How I explained our runway to the team and subsequently their paycut
Yuhwen Foong, Founder of SushiVid
☆ Entrepreneur ☆ Wellness Enthusiast ☆ Deep Thinker ☆ Creative Hacker ☆ Student & Author ☆ Geek ☆
Sharing with you guys how I explained things to my team, I'm not sure if this is how you guys do it, but I have always strived to provide as much explanation and clarity to my team to ensure they feel fairly treated in any given situation. I feel the best way to explain this is to share with them the most intimate information - our reserves, our cash flow, and how I did the math.
P.S The numbers have been changed but the rest of the content is as per what I have sent to the team.
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Hi team,
P.S. This contingency plan looks really morbid but it is my job as the CEO to always have plan B plan C plan D. It is by no means a representation of how I feel. I believe and I feel that SushiVid is going to survive. We didn’t come this far, only to be defeated by this crisis.
SushiVid Contigency Plan.
We need to:
- Establish what we have in reserves
- Establish what we will feel is safety net
- Measures to stay within the safety net
- Key indicators to look out for
What we have in reserves
Our Cash At Bank = RM2,000,000
Our Revenue in March = RM500,000
Amount Payable to Influencers
- @ 70% Margin = RM1,750,000
Reserves = RM750,000
Minus some clients that might default = RM50,000
CONSERVATIVE RESERVES = RM700,000
What is our safety net
What this means is what we feel is enough for us to sleep at night, and know SushiVid will be safe in this crisis period.
- How many months do we assume this MCO is going to last = Min 2 months, more likely 3 months***. My rationale:
- China took 2 months, South Korea took 2 months,
- Their medical is more advance. So we add 1 month for us in Malaysia.
How many months once MCO is lifted do we need to recover? Is dependant on our clients. Our clients will take 3 months before they order from us.
- One month for them to get their act together and start ordering raw materials
- One month to produce and pack and stock the shelves
- One month to begin marketing plans again.
3 Months MCO + 3 Months To Begin Marketing = 6 MONTHS TO RECOVER.
*** Why do I think this is serious? According to McKinsey Reports, The impact to the US, and naturally the rest of the world since our foreign reserves are predominantly in US dollars, is that it is the worst the market will ever be since the end of World War 2. Meaning, financial crisis in 1997, subprime loan crisis in 2008, is nothing compared to Covid19.
Separately, another report from JP Morgan (image below) claims that Malaysia will peak its cases in Mid April. Meaning, we will only be released from MCO end of April at the earliest or Mid May more likely.
Measures to stay within safety net
What this means is how can we stay alive until the 6 months blows over.
If you look at Table 1 above, you can see that our runway in April, at our original salary range is 3.9 months as at April. If we don’t close any sales in April, we will reduce our runway to 2.9 months in May. This is not ideal. Our safety net is 6 months. In order for us to achieve the 6 months runway, in April we will have to at least hit RM300,000 in Revenue.
Because we assume the worse, we, therefore, proposed to reduce our expenditure:
- Team reduction 30% for those who make above RM5,000
Referring to Table 2, with a reduction in salaries, we can see that if we make RM0 in April, our runway is 4.8 months in May. Hence our choice to make this reduction. Every month, we will need to recalculate this and maintain a close enough to 6 months runway.
Rest assured, we will be nimble to adjust back when things get better, and once the market recovers, we will never forget this sacrifice that you have made and will do our best to reward in the future by means of bonus. Thank you!!!
How we calculated the best case vs worst-case scenario for May. Take Table 2 as an example,
- The best case scenario is calculated based on our reserves which is RM700,000 + the losses of RM20,600 assuming we hit RM400,000 in revenue in April.
- Worst-case scenario is calculated based on our reserves (RM700,000) + the losses of RM140,600 assuming we hit RM0 in Revenue in April.
Key Indicators To Lookout For?
From the McKinsey Report - Sales should really reduce their focus on Air & Travel and Automotive as these will take up till Q2 2021 and Q3 2020 to recover. We should look out for Lifestyle and Fashion, they should come back late Q2 2020.
The main focus should be e-commerce and essentials now.
Fellow at Certified Public Accountant Australia (FCPA), Board Member, Adjunct Professor, Entrepreneur, Finance, Global Markets Network.
4 年Businesses will go thru various challenges in their lifecycle, hence entrepreneurs like you will need to navigate well, including managing good times. Hence communication is key! Be honest, be direct yet polite, answer questions sincerely. Most employees will understand when they see that management is doing this with the intention of stabilizing and pivoting the business and keeping afloat through these tough times. When they realise that leadership is taking the biggest pay-cuts, the trust level goes up.Communication is key?but there is no rocket science to it. Be honest, don't try to fumble and answer questions honestly. Most employees will understand when they see that their leadership is doing this with the intention of preserving the business and surviving through these tough times. When they that leaders and shareholders are taking the biggest risks, the trust and appreciation of your team members will be on the rise.
Adjunct Professor at National University of Malaysia (UKM) and Executive Director and co founder of iPay88 group
4 年Yuhwen. Is always hard and unpleasant to deliver such news to the staff. A good company is a company that care about keeping most of the staff during trying time like this covid19. Pay cut is just temporary and I believe with your leadership those staffs that stay on will be duly and timely rewarded. Good leader like you is having the ability to do the right thing at the right time. Like what gopi from mdec said in his resilient leadership article, you need to focus on steering your company and keep on sailing toward the north. You are one of those resilient leader. I am very proud of you.
Strategic Technology and People Leader
4 年Times are hard. I am sure your folks will appreciate the transparency.
Chief Marketing Officer, Workana | Executive MBA Candidate at UTDT
4 年Great piece! Well explained to put things into perspective for anyone to understand why this has to be done. Thank you for sharing.
APAC Continuous Improvement + Sales Enablement | B2B | Cross-Functional and Cross-Cultural Leadership | Advanced Certified ScrumMaster A-CSM
4 年Thanks for sharing Yuhwen Foong, ☆ ☆ ☆ Founder of The SV Group (SushiVid). I Iove how being on both sides of the coin has given you an appreciation of the need to be transparent. Hopefully, this gives your team a greater sense of clarity and ownership and help Sushivid weather the storm in the months to come. All the best!