How Business Model Innovation Can Boost SMEs in Times of Crisis

By Dr. Margarita Cruz

SMEs reacted to the Covid pandemic in different ways. Some decided to introduce innovative dimensions to previously existing business models in the hope for survival, whereas others preferred not to mess with the formula for fear of upsetting post-crisis brand identity. The research suggests that creating new business models based on external resources, collaborations and entrepreneurial thinking can result in a winning resource in crisis times.

SMEs in crisis

It’s been exactly two years since we first experienced the first wave of lockdowns in Switzerland due to the COVID-19 pandemic. Back then, there was a great deal of uncertainty about how businesses would survive particularly in the food and beverage industry (F&B) with pubs, taprooms, restaurants, clubs and other hospitality outlets shutdown during several months. Despite the challenges brought by such unpredictability, a large number of firms innovated their business models to provide a first response to the crisis. For example, high-end restaurants offering a delivery box and DIY instructions to cook at home, breweries changing their value proposition to deliver groceries, or sit-in only restaurants developing home delivery services to bring their food to people are just some examples of the changes in business that the F&B industry went through.

However, while we observed a boost in business model innovations in the F&B industry during the crisis, this was not the case for many businesses in the industry. Among all businesses operating in F&B, small- and medium-sized companies (SMEs) were particularly struck by the crisis and while some were at ease implementing innovations in their business models, a great majority of them decided to put on hold their operations during the pandemic. Such disparity in the way SMEs in F&B reacted to the crisis is shocking, particularly knowing that over 86% of all businesses in F&B are SMEs. So, why did some of them engage in innovations to respond to the COVID-19 pandemic while others stayed put?

The hard road to business model innovation

To answer this question, my co-author Dr Enzo Bivona (Associate Professor, Department DEMS, University of Palermo, Italy) and I embarked on a journey to understand what makes the implementation of business model innovations (BMI) feasible for SMEs, particularly in times of uncertainty. We interacted with different SME breweries in Switzerland from the beginning of the pandemic throughout November 2021 and found that SMEs in the F&B industry are particularly vulnerable to changes in their business environment due to resource scarcity, but also due to a lack of understanding on where to get started if changes in their business models are needed.

For example, a common fear SME owners and business managers faced during the pandemic was whether changing the value proposition of their business as a response to the challenges brought by COVID-19 would have detrimental effects on their brand post-crisis. From this perspective, implementing BMIs was not an exciting idea for many SMEs as they wanted to avoid having potential losses also after the coronavirus crisis was over.

Contrary to this, we also found a strong drive for responding to the crisis with simple and sometimes also with sophisticated ways that could bring positive financial spillovers not only during but also beyond the crisis. This is the case of the beer crowdfunding platform Ton Bistrak implemented by Docteur Gab’s in the middle of the pandemic. It required creative and coordination efforts with over 150 restaurant partners to raise funds from customers throughout Switzerland in return for personalized beers. Although the effort of producing personalized beers may have looked tremendously risky at first, this initiative turned out to be so successful that it became permanent part of Docteur Gab’s strategy.

Similarly, La Boîte was a radical innovation implemented in the business model of Brasserie La Marmotte during the pandemic. After realizing the drop in beer sales due to the lockdowns, this small brewery in Bienne realized that their customers needed food delivered to their doors – not beer! Inspired by this, they decided to sell canned seasonal meals and bring them to their customers while in home-office during the pandemic. This change to their business model not only implied partnering up with a large number of restaurants and chefs willing to create unique recipes that could be put into a can, but it also implied overcoming the fear of losing clarity in their value proposition after the crisis.

3 tips for SMEs to get started with BMIs in times of crisis

Although the challenges of the pandemic for SMEs in the F&B industry seem lower at the moment, our study on Swiss SME breweries provides meaningful insights for SMEs to know how to respond to a crisis in the future with the aid of BMI. Here some meaningful tips from our study that SMEs can rely on when facing difficult business environments and when in need for a change.

• Rely on internal resources
  When not knowing where to get started, make a list of all the internal resources the SME relies on for daily operations and think about novel ways to use them to deliver new products or services. While the resulting products might be new to the firm, it is likely that they will not fall out of the SME’s value proposition. This is therefore the fastest and simplest way to change your business model during a crisis.
• Create collaborations
  Creating partnerships and collaborations with existing and new business partners during the crisis may bring new resources, knowledge and opportunities to the SME. Collaborations imply recombining those new resources and knowledge with SMEs’ existing pool of resources and capabilities. While not an easy task at first, this strategy allows the SME to tackle long-term opportunities in their environment. The resulting BMI in this case is likely to differ significantly from what the SME currently does, however, it may result in the highest returns also post-crisis.
• Experiment with different ideas
  Because of the unpredictability crises bring, it is important to keep an open mind as business manager of an SME. This requires developing entrepreneurial thinking and experimentation of different ideas until finding at least one that could prove unique and promising amidst the crisis.

To conclude, BMIs are an important resource that SMEs can rely on when facing uncertain and critical times. Though complex, starting with an appraisal of internal resources and the creation of collaborations with business partners can boost the potential for SMEs to successfully implement innovations in their business models during crisis. The past two years not only brought about incredibly challenging times for the industry but also important learning points to draw on when experiencing turbulent times in the future.