Business advice for pandemic times

If you’re a CEO or a business leader, you’ll be under a huge amount of pressure right now to focus on what’s most important. In fact, I’m willing to wager your focus has already narrowed significantly in the last few weeks. Most likely, you’re in in bunker-down mode in preparation for the effect of this global pandemic on the health of your workforce, as well as on the broader economy. Everything is moving so fast that it’s hard to keep up.

Although it may seem counter-intuitive, an economic downturn is the best time to make sure your business is in great shape.

This is a bit like saying that the best time to exercise is in winter. Few of us delight in getting up early or exercising outdoors after dark when the weather is gnarly. Yet those who habitually exercise during the cold winter months are more likely to stave off seasonal depression and boost their immune response to illness.

Likewise, history tells us that businesses that get into shape in tough economic times have a chance of not just surviving the turbulence of market volatility, but of thriving in the long term. The question is not whether you should focus on what’s important, it’s what to focus on given all the urgent things that need your attention.

In times of immense uncertainty, we believe there are five areas of focus that make the biggest difference to business success:

• health and wellbeing
• risk
• balance sheet
• cash flow and
• entrepreneurialism.

Here’s how we think you should be thinking about each.

1. Put health and wellbeing first, always

Before you start temperature checking your business, reflect on your own mental health and wellbeing. Many leaders put themselves last, then later discover that they have been making poor decisions as a result of the protracted mental and physical strain they chose to ride through and ignore. This is not the time to be making yourself susceptible to illness and exhaustion. Remember, your oxygen mask needs to go on first. This is because your people need you and your business needs you. Not just for a few tough weeks, but for the long haul. As strong as you might have been in the past, you are not immune to the mental and emotional burden that has ridden in on the back of this pandemic. Remember to maintain some simple routines that fill your energy reserves. Even though you have a million things to do, try to find a way to prioritise sleep, exercise, healthy eating, meditation, things that you find fun and social time. Physical distancing is not the same as social distancing; try to use video technology to connect with people whenever you can.

Now apply the oxygen mask to others

The gut reaction is to think of your employees and stop there, but it’s worth thinking about your whole ecosystem: contractors, customers, suppliers, partnerships, 3rd parties and others who fuel your business every day. All businesses are people businesses, ultimately, and all are uniquely vulnerable at this time, so how you share the pain is part of the set of negotiations you’re about to start.

Now is the time to go above and beyond for the people who make your business tick, both within your walls and outside of it – this means reaching out, communicating and discussing options together. This is a unique opportunity for your business to show sector leadership. Done well, you will capture a very important form of ROE – return on empathy – which has real and important economic benefits. Investing your time and attention in supporting people is not just the right thing to do (although it’s that too), it builds the kind of social capital and trust that your business relies upon to thrive, in good times and bad.

Health and wellbeing will need to remain a priority through the downturn and not become something you ‘set and forget’. Ideally, you’ll be taking a daily temperature check on the people in your ecosystem. However, once new routines have been put in place, you can get on with the critical task of checking the temperature of your business.

So, where should you start?

2. Do a risk pre-mortem

Think of risk like a satellite map of your business. At this point, your risk assessment may not have much of the fine detail, but you should be able to see the global view, identify key features on the surface, and take a guess at how things might evolve. This will give you the confidence to do a google-earth zoom on any area that looks like a hot spot. A good risk map will protect you against reactive steps that businesses often take when they panic.

One of the best ways to get a handle on risk is to run a pre-mortem exercise. It’s quite simple and doesn’t take too long – just ensure you have a diverse group of people in the room to help you cover the gamut of possibilities. The aim of the exercise is to imagine that your business has failed spectacularly and publicly, then brainstorm all the things that went wrong and why. Brainstorm individually, then share the results and cluster these into risk categories. You can add a probability and impact score to provide some dimensionality if you like. Your pre-mortem can then move to focused mitigation strategies.

A pre-mortem might seem like a depressing exercise, like planning your own funeral. It’s anything but. We’ve found there’s nothing like it to focus a team on what they can do to avoid the worst-case scenarios that are swimming around in your people’s minds. It’s a great way to turn worry into productivity, help a team bond, as well as air and share problems that were formerly siloed within your business. The old adage is true: you’ve got to name something before you can do anything about it.

Look well beyond the financials

It’s a good idea to cover everything from the risk of “doing nothing” to the risk of not acting fast enough (ie, not just ‘what went wrong’, but ‘why did it go wrong’). Lots of businesses are working through supply-side risks, where supply inputs are key to their business models, and are thinking about other operating risks separately to financial risk. Press your team to cover everything. Done well, a pre-mortem will give you a view that covers worst-case scenarios with respect to customers, brand and reputation, financial health, employees, suppliers, culture, leadership, strategy and more. Plus, it’s quick.

3. Get close to your balance sheet 

Although many small businesses don’t pay much attention to their balance sheets in ordinary times (which is another topic in itself), the reality is, balance sheets matter even more in tough times. Your balance sheet will give you a good idea of two things in particular: (1) how much liquidity (cash or equivalents) you have on hand to ride out the immediate pressures of a slowdown and (2) your capacity for investing in opportunities that could give your business a positive net present value, that is, a better return than if your investors put their money to work elsewhere.

Looking at your ability to ride out a slowdown first: dwindling revenue and slower collections from financially distressed customers could put pressure on your business’s solvency very quickly. Liquidity and cash reserves are very important as you face into the unknown. The upshot is, you may need to raise capital (or buy low-interest debt) to see your business through. If so, it’s best you know that now. You also might have unused leverage in your balance sheet, which can be another route to access immediate cash.

Be ‘Raise Ready’

The advice in the market from those who support capital raising is twofold: ‘be ready to raise capital’ and ‘don’t be last in the queue’. Being ready includes getting the right advice early, building your relationships with investors (and debt providers), making sure your accounts are in order and having accurate information about your business at your fingertips. On top of that, lots of businesses will be going cap in hand to the same small pool of investors (and debt providers). It’s likely that these investors will experience capital raising fatigue, so you ideally want your pitch to be heard with fresh ears, and as early as possible in the downturn.

Calculate investment capacity

Your balance sheet might also reveal that there are investment opportunities, including in M&A, R&D and innovation, that just got a whole lot more attractive. If you don’t want to miss these, you need to be prepared: you need to know your business has the capacity to invest, and you need to be clear on your hurdle rates. Again, seeking sound advice is key. Even if you’ve never done it before, now’s the time to make friends with your balance sheet and with the people who can give you balance sheet advice.

4. Revise your cash flow assumptions

Cash-flow is where most businesses go first when revenue shocks occur. You’ve probably already adjusted your revenue forecasts based on the changes in demand you’re seeing from customers. Just remember, no one has a handle on what’s going to happen next, so all your adjustments will be based on assumptions and be guestimates at best. One of the handy tools to use in this scenario are sensitivity models. Sensitivity models will help you get clear about the range of cash-flow pressures you might come under based on a range of demand levels, a range in your collections and changes to working capital. You can then keep this up to date with real time changes in your actuals.

When it comes to costs, review everything, line by line. If you just look at your biggest cost items, you will miss the fact that many of the expendable items sit in the rats and mice of your cost base. Those little things add up, and they are worth the effort in aggregate. Secondly, and even more importantly, not all costs are alike. Some expenses are really investments in your future cash flow, and some are investments in your competitive differentiation, which if lost, will reduce your ability to charge premium prices or grow your business when times turn around. Sometimes expenses that are really ‘investments’ sit in your business’s single biggest expense lines. Cutting these now, or doing so the wrong way, may harm your business and revenue potential for years. Yes, this includes people.

Avoid binary thinking

When reviewing your costs, remember that some costs are unavoidable but can nevertheless be reduced through a renegotiation with your suppliers, or by changing suppliers, or introducing a targeted reduction-of-use strategy. Not everything is in a binary of ‘cut’ or ‘keep’. Yes, this also includes people. Flexible working options that allow you to reduce working hours or, as an action of last resort, stand your employees down, will often be better for your employees and for your business longer-term than making your staff redundant. It’s important that you understand your legal obligations and your employee’s rights, so seek good employment law advice before you take action.

Talk with your bank, have conversations early

Start conversations with your bank and other sources of cash relief as early as possible. The more options you have at your disposal, the faster you’ll be able to act when you really need to. Everything from loan repayment relief, to hardship plans, to tax relief is on the table and it’s worth being across the detail, which will continue to evolve fast. Speak to those in the know and keep up the conversation.

Revenue upside helps cash flow, too

After looking at your cost base, many businesses neglect to review their revenue opportunities. When everything seems to be stagnating, slowing or moving backwards, it’s easy to miss pockets of the market that are running countertrend. But opportunity abounds for the quick-footed that care to look. For example, customers who are not deeply engaged with their service and product providers often switch at times like these. This presents both a risk and an opportunity for your business.

To be successful in a revenue upside exercise, it’s absolutely imperative that you take a customer-centric point of view. Where are your customers or potential customers struggling? Do you have the expertise to help? How quickly can you ask your customers what they need, let them know you’re there for them, and offer them something of value? It might not something you’ve directly offered to the market before – many of us have heard tales of businesses going above and beyond. For example, one business helped a family find baby formula, even though that product didn’t have anything to do with their core business, winning instant behavioural loyalty in the process.

Scenario plan your cash flow

Similar to a sensitivity analysis, its worth doing back-of-the-envelope scenario planning here, by looking at a range of outcomes, the probability of each scenario occurring and the triggers for any given scenario playing out. If scenario planning gives you the strategic shudders, think about it like this: it will give you optionality. As long as you can say, with some confidence, “if this set of things happen then we will have these risks including this cash short-fall, and these are the levers we have to manage in that scenario”, you’ll be better off. You’ll be able to pre-empt action that may be necessary tomorrow and avoid taking action that is unnecessary today.

In particular, knowing what to change now, what to defer and what to change permanently is the difference between panic and prudence.

5. Be bold and entrepreneurial

While you’re right to focus on business continuity initially, don’t stop there. Some of the most successful entrepreneurs have emerged triumphant in a downturn. Entrepreneurs are used to being “scrappy”, adapting fast and doing things on a shoestring. They’ve honed the skills that all of us need when the going gets tough.

Test and Learn

When you’re looking for revenue upside opportunity, try things in market at low cost. If it doesn’t work, move on. The ideal payoff is you are able to replace lost revenue and add new services permanently to your portfolio. But at low cost, the worst-case scenario is that you will be far better position than competitors who don’t perform this exercise. Being more connected to your market makes the world of difference to business performance, particularly when economic circumstances turn around.

Even where immediate revenue opportunities might be absent, there may still be opportunities for trust-building that leads to customer retention and higher customer lifetime value. Customers remember who was there for them in times of need. So really, this is the ideal time to build a dialogue with your customers about what matters most to them and what they worry about, as long as you’re genuine and empathetic. If you’re smart, you’ll be able to turn that dialogue into real value (for them and you) by offering a new product, service or area of support.

Partnerships

You can also innovate your business model through partnerships. Have you considered joining forces with other businesses to provide complementary services? Have you looked at sharing referrals, setting up a joint venture, or combining your capability sets in a merger or 3rd party contract relationship? Most of these options yield significant returns for both parties if they deliver value to the market that could not otherwise be brought to market by either party independently. Complementarity is the secret sauce of many growth models. There has never been a better time to pursue this as a strategy, especially as other businesses may be more open to these types of relationships during a downturn. And in your worst-case financial scenario, a partnership just might keep you afloat.

If you can access capital, invest

After the short-term thinking that is necessary in a crisis like this, it’s a mistake to ignore capital investment opportunities. Economic downturns lead to bankruptcies, market consolidations and changes in ownership and capital structures. In the mix of this activity in your industry, will you be the one making the first move? Or will you wait for others to come knocking at your door?

If you have the capital capacity to invest, you will find more valuable opportunities in a downturn than at any other time. The challenge is creating the time and headspace to consider these opportunities on your increasingly long to-do list.

The key to starting down this path is to be very clear on your long-term strategy. Aligning your investment opportunities with your strategy sounds obvious, but it’s critically important if you’re going to ward off post-deal value erosion. That said, make sure your long-term strategy is current, and relevant to market circumstances. Then find an advisor who can help you source targets and guide you through your investment approach.

Fortune favours the brave

“These are challenging times” might be the most-used and apt phase in business circles today. A lot of what’s happening is outside of your control, and there’s no doubt that the pace of change brought on by this pandemic is hard to cope with - for everyone.

Despite this, there are a few areas of focus that are in your control, each of which will make a big difference. We hope that this outline gives you the blueprint you need to get started on what will matter most, and what you can do now.

Leaders and CEOs who look after theirs and others' health and well-being, review their risks, understand their balance sheets, proactively manage their cash flows and don’t forget to find the time to behave entrepreneurially (while everyone else is battening down their hatches), will not only survive. They will rise to the top.