COVID-19: What it means to Business - Part 3by Alok Jagdhari April 23 2020, 5:30 pm Estimated Reading Time: 4 mins, 59 secs
In continuation of a three part series on COVID Survival Guide for businesses, especially small businesses/startups by Alok Jagdhari
Part 3: Microeconomics
This part of the discussion has three sections:
- Winners and Losers
- Fundamental Shift in Behaviors
- Advise for Individual Companies
Given the Nature of the Pathogen, as discussed in Part 1, (COVID-19 What it means to Business Part 1) and after dealing with the Macroeconomics of Social Distancing in Part 2 (COVID-19 What it means to Business Part 2), I come to the last of the three part series on COVID-19 Survival Guide for businesses, especially small businesses/startups.
No better illustration of Winners and Losers than a visual, which I have picked up from Whatsapp - attached as an attachment below.
So the obvious winners are Healthcare sector, On-line Retail, Personal and Healthcare, etc., but not every segment will win.
Some of the obvious losers are Tourism and Leisure, Aviation and Maritime, Automobiles, Commercial Real-estate and Construction. However, this crisis has the potential of fundamentally altering human behaviors. The habits that are being formed due to lockdown and forced quarantine may become permanent or semi-permanent choices for people and organizations.
What are these behaviors?
- Travelling: Especially air travel is unlikely to resume its natural trajectory witnessed till January 2020 anytime in the foreseeable future
- Physical Offices v/s Virtual Offices: This argument is now being tested in its most extreme form at this time. And that has huge implications for long-term demand for commercial real estate, automobiles, public transport and energy
- Consumption: Patterns are going for a 24-48 month change as households deal with impact of income loss, savings depletion, Wealth Effect (collapse of equity markets) and etc.
- The extraordinary fiscal measures being implemented worldwide will have impact on future tax rates, for personal income, wealth tax and corporate income tax rates. This will change the financial participation rates and investment decision making for the next decade
- Hospitality, retail, leisure, etc., are unlikely to resume any sense of normalcy for a prolonged period of time
- Investment behavior of retail investors and households will change across the world, especially India where mutual funds had started to be considered as "risk-free"
- Any failure of banking system or limiting access to financial savings could reverse decades of financial participation
And now we come to the advice to individual businesses - and i will repeat my life's mantra:
‘Hope’ is a very good personal virtue. It's an absolutely useless business strategy, especially in the current environment.
So what specific steps do we advise? How do you prepare for the 18 months' survival?
Question ‘every’ assumption - revenues, costs, growth, sales cycles, timelines, customer behavior, headcounts, industry and sector projections, etc. etc.
Cash is King: Hoard as much cash as you can. Prepare a cash runway that's at least 18 months long.
Prepare the following 9 squares of a grid:
Three Revenue scenarios: Best case, Planned case, Worst case
Three Cost scenarios: Best case, Planned case, Worst case
Plot the month-by-month cash position for next 18 months. See which combination of Revenue Scenario and Cost Scenario gives you the ability to survive the next 18 months. Period till December 2021 is a period for ‘survival’. It's not a period for planning growth, or explosive profits, but preparing for SURVIVAL.
As the great thinker Michael Porter wrote, “If you have a choice between Profitability and Liquidity, always choose Liquidity”. This period exemplifies that advice. If you survive next 18 months, you will be bullet proof. But a number of businesses aren't going to survive next 18 months. What are the specific things to do?
We divide this into 3 segments
- While remote working, connect often with your people, use collaboration and productivity tools, to keep people engaged and become productive
- Manage the key-persons risk. Don't allow your key resources to all assemble or meet physically either each other or others
- Develop a business continuity plan that will allow you to function even if some people are rendered inoperative
- Focus on data security since remote working will bring additional risk
- Empathy is the most important leadership skill at the moment. Something that's not used practiced or valued in business environment
- Being open and transparent with customers, employees, partners, etc. is very important at this stage
- Ensure that your employees' mental and physical health is constantly maintained and enhanced
- Preparation for post-crisis operations should begin right away. How will the new world look like? What will your organization look like?
- This is also an excellent time to cement loyalty of your people and your clients and partners by dealing with them fairly and empathically
- Rethink your costs, question ‘every’ cost
- Hold on to every cent/paisa of case
- Defer whatever Capex isn't critical
- Rethink your revenues and your revenue model
- Track the government programs that you can use to enhance your survival chances
- Business Model:
- How can you ensure your survival?
- Think how you can get a share of the customer/economic spend that will likely continue in next 18-24 months
- Rethink your product mix
- Experiment rapidly but with minimal incremental cash outlay
- Reach out to your customers even more than usual, even if it is to ask for their well-being
- Think how to enhance your brand in this moment of crisis. Is there something you can do to help the community, society that will cement your brand recall?
- What will be your path to profitability?
Final thoughts at the end of this 3-part series:
- Look after yourself. Stay safe. Your mental, emotional and physical well-being, is very important to the survival of your business
- Business will return. It may be turbulent and rough for a few quarters, but eventually it will be "normal" again
- Prepare for the "new-normal". The normal, when it returns, won't look anything like January 2020
- Your planning and your focus over next 90 days will determine whether you are going into the heap of survivors or the deceased businesses