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What should entrepreneurs do when they encounter a crisis?

Written by Varsha Saraogi on Thursday, 19 July 2018. Posted in Sales & Marketing

In the wake of the Facebook and Cambridge Analytica scandal and Uber’s alleged sexual harassment case, how can startups prevent reputational damage when in a crisis situation without becoming history

What should entrepreneurs do when they encounter a crisis?

Warren Buffett once famously said: “It takes 20 years to build a reputation and it takes 20 minutes to ruin it”. These words of warning ring particularly true today when reputations can be ruined faster than in 20 minutes. Hence being prepared to managed crisis is more important now than ever.

While many see the perks of being their own boss, new entrepreneurs sometimes forget that even when plans are being executed,  there is a possibility that things can go wrong and mistakes are made. Whether it’s a badly phrased ad or a bigger problem like KFC running out of chicken, business leaders  must equip their companies with  the tools to protect themselves against any unforeseen circumstance. “They are so enveloped with financial damage that they forget about other details,” says Anthony Burr, founder of Burr Media, a PR company specialising in crisis management. Being able to overcome any bad things that happens to a company is important as 65% of global CEOs has experienced a crisis within the last three years, according to a survey by PwC.

Given many businesses experience bad things, it would be a huge mistake for startups to wait until a crisis hits before thinking how to respond. “Get ahead of the curve and, at a bare minimum, think about taking your employees in confidence so as to get their support as well as pay heed to statements given to investors,” says Leon Emirali, co-founder of Crest Communications, a marketing agency for startups.

The solution lies in startups preparing for rainy days just like they would for clear skies. As part of these preparations, founders must recognise that challenges comes in many forms – be it financial, product-associated, PR motivated, HR driven, management failures, compelled by the market or legal. “Having processes in order, knowing the protocols when the winds blow against you is more valuable than estimated,” adds Emirali. “It’s about ownership, authenticity of response and evidence of change.” But what are the fundamental to-do’s for startups?

The first thing to remember is to always respond in a timely fashion when faced with a bad news. “Timing is everything,” says Burr. If a company makes a mistake and then goes dark, it leaves the customers, investors and the media immediately suspicious. If you have any doubt about this, remember how Mark Zukherburg faced a massive backlash when he took five days to respond after Facebook was accused of leaking millions of people’s data to Cambridge Analytica. Where transparency and honesty is important, tactful communication should be every CEO’s mantra.

The Zuck’s faux pas is even more ironic considering that he more than almost anyone should know how fast bad news travels through social media.  “Especially on Twitter, if you don't get something in before maybe a key influencer or someone else does and bang, it will take off and then you can't get it back,” says Burr says.  Given how quickly a situation can go from bad to worse online, founders must be prepared to snap into action the moment things go sour. “Don’t ignore the complaint or rush to respond with a denial. Immediately issue an apology with a holding statement — that buys you time. Be in the front foot. If you wait, the press will write your story, not you.”

While it’s important to respond quickly, startups should also consider what to say. For instance, Texaco, a US-based fuel and gas company, tackled a situation well in 1996 when its executives were caught on tape spewing racists slurs. Not only did the company issue honest apology but took immediate action, including sacking the racist employees and creating more equal opportunities. “That’s how you address people,” Burr says. “If you publish a standard press release, people see through that.” Another example of the essence of communication is set by Virgin Media mogul, Richard Branson. When Virgin Galactic test craft SpaceShipTwo crashed in 2014, Branson published an emotive blogpost immediately. Fast forward three years and his project took flight again, this time successfully. “He knew how to make a crisis work in his favour,” Burr adds. “As long as that information is channelled with honesty, people do forgive. The one thing they won't forget is being lied to or being cheated on. And that's where the mistakes are”.

And it’s clear that the business leaders play a key role in getting these messages right. In fact, research by the University of Michigan and Emory University found that mismanaged crises often stemmed from impulsive decisions by the company heads and led to a wide range of long-term regrettable consequences. And United Airlines CEO, Oscar Munoz would now agree after past experience. When a video of a passenger being dragged out due to an overbooked flight went viral, the airline should have addressed the problem by making amends. Instead, Munoz chose to publish a statement by saying: “[It was] an upsetting event to all of us here at United.” He was criticised for that by the media as well as customers which resulted in the company share prices plunge after the incident. “This is what new business leaders shouldn’t do,” says Burr.

Of course these are established organisations, but the principles are the same for startups.  “Respond rather than react,” says Jonathon Gabay, co-founder of KBA, a PR firm. “Think first, rather than become driven by reactions. Otherwise you can find yourself in deep water without knowing how to swim.”

As part of your efforts to crisis proof your business, it’s worth considering hiring a PR agency that’s responsible for your reputation. “It's one of those essentials on a checklist for any business,” says Emirali. “In times of crisis an important part is the liaison between the PR and the legal team.” Entrepreneurs might find it expensive to inject money for a PR firm due to their slim budgets but Emirali argues the PR helps in getting a strategy during early days in place. “Pivotal plans could sometimes save businesses thousands if not millions of pounds further down the line,” he says. “Their [PR companies’] network with journalists ensures you’re not portrayed in the wrong light. Investors should know that you've got a good strategy in place because their reputation is aligned as well and it could get ruined if something went wrong.”

However, Burr warns startups of being wary when hiring one. “If the PR is not qualified enough for handling a crisis, what you've got is you've got to two chefs panicking at the same time which is a recipe for disaster,” he says. “And that's why they need a real crisis management team to come in to analyse it and then to make those decisions for you.” What businesses also need to consider as a safety net is a liability insurance. The shockwaves get more tolerable despite it being costly, given that startups have a short runway for capital. “Especially where startups involving health records are concerned, it can save them a profuse amount of money,” Burr says. Saving that money in the early stages of a business can sometimes end up costing more if caught in an unexpected situation.

Given that reputation damage can happen in the blink of an eye, entrepreneurs will find that a crisis management system is what saves their ship from sinking.  “Entrepreneurs should always have something in their locker,” Burr concludes.

About the Author

Varsha Saraogi

Varsha Saraogi

As junior feature writer and a recent MA Journalism graduate, Varsha has joined the Elite team to fuel her passion. Along with being immersed in the money making sector and ranting about women’s rights, she will be hunting for news about everything business related. and burying her head in economic magazines. 

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