Covid-19 Pandemic has put all of us in a bad situation. One of the many questions that are being asked is which companies are going to be able to survive this crisis? Companies that survive the crisis will have Executives who can quickly evaluate these changing circumstances, acknowledge different patterns and opportunities, and act urgently to pivot and reorganize their businesses. Those who won’t do this might not survive the crisis. In this article we will discuss a 5-day plan that can help you keep your company alive during this crisis.
Here is a five-day play book to assist the Executives of negative cash flow businesses to judge the current standard and respond quickly and urgently.
The survival of your business in this crisis can be captured with a simple formula.
Survival = (speed of your knowledge of the situation) x (the size of the pivots / cuts / lifeboat decisions you make) x (the speed of your time to make those adjustments)
Remember that the “speed” word appeared twice. It’s not the time for councils, discussion groups or broad-based consensus building. Even with incomplete information, the future of your business relies on your ability to produce smart decisions and start acting.
If you are a CEO who can’t immediately lead yourself to action, and if you’re waiting for somebody to inform you what to do, your stakeholders, or even more probably the market, will make these decisions for you.
Large sections of the market have been closed down: travel, tourism, cafes. Any company with a fixed cost that depends on foot traffic will be subject to pressure. With millions of unemployed people over the next few weeks, taxable transactions like furniture, fashion, and lifestyle will be hit hard. But some other companies, such as legal firms, contracting companies, and real estate companies, will also be hit. The negative impacts will not be evident initially. Your clients are no longer your customers. Your income plans are no longer applicable. To realize the state of play, you need to quickly evaluate your internal and external areas in the future.
State of the economy,
- unemployment percentage?
- Shelter on the spot?
Wellness of your current target market(s)…
- Actively buying?
- Don’t call back?
- Out of business, huh?
Rise of new markets…
- Are there potential opportunities?
The expected date of recovery…
- Employees can come back.
- Clients are starting to buy.
- Cash flow and likely cash-zero dates in your worst-case scenario.
- Accounts receivable, accounts receivable.
- Sales pipe line / forecast.
- Marketing programs are spending.
- Cost of payroll / other variable costs.
Sources of extra capital…
- For existing companies: debt obligations and new lenders.
- Source of VC funds for startups?
Day 1: Begin preparing for an evaluation of the internal and external situation.
What kind of external and internal world did your business have today? What do you think the planet will look like in each of the next five quarters? How much cash do you have as businesses that burn cash, like startups? What is your monthly cash burn at your current low income level? How many months of cash are you going to have? Reduce the cost to remain alive for two years.
Don’t think this through. More importantly, do not outsource that to your employees. Build up a war room and meet with the CFO and C-level personnel till it’s over. It will help to align the teams with the scale of the issue. The CEO will approach the biggest current clients to obtain a first-hand understanding of the extent of the sales shortfall. The CFO should be linked to additional capital sources. There’s no market study that’s going to get it “right.” All we know is that it’s going to be really different from what it was a few weeks earlier.
Day 2: Talk to your investors / board about your assessment.
Whatever evaluation you make, the board needs feedback. As you only see your own company, I hope that they get data from several companies across a wider range of sectors. You also have a feeling of how much a nuclear winter the financing scene is for the company/market.
Boards will insist and actively participate on an urgent evaluation.
I’ve been on a board call this week with an enterprise software firm. Once the CEO said, “Our sales VP has told me that our pipeline will not strike,” members of the board called for a wake-up call: either a much more optimistic appraisal was due to take place tomorrow or a new CEO. Some CEOs may and should take the opportunity, but the process can be accelerated by having a unified board.
So what if you think the issue is more critical and you disagreed with the evaluation of your board? CEOs in this situation are facing a major career choice — go with the advice that you think will harm / ruin the business, or put your career on the line. Keep in mind, from here on, no one desires to be the CEO of a company out of business whose regret is, “I did whatever the board advised me to do.”
If you’ve decided what the future will look like, it’s time to create a strategy for your new business. This strategy has three parts: the pivots to your business plan, improvements to your strategic plan, and recovery measures. The strategy must also take into consideration that this situation has demonstrated how vulnerable businesses are to a sole source of supply.
CEOs of companies making products in the U.S. are just about to encounter a moral issue. China and Korea are launching their factories again. Moving ahead, are you shifting your supply chain from China, or are you at least creating a second source from several other countries? Will you source / build stuff there when you get people out of here? What is your board suggesting? How do you think is the best thing to do about it?
Days 3 and 4: Develop a new business model and an operating plan.
First think of the possible pivots. Tell yourself: are there potential markets, new products and new platforms to pursue? What parts of the business model will support the new standard – remote work, social unity over space, telemedicine, home delivery, etc.?
If you’d had brick and mortar sites, how much more can you turn to e-commerce (basic) so that consumers can buy products without needing to leave their homes? Could you provide advanced services as well?
Automated delivery services — the more persons you can get out of the process, the better the product. Are there pieces of the supply chain which can be recycled? What about pieces of the production lines?
B2B — Cloud services, video meetings, automated workplace training, collaboration software. For more work going on from home, both of these services will see increased demand from Remote Health Care – Could you do an initial triage / diagnosis online until a patient arrives?
Customized Video Content – VOD, AVOD, short-form media networks, Twitch, etc…
Then, detail improvements to the business plan. What cuts are you going to make to procurement programs — marketing, distribution, production, R&D? What’s your lifeboat decisions — which cuts to make; how to negotiate new payables, rentals, or leases; how to balance cash management against sales growth? How do you change your emphasis to customer retention versus acquisition?
As part of these organizational adjustments, ensure the HR and finance managers know that they have totally new work.
Your HR manager is now the leader of the layoffs. He or she will have 48 hours to grow into it, or you have to find somebody else in the organization to do that. Before job cuts, reduce all wages by 20%. Cut the C-level wages by 30%. Give equity to workers equal to the amount of their reduced wages. Seek to protect and support more vulnerable workers. Letting these people go requires to be handled with dignity and with fair rewards. If you do it right, it’ll only be done once, hopefully. For the remaining staff, provide remote counseling to cope with the burden of operating from home and pay for any improvements to the tools / network.
Your financial officer is now the manager of money management. Pay down all the debt obligations. Ask for extra support for current and new borrowers. Call all big vendors and ask for lower rates. Offer, if possible, to sign a longer deal in order to lower cash payments in 2020 and 2021. There is nothing more critical than ensuring that the company will afford to pay its staff and you can keep your company alive.
Know, when you make these preparations, there’ll be a morning after that. What reforms will be lasting in your industry? If you have ample capital reserves, what projects would you like to take in the lifeboat that might give you the chance to take advantage of these improvements, to recover and expand rapidly, or to introduce new products? Or if you’ve got enough cash, it’s time to recruit great people who’ve never been around.
With your C-level employees, you have planned an internal and external evaluation, and now you have to utilize the company’s accumulated intelligence / wisdom quickly. Ask everybody in the organization to make improvements to the business model, operating strategy and recovery plan. Your workers are likely to have insights and see possibilities that are not apparent in the C-suite. It will demonstrate to every employee now might be the time for all-hands-on-deck, and that you must make choices to rapidly distinguish the important from the insignificant.
You need to connect, talk, and communicate more with your staff about why you’re calling for their ideas. This is the ideal time to start a regular C-suite update. This is important if the workers work remote. Let them realize what you’re doing, and afterwards, when you start adopting the improvements, tell them why.
Day 5: Iterate with investors/board
Regardless of your business model, organizational strategy and recovery plan, you need the input of your board. Bear in mind that they are likely to work with a variety of businesses that are rapidly replanning, so inform them of the evaluations that you agreed to. Then talk them about why the improvements you’re proposing suit the strategy. You might have seen fresh ideas from other businesses in their portfolios so that they are open to additional ideas.
Above the 5-day plan, I wish to tackle two of the most complicated aspects of the current organizational strategy: lay-offs and culture.
Carpenters use the aphorism “Measure it twice, cut it once.” The same applies to lay-offs. During any crisis I’ve seen, there were CEOs who regarded layoffs as “a death by a thousand cuts.” For instance, in a business of 1,000 workers, they laid off 100 staff during the first month, again 100 in the next month, and then 100 in the third month, to downsize 700 staff in a few months. Rather of being successful, the endless layoffs demoralized and overwhelmed the remaining workforce. Employees have seen that the course is a downward spiral with no hope in sight. And everyone was thinking, “Am I next?”
In the other side, I saw other CEOs quickly lay down 400 employees and left with 600. If / when they overshot, 100 employees (including some of the same staff who were laid off) could be rehired. Although massive layoffs were causing an immediate shock, people were adapting. They were concerned, but they started to feel better. When the recruiting started again, everybody was relieved: “The worst is over. Things are going to get better.
To start adapting atmosphere to this new normal, convey improvements to the workers in the company model and operating plan. Offer unwavering hope for success, but ruthless cost-cutting (starting with CXO salaries). Let everyone know that, as CEO, you’re supposed to be micromanaging for survival and anticipate each of them to do the same. You must be persistent, honest, and transparent that once decisions are taken, there will be no disputes. And inform them that you’re all fighting together to save the business and their jobs.
At a certain stage this situation is going to come to an end. Performing this five-day road-map will help you keep your company alive, so that when recovery comes, you can recover better and be ready to hire and expand again.