First things first, our hearts and minds must still very much be with the sick. While the rest of this article focuses on the business impact of the coronavirus, it's not without recognizing the real risk to everyone's health. Stay safe everyone.
For the past 12+ years, I've lived in Shanghai, China and for the past 2 months, my consultancy's business has been directly impacted by the coronavirus. While it's been challenging, the dread was perhaps the worst part, so in an attempt to minimize uncertainty for other entrepreneurs, I’d like to share observations and lessons over the past couple weeks and months.
It is without a doubt now that COVID-19 has impacted the economy. Worse still, the constant news alerts about stock market crashes, celebrities and politicians falling ill are enough to cause a panic attack simply sitting in front of the TV.
Now, as this crisis moves across Europe and America, it will impact big and small businesses alike. But while bigger organizations have the resources, systems and plans in place to weather a storm like this, small businesses are especially vulnerable.
WHAT TO EXPECT (THE NEGATIVES)
First, the bad news. Industries across the board are being challenged. Manufacturers like Apple and Tesla have seen their production slow down or stopped entirely with supply chains cut, as transport between regions was restricted across China. Furthermore, even if factories had the supplies, workers were slow to come back, as many towns have erected barricades to prevent anyone in and out.
As a result of this slowdown, other businesses have taken a hit: creative agencies, travel and events agencies, and food and beverage companies. As I mentioned before, my business was directly impacted too. As a consultancy, we saw client-projects postponed or canceled. This included our work across the region (both in Asia and Europe).
After a few weeks, revenue losses have spilled over to affect the employees too, resulting in salary reductions and layoffs. For those still working, productivity was greatly reduced. Morale was low and many did not prepare their work materials for the sudden lock-down, or if they did, they had to juggle home, school and work-life with all members of the family on top of each other during the quarantine.
WHAT TO EXPECT (THE POSITIVES)
Still, it’s not all doom and gloom. People need to live and being home for such extended periods of time, social media and streaming entertainment became a necessity to both escape from the monotony and a way to cope with the stress and the unfamiliarity of the situation.
Online courses have seen a boom, as people worked on all types of self-improvement, with popular topics like cooking and exercise. There was an increase in first time usage for e-commerce and food-delivery services, as people needed to get their necessities.
Actually writing this out onto my screen, a lot of this seems like common sense now, but most entrepreneurs have many other things than the economic impacts of a global pandemic… so what now?
DO THE MATH:
Estimating your runway
After ensuring the safety of you and your loved ones. It’s time do the math and figure out your business’s cash flow situation. How long is your runway? Months? Weeks?
You can probably expect to take a hit to your revenue, so start to consider three different revenue situations: best-case, worst-case scenarios and something in between. Adjust the percentage of loss according to your particular industry and business model.
The next aspect to consider is cash on hand: how much money do you have, how much do you need to feel safe, and add a slight buffer. Figure out what your real bottom line is. When you have your revenue scenarios and cash on hand, you can add them up together to estimate the top half of the equation.
The last step is to work through your monthly expenses: what are your biggest costs? What’s essential? What’s renegotiable? And what nonessentials can you cut entirely? Obviously, the lower your costs are, the longer your runway is. This is particularly relevant now as this is a race against time. Can your business survive long enough for the market to return to normal? Or can you build new business quick enough for your startup to take off?
No one is sure how much longer this virus will be around, early estimates from experts were 3-6 months before we bounce back, but that is changing by the day so plan accordingly.
THE AFTER-MATH: Your Choices
Once you’ve worked through the math, you’re in better position to make a decision. Entrepreneurs have 3 options: retreat, defend, or attack?
Retreat: while it's never the first instinct for entrepreneurs, for those whose startup was already on the edge, this might be time to take a step back, conserve energy and resources to survive the long haul, waiting for things to settle down. Retreat is a real option.
Defend: Deeply connect to your clients and do whatever it takes to make sure your business is secure. It always takes more resources to develop a new client than to maintain a happy one. This might be a good idea if you have a few big clients. Do right by them during this crazy time and they won't forget.
Attack: Launch new products and services. If you’re an entrepreneur, then you likely already know that every change creates opportunity. It's never all bad, nor is it ever all good, but with every fluctuation there's a window to sneak through.
Attacking could even be as bold (or necessary) as experimenting with the fundamentals of your business model. This might mean looking at different market segments (ones that are less vulnerable to the virus’s ripple effects), different price points (to attract or filter out customers with different levels of disposable income), or even different channels (limiting offline activities, and leveraging social media even more, e-commerce, webinars etc.).
Again, I really wished none of this was happening and that this article wasn't necessary... but over the past few months, I’ve talked to countless founder-friends around Asia, and we’ve all taken long looks at our business models, as our major vulnerabilities have been exposed. So to better prepare other entrepreneurs in America and Europe for whom the crisis has not fully yet reached: do the math, make your plans accordingly, and reach out to your communities: we will get through this together (albeit from a safe distance 😉).
Remember that us entrepreneurs are well-suited for uncertainty. Chaos doesn’t invoke the deep panic that we normally see in the media. Now is the time to use your entrepreneurial super-power: create value in times of need.
This write up is based on my March 1st YouTube video | For Part 2: Click here "What does all this mean? From Crisis Management to Crisis Leadership"
Brian is the CEO of Let's Make Great! a creativity consultancy that helps multinational companies to develop new products, new services and new brands through co-creation workshops and strategic consulting.