Over the last few weeks we’ve had many conversations with founders and others inside companies about the pandemic. The conversations we have had involve three main topics: How to maintain health and safety of people, how to ensure the company survives the coming economic crisis and and how each company can help (generally for free) with the COVID-19 pandemic.
One recurring theme was how to plan for the business over the next year, especially given that this nearing the end of the normal planning and budget cycle. It’s clear that anything can happen over the next days, weeks and months, and the timing of events such as lockdowns and return to some sort of normality is highly uncertain.
The one thing we know is that we are in uncertain times, and each region and country will have different responses to the pandemic.
The Three Phase Approach
Therefore as companies, or even individuals, plan it might be useful to think in terms of three phases rather than in months or years. I’ve described these from my perspective below, but each company should have their own perspective, as there may be other phase definitions that make more sense.
Phase 1: Survive – Emergency Response to COVID-19
This is the lock-down or worse phase, and we are seeing see a wide range of imposed restrictions across the world, many where businesses are shut down. Essential businesses, such as food production, may be able to continue, but manufacturing and in-office work will cease. Borders are essentially closed and the population is in lockdown, or fearful to go out. We will, in some places, see a health crisis that exhausts the ability of the local healthcare system to cope, and many many people will be seriously ill and many will die across the world. Economies will be supported by government intervention, but underneath it all will be plummeting demand for products and services. We are in a global depression.
Phase 1 is primarily about survival – making sure that the company will get through the crisis. The longer this goes on the more dramatic the changes will need to be, so keep a very close eye on the numbers, and have plans if this stage goes on for months.
We are very lucky in New Zealand to have a government and a system of government that is able to – and has – respond effectively to the crisis. The best case scenario, and it does not seem unreasonable, is that the virus is contained and we are fortress New Zealand, with well guarded borders.
We are well into this phase in New Zealand, with the lockdown requiring working from home for all but “essential” businesses. Every business needed to react aggressively to survive, and most in the high-tech space have done so. Some, like Bauer Media, a company that produced magazines, will not survive this phase. Others will be exposed to sectors, such as aviation, retailers or salons, that are in a state of collapse. Companies exposed to those sectors need to focus early on survival – and on helping their clients.
What to do:
1: Forecast revenue and cash, and stay on top of this daily or weekly. Look for the leading indicators (such as product use) for changes and adjust accordingly. I would not spend a lot of time refining a complicated model – simply cut the expected growth to zero, and increase churn according to how you see your industry (and product) reacting.
2: Survive by cutting costs. Revenue growth will be hard, so you need to move to get sustainable. Governments have launched programs to help because they know that businesses will need to lower staff numbers to survive. As an owner the imperative is to make sure you can pay some salaries or some of most salaries rather than all salaries and then failing to make it through. The human costs are potentially very high – and I am happy to see that the companies that I am involved with through Punakaiki Fund or personally appear to be able to retain most or all staff.
3: Help – Do what you can within your product to help your customers. If you are doing something to help potential customers then consider making it free. Timely published pages of information for its customers, RedSeed released a COVID-19 learning course for retail staff, and RedSeed and Melon released services to help people cope.
While crisis times may call for more autocratic decision making, remember that the (zoom) room is smarter than the individual, so use the team and board to make the important policies and decisions. Lean on the older directors and advisors who have been through a few crises and market crashes. Everyone is at home, and wanting to help, so pick up the phone and treat the kids in the background – and foreground – as part of it all.
Phase 2: Living with COVID-19
Each country and market will operate under various levels of lockdown, but this phase business can get done, albeit with controlled access to premises. The measures will vary over time and by country and region, but it should be possible to manufacture and sell non-food products. The global economic depression will become official, unemployment will be high, stock markets will fall and raising money will be expensive and hard.
In this stage doing businesses will be strange – almost back to normal for some businesses, and quite different for others. It’s going to be hard to sell to new clients in this environment, so don’t expect to restore your historic growth. International travel and shipping may be constrained, and many companies will fail.
However some industries will do very well, and others will be able to restore some growth. It won’t be impossible, but it will be hard. smaller New Zealand companies exposed to large markets hold continue to do well, even as their overall market demand falls. But demand in some sectors such as travel, will be catastrophically lower and overall global demand will be low for almost all sectors.
This is the time to invest in helping getting product and marketing ready for the recovery, as well as continuing to do the best you can for your existing and any new customers. Obviously keep the business sustainable – this is no time to be asking venture capitalists for funding if your company is not able to cope with COVID-19. If the new reality is not one that is sustainable for your company then consider aggressively pivoting to product and markets that will thrive.
For those with funds available there will be opportunities to acquire complementary companies for relatively low or even fire sale prices.
Phase 3: Recovery
Over time the regional blocs that have the virus under control will expand, and there will be better economic integration, and even the resumption of tourism. Eventually there will be a vaccine, but that will need to get to everybody before a region can truly open its borders. The world will slowly emerge from down times, but will never be the same again. Some sectors will take years to recover, and with the Climate Crisis perhaps some never will.
This is the time to invest in expansion, as people and companies are increasingly willing to trade. Aim to have funds set aside for this phase, as there will be new land-grabs for re-emerging buyers.
Economic recoveries can take a long time, and we should recall we have had 12 years of some of the best ever economic times for businesses. The catalyst for the emerging market crash has been a long time coming. And let’s not forget that the boom times were not there for all people – the rewards were quite uneveningly distributed. Those who lose jobs now could suffer greatly, especially in societies with poor safety nets, so look to find opportunities for large new workforces.
Using the Three Phases
The point of this exercise is to form a shared understanding of what each phase looks like for your business and market, and to make plans for each phase.
I would not advise thinking too hard about the timing of these phases, as that is highly uncertain, but do think about how long the company can sustain each of the phases, and what changes you would need to make if they go on too long.