There is not a one size fits all solution for businesses during this health crisis. We are in an unprecedented situation that is pushing the United States into a financial crisis. Businesses large and small have been impacted in different ways and entrepreneurs and leadership teams across the country are conducting strategy meetings to determine their immediate plan of action. Businesses need to have very diverse strategies because they are being impacted in very different ways. No matter the current state of your business, there are two overriding focus areas that business leaders need to keep front and center: 1) survival in the short-term, and 2) taking actions today that favorably position businesses for the long-term.
Most companies are falling into one of four relative situational categories: 1) business has completely come to a halt, due to a government mandate, efforts to protect employees or due to a sudden lack of demand; 2) business has partially halted as a result of a limited service model, supply chain constraints and demand constraints; 3) business is continuing to operate because it is classified as an essential company; or 4) business has experienced a significant surge in demand as a direct or indirect connection to the health crisis.
Each company in these categories must be mindful of several different factors and how to manage them in the short and long-term. Besides the obvious top priority of protecting the health and safety of employees, below is an outline of how companies in each of these categories can manage through this epidemic and come out stronger:
Business Has Completely Come to a Halt
Transparency at the leadership level is key. CEOs and entrepreneurs need to be calm and collected during these challenging times. How a company works through difficult situations starts with confidence, conviction, transparency and a positive attitude at the leadership level. From a survival perspective, companies should be holding strategic meetings that are solely focused on the current state of the business, including the predicted financial forecast, cost management measures and employee relations. What will the cash loss be per month if the company is able to reduce monthly variable costs? Can they work with their vendors and other partners to reduce or defer fixed costs (e.g. rent, utilities)? Can the company gain some relief from its vendors and landlords? In an analysis of survivability, every cost needs to be challenged, while keeping an eye on the long-term implications of your actions. Companies should prioritize their cost-reduction plan by the relative amount of the costs being reduced or eliminated and the impact to the long-term viability of the company and its culture.
Companies should not avoid having tough conversations, as delaying them will only compound issues and make a favorable outcome less likely. Typically, vendors and landlords want their customers to succeed in the long-term because it is a win-win scenario.
Once companies work through the priority of addressing the on-going monthly cash burn, what actions are needed to be put into place to survive? It may become imperative for companies to temporarily fund significant losses, which is where the strength of the balance sheet needs to be examined. Many companies have opportunities to lean out their balance sheets as a way of funding short-term cash constraints. Sharply managing receivables, inventory, payables and capital assets can offer a short-term solution to cash flow. We have also recently witnessed some larger public companies drawing down their entire credit line to ensure adequate liquidity (prior to their lenders potentially tightening their lending criteria). Working with your bank early in this process is advisable. Although some of these losses can potentially be covered by federal funding provisions that recently were approved, there is still an immediate cash need which could necessitate some difficult decisions.
Certainly, the decision of whether to furlough or let employees go is one of the most difficult management challenges. The key factors to consider with respect to employees include: 1) the company’s ability to bring employees back after a potential hiatus. A company’s assembled workforce is oftentimes one of its greatest assets; 2) how furloughed employees will view the company after they were let go during their time of need; and 3) the long-term implications of your decisions regarding your employees. The goal is to survive and thrive long-term. Decisions that are made today with respect to employees will have a significant impact on your business long term. It could define your culture, your employee loyalty, as well as productivity. This is an opportunity to differentiate your company, which can pay long-term dividends. The decision regarding employees can be a critical factor in determining the long-term success of a company when the economy stabilizes.
For those companies that can maintain their employees, there should be a focus on all the initiatives that are typically ignored or deprioritized during “normal” times due to time constraints. These should start with the most strategic initiatives, such as operational improvements, cost optimization, documentation and workflow. From a cost optimization perspective, companies should undertake a review of top vendors by spend to identify potential opportunities to switch to new providers or to negotiate more agreeable or reduced, yet fair, rates. Leveraging the additional time and availability of your team during a business disruption will allow your company to thrive once business resumes. Businesses will come out with a better cost infrastructure alongside a better understanding across the company about the specific factors that drive value.
Business Has Partially Halted
In addition to many of the strategies above, companies that have seen a significant, yet not total shutdown need to be mindful of a few different factors. The most important factor is staffing. Leadership needs to quickly assess the expected short-term demand and determine what needs to change in their current staffing model. Cross-training employees can be critical at this juncture if it has not already been done. In addition to optimizing its core business, this crisis presents a great opportunity for companies to be innovative. The companies that are succeeding in this temporary “stay at home” economy are the ones that maximized convenience and technology. For example, restaurants and retailers with delivery services and a robust online presence are finding a way to be viable even in this environment. Companies should explore potential ways to pivot from their “standard” approach of interacting with their clients or customers. For example, personal trainers can do online training and create a catalog of specific courses that can supplement their traditional business. Traditional retailers potentially can build out their online presence and platform to push their growth from regional to national. The possibilities are endless. This is the time for companies to think strategically about how they can exist and thrive in a different way. Not only will this help companies get through these challenging times, but it will potentially expand their businesses moving forward.
Another key step for a business which is only partially shut down is how they protect their employees during this time. If employees need to be at a centralized location, there needs to be a significant amount of thought and effort put into protecting those employees while they are at their job. What can be done to keep the appropriate social distancing, what are cleaning protocols, how can interaction with each other and outsiders be limited, etc. These will all be viewed as positive management steps by your employees that will help foster a culture of trust and integrity in the future. Companies that find a way to pivot, leveraging new ways of reaching their customers and clients, will thrive once there is a return to a steadier state. Not only will they regain sales from their core business along with additional sales from pent up demand, but they also will have opened a potential new revenue stream due to their innovation during the crisis.
Business Continues on as an Essential Need or Service
Certain sectors have been deemed essential or have not been significantly impacted by this crisis. In some cases, there may have been a shift in where demand has come from (e.g. from brick and mortar stores to online), and these companies have been able to push through. This doesn’t mean that they should continue to work through this blindly until there is a transition back to normal. These companies need to be evaluating what has changed within their business during this period and what is likely to occur when things normalize and customers and clients have more flexibility to make their usual purchasing decisions. One thing is certain, people are finding new ways to operate. Face to face meetings have changed to video meetings, plant tours have turned into video tours, and the list goes on and on.
It will be critical for businesses to contemplate how their product or service will be consumed in the aftermath of this crisis and to invest time and energy behind it. What may have served the company well through the crisis may be a suboptimal choice once the broader market has time to breathe and pivot. This is the time to think about building on what may be the new way of doing business. The simplest way to think about this is through the concept of convenience. Typically, the less that is required from the consumer or client, while still fulfilling their need at the highest level, will typically be the right path. This could span broadly from the best software for a SaaS business that can now have virtual customer support vs. in-person, to a hair salon now selling their products online with a catalog of videos describing how to use the products. Companies that have seen a shift in their product or service mix should be rethinking how that will impact their business in the long-term and should be prepared to support and invest in structural changes that will allow them to thrive in a different environment.
Business Has Spiked Directly or Indirectly due to the Crisis
Grocery stores, distributors, teleconferencing platforms and e-commerce businesses are just a few examples of industries that are thriving through this crisis. Sales are at all-time highs due to unprecedented demand. What guidance do these companies need? A lot. A surge in demand typically also comes with issues arising in supply chains. Companies should take their key learnings about the breakdowns in their supply chain during this surge and work to build institutional fixes for the long-term. Where were the breakdowns in raw material sourcing? Where were there problems with logistics? One of the key issues companies are facing is that their key supplies are being single sourced, which gives them limited flexibility to pivot when they can’t receive what is needed. Diversification of suppliers will always be key. It’s never optimal when companies are beholden to a single supplier.
Companies also need to put the health and safety of their employees at the forefront. They need to be creating a forum to hear and respond to their potential concerns and work to create an environment where they can thrive and feel comfortable coming to work every day. Although it may be challenging just to simply keep up with demand, specific procedures and guidelines are only the start of what is needed. In some cases, a completely different way of doing business could be required. Different equipment or additional resources may be needed. The way teams work and interact with one another may need to change. Most importantly, leadership needs to demonstrate that they are willing to operate under the same guidelines. When the dust settles and sales settle down, how will your employees view their employers? Did they keep them safe? Did they compensate them for the additional stress, burden and overall need? Just as employees remember how they are treated during the tough times; they also remember when they didn’t get to fully share in the prosperous times .
Another key consideration is how companies will capitalize on a short-term influx of new clients or customers that have not had prior exposure to their product or service. Although nobody would ever wish for this type of crisis, it does give companies unprecedented access and marketing by necessity. Companies need to think about how they are going to foster these new-found relationships on an on-going basis. They need to create specific strategies, beyond just driving additional sales in the short-term, and focus on how best to convert them to long-term customers.
Final Thoughts for all Business Owners
These are very challenging times and it is important to acknowledge that. It is also important think through personal finances before trying to help others in need. If someone is personally overextended, it will be challenging to help anyone else. With that said, this is a time for reflection, not panic. It is a time for action, not surrender. It is a time for innovation, not the status quo. For companies that entered the crisis with a strong brand or service and were thriving financially, consumers and clients will return. Eventually, things will settle down and normalize and customers will gravitate back to the companies they know and trust, and in some cases, miss. People across the country will go back to the companies that provided the best service, the companies that went above and beyond. The companies that take the most proactive and strategic action will not only get through this crisis but will come out stronger. They will have engendered deeper loyalty amongst their employees, have optimized their processes and will be well-positioned to gain additional market share from their peers that did not do the same.