik et al., 2020). The majority of managers and leaders failed to adapt to the situation that requires quick response to changed consumer behavior and limited resources. The pandemic makes them forget about doing business as usual; thus, leadership style also needs to be appropriate. Craven, Liu, Mysore, and Wilson (2020) indicated the main steps to be done in the reality of the lockdown measures that help to survive. Business owners should improve communication and protection of their employees with the right policies. This communication should be candid because, in times of uncertainty, it works as a countermeasure to the climate of anxiety and cynism.
Special cross-functional response teams may help the CEO to assess employees’ demands and conditions, develop a contingency plan, long-term resilience, supply-chain monitoring, and more rapid responses to demand shocks. Network optimization should be done to stabilize the supply chain making it more flexible. Every company that strives to continue operation should be close to the consumers’ demands anticipating their behavior (Craven et al., 2020). Roundtables and simulations are helpful to practice following disruption plans and increase team collaboration needed for rapid response and its activation. Every company, even local small one, would better off shoving their purposes by providing expertise, equipment, or money to support local communities. The post-pandemic period will likely require a more lasting and stable leadership approach incorporating earlier mentioned measures.
Methods and Strategies
Shift to Servant Leadership
Coronavirus crisis changed the way management reacts to the upheaval in modern times. The agile approach currently is not appropriate enough to maintain the organization because pandemic rewrote rules for effective navigation. The world progress into the recovery stage; thus, leaders simultaneously face the challenge of building the future and controlling the current situation. Instead of fixing broken elements in the system of a company, managers have to develop it by addressing uncertainties with resilience and seize opportunities to change and thrive.
By July 2020 response period has finished, and the sense of uncertainty became more settled. Today the path of recovery includes a list of important implications for the SB owners. Leaders have to establish the destination of recovery and set revised goals. Managers would shift their focus from operational continuity and personnel safety to the demands of markets and outcomes desired by stakeholders. The future likely will be restored with some changes; hence, the business transition from keeping functioning to the adaptation to the new normalcy needs a different knowledge and skill set. Long-term scenario planning should also replace contingency planning that was useful in a short-term period of the pandemic. It is necessary to highlight the related effect on financing, personnel, operations, and performance. Finally, the most critical implication for leadership lies in its ability to envision a successful future and create trustful relationships with staff. Leaders that embrace resilience, trust, and empathy as the catalyst and care about local neighborhoods will likely achieve improvement in the near future.
Servant leadership style is one of the most suited to the current situation. It is an approach to leadership that prioritizes individual interests and needs of followers and orients concern for self towards concern for the larger community and members of an organization (Eva, Robin, Sendjaya, van Dierendonck, & Liden, 2019). This theory requires a leader to move away from self-orientation, to have a strong character, and be an altruist, moral person. The model of servant leadership is grounded in the idea that every follower is a unique individual that has various strengths, limitations, needs, and interests. Leader-employee relationships may take forms that blur the line between professional and personal life. Contrary to other approaches, servant leadership aims to improve not only the organizational bottom line but also the emotional maturity, ethical wisdom, and psychological well-being of employees. It is connected with stewardship notion as servant leaders play the role of stewards who strive to elevate their followers both in terms of performance and personal qualities.
Even though this approach intersects with ideas of transformational leadership theory, it places the psychological needs of employees primary to the organization’s goals. Moreover, under servant leadership, goals perceived to be a by-product achieved after the long-term meeting of followers’ demands and needs. Similar to authentic leadership, it requires leader-subordinates interactions based on mutual trust, transparency, and being authentic that comes from the inner conviction to serve others. The list of servant leadership outcomes presented by Eva et al. (2019) includes greater job satisfaction, psychological well-being, perceptions of meaningful occupation, and lower emotional exhaustion and job cynism. This style of leadership also positively associated with higher performance, knowledge-sharing among personnel, customer value co-creation, and customer satisfaction. Customer-oriented prosocial behaviors, together with higher team effectiveness, are the primary outcomes that make this approach valuable in times of Covid-19 presence.
SB leaders had to cut extra expenses and decrease the workforce in order to survive. It seems that during the recovery phase majority of them would not be able to restore their capacities and operations fully. Thus, servant leadership emerges as an essential tool that would value remained employees and address the concerns of local neighborhoods. It is better to focus on what could be achieved instead of pursuing unreal tasks and objectives. According to Wu, Liden, Liao, and Wayne (2020), managers who apply servant leadership are able to encourage employees with high self-interest to perform serving behaviors. Business leaders become role models for such employees, and their confidence to serve others is boosting.
Recommendations
Small and medium-sized enterprises should be more client-oriented in the recovery stage of the crisis. The earlier mentioned challenge regarding customer behavior requires every leader to revise his company’s strategy, products, vision, and operations. As was earlier mentioned, customers are likely to embrace the new normalcy of shopping from home. For instance, small retail businesses that offered their products in public places and relied highly on foot traffic should revise their sales model.
Following the assessment of financial damages, a professional leader takes a serious look at the business plan. The pre-Covid-19 model that worked well would not be appropriate without fine-tuning in the near future. Low or absent digital expansion that was a business bottleneck during the upheaval can be used as a prospect for new comparative advantage. Business rebuilding to survive in the post-coronavirus world includes the incorporation of such operations as home delivery and online shopping. These changes will help to accommodate customers and clients, address new features of their buying behavior, and cut costs related to maintenance of physical sites. The introduction of an online marketplace and takeout approach meets the safety concerns people are expected to preserve for a long time after the crisis.
The remote sales model was effective enough during lockdowns all over the world. Facebook and Small Business Roundtable (2020) revealed that models based on e-commerce are 30% more effective than conventional channels. To be successful, every SB, especially retail ones, should expand their digital presence that includes digital ordering, payment, and service delivery tools. Omnichannel services may be an answer to consumer behavior issues for SBs’ owners. Moreover, leaders should consider further support for local communities. The Covid-19 pandemic showed that consumers assess and value CSR activities of firms that significantly influence the brand image. Although CSR incurs extra expenditures, only socially responsible businesses would become thriving ones with the help of strong commitment and effective strategy.
References
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Craven, M., Liu, L., Mysore, M., & Wilson, M. (2020). COVID-19: Implications for business. McKinsey & Company. Web.
Eva, N., Robin, M., Sendjaya, S., van Dierendonck, D., & Liden, R. C. (2019). Servant leadership: A systematic review and call for future research. The Leadership Quarterly, 30(1), 111-132.
Facebook & Small Business Roundtable. (2020). State of small business. (Report). Web.
Madanchian, M., & Taherdoost, H. (2019). Assessment of leadership effectiveness dimensions in small & medium enterprises (SMEs). Procedia Manufacturing, 32, 1035-1042.
Mkheimer, I. (2018). The impact of leadership styles on business success: A case study on SMEs in Amman. Arabian Journal of Business and Management Review, 8(2), 1-9.
Ramya, N., & Ali, S. M. (2016). Factors affecting consumer buying behavior. International Journal of Applied Research, 2(10), 76-80.
Wright, O., & Blackburn, E. (2020). Ten consumer trends impacting CPGs. Accenture. Web.
Wu, J., Liden, R. C., Liao, C., & Wayne, S. J. (2020). Does manager servant leadership lead to follower serving behaviors? It depends on follower self-interest. Journal of Applied Psychology, 1-16.