SURVIVAL CODE: 10 tips from experts on how businesses can survive the COVID-19 global crisis

As the era of romanticising entrepreneurship fades, one thing becomes clearer. With or without the hype, SMEs remain the heartbeat of every economy

Until three months ago, entrepreneurship was a buzzword. YouTube ads of people claiming to be business gurus kept on popping up my screen, promising to reveal the secret codes to building a successful business empire and getting rich in just a few weeks.

In a keynote speech that I delivered to corporate executives and business owners attending the International Trade Centre’s SheTrades conference in Dubai, I touched upon the topic of why entrepreneurship is an ambition held by many people.

It is almost impossible not to be captured by such stories of legendary entrepreneurs such as Bill Gates of Microsoft, Steve Jobs of Apple, Jack Ma of Alibaba or Jeff Bezos of Amazon. Their stories inspire us to be the better version of ourselves.

In today’s social-media-fueled environment, we cannot help even our own curiosity to learn more about successful entrepreneurs. To learn more about who they are, how they think and what they did so well that today, they could almost literally afford to have anything they want.

And most importantly their success has afforded them choice. They can choose to take great risks now that they are successful. Or they can choose to leave the businesses they founded to well-paid professionals and simply enjoy life. Having that freedom, that luxury to choose is one of life’s greatest advantages.

It is this idea that appeals to almost everyone. Being your own boss (There seems to be a magnitude of freedom after leaving an office cubicle behind or the boss who always tests one’s inner mettle). Setting your own priorities. Making a difference in meaningful ways to customers and employees. Being recognised for something you yourself have created.

That is the dream. Almost like a Cinderella story, the massive successes of these multibillionaires have greatly been romanticised.

Then the coronavirus hit. With entrepreneurs seeing the tap running dry while still obligated to pay for fixed costs like rent, salaries, insurance and utilities, entrepreneurship now seems like a nightmare. And just like every unpleasant dream, the dreamer will need to find a way to wake up…alive, breathing and unscathed. Is there a way out?

REALITY CHECK

People usually see on the superficial that starting their own business is a “cool” idea. But is the lure of becoming an entrepreneur really all there’s to it? That’s not exactly the case.

Taking a closer look at statistics, it's a daunting obstacle course and the chance to reach the finish line may not favour even the prepared mind. For those who have just started their own journey, they have recognised that it is one that tests a person’s spirit and vigour thanks to a number of potholes and dead ends.

Researches show that only a small percentage of small and medium enterprises (SMEs) can turn into high-growth firms, and the lifespan of companies decreases as the years pass by.

In the data released by US Bureau of Labour and Statistics, only 50 per cent of startup businesses make it to the fifth year of operation, and it further drops to 33 per cent on the 10th year.

Only 1 in 3 small businesses get to survive after 10 years

Despite this low chance of survival, the importance of SMEs in the sustainability of the global economy cannot be stressed enough. SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide, according to World Bank.

These macro-numbers have been fleshed out so vividly by the panelists of the webinar, “Importance of SME Partnerships in Post-crisis Era”, organised by Annual Investment Meeting, an FDI investment platform, on May 11.

In the UAE, the 400,000 SMEs comprise 94 per cent of companies in the country. In terms of employment in the private sector, 86 per cent are working for SMEs. All of these contribute to 60 per cent of the UAE’s non-oil economy. Similarly, SMEs in Africa and Malaysia comprise 90 per cent and 95 per cent of business establishments, respectively.

With SMEs providing 9 out 10 jobs in the private sector, their closure will wreak havoc to an already strained economic system. Last month, US Chamber of Commerce and MetLife asked small businesses how long can they hold on, and 43 per cent of SMEs said they’ll be forced to close permanently if they don’t get help soon.

Two-thirds of entrepreneurs may have to bid goodbye forever if business disruption continues at its current state for up to 5 months 

And if business disruption continues at its current state for up to five months, two-thirds of entrepreneurs may have to bid goodbye forever, according to a survey by Main Street America, which asked the 300,000 small businesses across its network.

“The romantic era of entrepreneurship is over,” Massimo Falcioni, CEO of UAE’s Federal Export Company Etihad Credit Insurance (ECI), said. “SMEs now have to change how they do business.”

THE BIGGEST PROBLEM

“The biggest problem of SMEs is liquidity,” said SME Corporation Malaysia CEO Noor Azmi Mat Said. He noted that most SMEs lacks cash reserves and are operating on a hand-to-mouth basis, which means the payment they receive goes directly to obligations.

One of the reasons why their liquidity is suffering lies on the fact that small businesses are service-centric. In Malaysia, about 90 per cent of its 907,065 business establishments are in the service sector, serving brick-and-mortar businesses such as malls, stores and restaurants. When lockdowns resulted in the shuttering of these establishments, SMEs quickly ran out of cash flow.

Said explained that while revenue is disrupted, SMEs still need to fulfil their commitments such as salaries, utility bills, loans, rental payments, obligations to the bank, amongst others. “They need to continue paying and yet cash flow does not circulate well. That has been the issue most SMEs face,” he said.

HOW TO SURVIVE

A study published by global think tank JPMorgan Chase Institute in 2016 found out that half of all small businesses hold a cash buffer of less than one month, 27 days, that is. Moreover, 25 per cent of small businesses hold fewer than 13 cash buffer days in reserve.

50% of SMEs hold a cash buffer of 27 days while 25% hold fewer than 13 cash buffer days in reserve

With the disruption extending to three to five months now, the rate of survival is getting thinner by the day. What, now, is the survival plan? I have attended a couple of webinars and video interviews and here's what the experts say:

1. Focus and hold on to your cash, at all cost

Now, more than ever, cash is king. Deloitte in its recent white paper says that during pre-COVID 19 days, routine back-office activities such as paying bills and turning receivables into cash are often taken for granted. “Under normal business conditions, companies primarily focus on the profit and losses–growing the top line while managing the bottom line… In the current abnormal business conditions, smart companies are shifting their focus from the income statement to the balance sheet,” the report, ‘COVID-19: Managing supply chain risk and disruption’, said.

2. Call everyone that you need to make payment to

Be it your bank, your real estate landlord, your insurance agency, call them. Extension, deferral and reduction is the key. Main Street America’s Small Business Survey finds that business owners primarily need financial assistance and penalty-free extensions on expenses. Both private and government-backed entities have been supporting businesses get through this period. This support may already be there, ready to be tapped. And all it needs is a phone call to activate. Otherwise, negotiate.

3. Find new ways to communicate, sell and market

People would always need something. It is businesses' job to fill those needs. To be able to sell, you need to continue communicating your message and marketing your products. Main Street America’s Small Business study shows that small businesses desperately need support in transitioning to e-commerce selling. Nearly 63 per cent of respondents lack e-commerce sales. Now is not the time to slack but the time to learn new ways to communicate, sell, market and promote. In New Perspective Media, we have been busy kick-starting consumers appetite on behalf of our clients. It always helps to be a first mover.

4. Manage and expedite receivables

Deloitte was candid in its report. It said, “We mention the strategy of delaying payments to your suppliers; don’t be surprised if your customers are thinking about doing the same thing to you. That’s why it’s important to improve the rigour of your collection processes.”

5. Protect your receivables, prepare for client defaults and insolvencies

ECI’s Falcioni stressed the need for companies to avail of trade credit insurance, a financial tool that will protect them against buyers that do not or cannot pay. Trade credit solutions insure against a buyer that has declared bankruptcy or insolvency, and protect companies against buyers who delay payments. “We are a shield and a support to businesses, but it’s important to approach us without fear and hesitation because we are here to help them,” he said.

6. Avail government’s stimulus packages

In a prompt response to cushion the blow, the UAE, for example, rolled out strategic economic stimulus packages worth Dhs256 billion in the form of several key initiatives. The government has also implemented multi-pronged fiscal policies to help SMEs manage cash flow, such as freezing rentals, waiving fees, offering down payment rebates and discounts, and providing additional support to their loans. Always be in the know and avail these support initiatives.

7. Create strategic partnerships

Hilton Hotel, for example, according to Dr. Ashraf Mahate, Chief Economist at Dubai Exports, has partnered with two businesses towards COVID-19 preparedness. One is with Reckitt Benckiser Group, the manufacturer of disinfectants Dettol and Lysol, to reassess their hotel cleaning products and second with Mayo Clinic to improve their sanitation protocols. “Now, when economy restarts, they will be ahead of the game,” Mahate said, noting that this rebranding would allow them to charge premium prices. He was speaking at the ‘Future Proofing: Strategies for your Business’ webinar, on May 12, organised by Dubai Exports, UPS and Apco.

8. Speak with banks and financial institutions for funding

There are financial institutions out there that are on a look-out to funding projects, even during this pandemic-hit situation. But it won’t be easy. Ayman Sejiny, CEO of Islamic Corporation for the Development of the Private Sector said that there is currently a funding need for SMEs amounting to $4 trillion dollars, and yet, only $200 billion had been rolled out to support them. “By working together, we can expand the requirement and close the gap. Partnership helps a lot in knowing the market. The important thing is to work together as partners, become closer to the clients, and really understand their needs.”

9. Leverage on technology to raise funds

Technologies like fintech and crowdfunding, for example, can help businesses access the global markets in order to raise funds. “We have to build a new ecosystem,” said Virginie Ticha, President of International Federation of Consular Chambers for Africa, noting the need for financial literacy inclusion in planning for recovery. “We need a predictable model that will bring everybody on the pipeline. We have to forget a bilateral approach and go towards multilateral approach with different stakeholders,” she said.

10. Don’t give up. Adapt.

To overcome this challenge, adaptability would be the best response, according to investor and entrepreneur Ray Dalio, the founder of the world's biggest hedge fund firm Bridgewater Associates. “The greatest force is the force of adaptation and inventiveness,” Dalio said in a recent TED video interview, stressing that period of time will pass but the world will be different.

As we enter what Dalio calls the ‘new future’ or ‘new world order’, would the survival follow the same pattern of the previous evolution, where after a mass extinction, the small species managed to survive better? Will SMEs then have higher chances of survival? With liquidity issues, and a slew of other concerns, only time will tell.

(Photos: Massimo Falcioni, Ray Dalio, Ayman Sejiny, Dr. Ashraf Mahate, Virginie Ticha and Azmi Said)