What Are the Different Types of Crises?

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Business crises affect everyone. No matter your industry, only one thing is certain in the business world: uncertainty. While your day-to-day operations might be predictable most of the time, every now and then something unfortunate is bound to arise. Your competition tries to do you in, the numbers don't line up, systems go down, management messes up or a major hurricane comes to town. Awareness and preparation are the keys to managing a big, unexpected crisis with as little negative impact on your business as possible.

TL;DR (Too Long; Didn't Read)

A business crisis could be a crisis of malevolence, financial crisis, technological crisis, crisis of organizational misdeeds or a natural crisis.

What Is a Business Crisis?

A business crisis is any major situation that unexpectedly or suddenly arises that can negatively impact you, your employees, your customers or your stakeholders. Any company can be impacted by a crisis, as they often come as a result of things we cannot control, like in the following examples:

  • 2016: Southwest Airlines experienced a massive system failure that resulted in bulk flight cancellations and inconvenience to traveling customers.
  • 2017: LendingOne in southern Florida was impacted by Hurricane Irma and was challenged with taking care of the company and its employees under difficult circumstances. 
  • 2018: Starbucks takes public heat for a racial bias incident that goes viral and makes amends toward a better future. 

When business was going smoothly and weather was good, the exact impact and nature of these events could not have been predicted. However, with a solid crisis management plan, they were handled. Starbucks issued an official apology and conducted racial bias training, LendingOne took care of its employees and acted before Irma hit and Southwest Airlines offered clear communication and apologies along with a make-it-right attitude.

A Crisis of Malevolence

One type of crisis in business is the crisis of malevolence. While friendly competition is normal in the business setting, sometimes competitors or others get carried away and move from competition to sabotage.

For instance, in 2013, Target customers were put at risk when their systems were hacked, exposing financial information and causing a crisis of trust among Target customers. Other crises of malevolence could include things like a competitor who damages products purposefully, tampers with utilities or otherwise maliciously sets out to undermine your business.

Effective management of a crisis of malevolence involves quickly and efficiently identifying the root of the problem and addressing it promptly. Then, you can communicate with your customers and stakeholders in a timely way to help put their minds at ease and let them know if they need to take any steps on their end. Be careful not to make the mistake that Target made in 2013 by talking with consumers before knowing the whole story or posting information only on your website when your customers are actually looking for updates on social media.

A Financial Crisis

A financial crisis happens in business when you suddenly owe more money than you can reasonably pay. For instance, say you own a contracting business and take out construction bonds on a large $500,000 project for the city, and the city claims that you did not do the work to their specifications. They make a claim on the bond your company took out, and now you owe $500,000 to cover the costs before the end of the month, yet you only have $250,000 in your bank account. This is a financial crisis that could result in bankruptcy without proper management.

Prevention and management of financial crises means never taking out more money than you could repay. It means keeping a cushion of money and investments that could cover unexpected expenses as well as understanding where you could find additional loans or investors should the need arise. Of all the types of crises, a financial crisis has the potential to most quickly take down your business because without the funds to operate, managing any kind of crisis is nearly impossible.

A Technological Crisis

These days, almost all businesses rely on technology and systems to conduct day-to-day operations. When vital technology systems crash, like the systems at Southwest Airlines in 2016, you might feel stranded without a way to satisfy your customers and stakeholders. Imagine if the systems at Instagram crashed, removing all of the customer accounts and photographs. Customers would be devastated at the loss of important photos and memories while losing trust in the company completely.

Because technology and trust are so closely related for consumers, it is vital to have technological safety guards in place to protect your customers and your business in the event of technological failure. Consider backing up information to a cloud and on multiple hard drives.

Replace equipment at regular intervals and hire experienced professionals to conduct maintenance and system design. Include multiple firewalls and password-protect everything, sometimes multiple times and in multiple ways. When all else fails, have a crisis management plan for what you will do and how you will operate and communicate if your systems crash despite your best efforts.

A Crisis of Organizational Misdeeds

While we like to think the best about the people we hire, the truth is that people do not always make the right choices, and choices that lack integrity can create a crisis of organizational misdeeds that negatively impacts your business.

Sales managers could purchase excess product to inflate their sales numbers. Management could promise wealth when they know the company is actually losing money. A manager could fudge expense account numbers in order to award himself an extra bonus. Sometimes, people lack integrity, and if these crises are not handled properly, it can make your company as a whole look like it lacks integrity too.

When someone we know and care about makes poor choices, the temptation can be to cover for her. However, this is the worst thing you can do when dealing with a crisis of organizational misdeeds. Your customers and stakeholders need to see you acting transparently, swiftly and with integrity to remedy the situation regardless of your personal feelings toward those involved. If you have a human resources department, it can help you craft a plan for properly addressing misdeeds and misconduct so that it is already in place if the unfortunate occurs.

A Natural Crisis

Hurricanes, floods, earthquakes, tornadoes, fires and other natural disasters happen, and they impact our businesses, our employees and our customers. When Hurricane Irma came to southern Florida in 2017, LendingOne took action before the storm even arrived. They sent employees to other regions, provided housing and temporary work spaces, ensured all data was backed up in the cloud and ensured that the equipment necessary for operations was available in other regions. Because of their advance preparation, LendingOne was able to make it through the hurricane while staying financially sound.

Almost every region of the United States is prone to one or more kinds of natural disasters. Research insurance options for your business and then craft a natural disaster plan that accounts for a variety of scenarios.

Plans you have already crafted for other crises, such as financial crises and technological crises, can be incorporated into your plan for natural disasters. Depending on your industry, remember to include things that can strengthen your image and relationship with the community, like offering volunteer hours in the recovery effort, free water or even space for a first-aid tent to set up shop.

Who Helps With Crisis Management?

In each of the types of crisis in business, proper management is key to recovery. If you try to ignore a crisis, it tends to grow and can take your business under. Crisis management is about crafting plans and leadership teams that are prepared in case of emergency and know how to follow an agreed-upon plan to minimize the impact of the crisis on your customers and stakeholders.

Different crises could require vastly different crisis management plans and teams. In every case, having excellent public relations spokespeople is to your distinct advantage. When a large crisis occurs, you might even consider hiring contracted crisis management public relations specialists. They have the training and experience necessary to help guide your company through the tough stuff, with the added advantage of offering an outside perspective.

In addition, technological crises require a strong technology team. Financial crises require people who know the ins and outs of the financial side of your industry, including enrolled agents or other accountants. Crises of organizational misdeeds necessitate a strong human resources department, while crises of malevolence or natural disaster require all of the above.

As you build your business, remember to always keep your public relations, accounting and human resources teams strong and growing. They are the people who have the most power to impact the outcome of any business crises your company encounters.

Five Crisis Leadership Skills

In addition to the leaders in public relations, accounting and human resources who are prepared to help address crises of natural disaster, misdeeds, malevolence or finances, be sure to plan your everyday leadership teams. Your employees will look to their management teams for reassurance about the direction of the company, and those managers will also look to you for the same. Cultivate these five crisis leadership skills to put everyone at ease and to continue in a positive direction with your business:

  • Communication: Fear often comes from what we do not know, so effective leaders are skilled communicators. They know how to get the facts and communicate them clearly to their teams so everyone is on the same page. Excellent communication skills help to quiet the rumor mill and keep everyone on task even when times are tough.

  • Accountability: People respect leaders who are real and accountable rather than those who pretend to have it all together while secretly messing up behind the scenes. Encourage your leaders to be accountable with their teams so they know how they are performing and what their leader is doing on any given day. Accountability builds trust, and trust is essential when a crisis hits.

  • Decision making: Times of crisis can feel uncertain and foreign, so the last thing you want is someone in charge who cannot make decisions. Leaders who have strong decision-making skills are able to filter out the necessary information while blocking out anything that is nonessential in order to make decisions that benefit everyone on the team.

  • Positivity: Positivity is not about being fake. To the contrary, skilled leaders are able to see things as they are and understand what they can and cannot control. They choose to focus on the things they can control, lead their teams to do the same and then celebrate those accomplishments. Positivity has the potential to create forward momentum, even under the most difficult of circumstances.

  • Emotional management: Emotions can be high when crises hit and your employees and stakeholders will be looking to leadership for reassurance. High levels of emotional intelligence and strong emotional management skills ensure that a leader is capable of addressing his own emotions in a healthy way while helping everyone else navigate uncharted territory.

References

About the Author

Anne Kinsey is an entrepreneur and business pioneer, who has ranked in the top 1% of the direct sales industry, growing a large team and earning the title of Senior Team Manager during her time with Jamberry. She is the nonprofit founder and executive director of Love Powered Life, as well as a Certified Trauma Recovery Coach and freelance writer who has written for publications like Working Mother, the San Francisco Chronicle, the Houston Chronicle and Our Everyday Life. Anne works from her home office in rural North Carolina, where she resides with her husband and three children.