If your board is grappling with this crisis

Alarmed about the covid impact on your company? Key steps to be taken by board to reduce the impact immediately and prepare for the future upside.

If your board is grappling with this crisis read on

The covid-19 virus has made any movement difficult and any contraction of conversations, interactions results in lower economic growth.

Payments are being delayed

Salaries need to be paid

Business needs to get back on track

All chambers of commerce are talking about contraction of activity if not loss of jobs.

This quarters numbers are not only impacted maybe next quarter is also hit.

Is a recession coming?

How do we prepare the organization to tide over this crisis without sacrificing medium term growth is the right question to be asked?

If the right question is asked the answer appears

What can be done for the next one quarter, two quarters,1 yr or 2 yrs which will secure the medium term plan and maybe exceed it?

It may seem a bit out of place for you in this lockdown to digest this idea but the role of the board is to meet the needs of now and prepare the company for the future.

What is a starting point?

A business when faced with a crisis needs to identify the core assets of the company or the group and build around it.

A second step is to look at the future and build for it.

What approach is your board taking?

Are you making sufficient use of it in these times of turmoil?

In turmoil it is very difficult to initiate a conversation on opportunity. But then being a leader that is what the job is.

Let us say till a quarter covid is on the discussion table globally as well as domestically, what would be looked at?

A key thing to look at as a director is till next quarter is

1.      Having enough cashflow to pay the staff

2.      Work on pressing issues of generating cashflow

3.      Looking at collections in a proactive manner

4.      Being there for your communities you serve

5.      Figuring out ways to help people get back in the game including your vendors

6.      Absorbing information on opportunities

7.      Maintaining bank and stakeholder covenants

8.      Identifying and renegotiating with stakeholders in terms of time or money

Is this sufficient?

To start with yes.

Fair enough. This is short term management. What about the medium term?

The long term is made of short terms and generally the short term is a starting point.

The longer term issues are

What markets to enter strategically?

What is our right to win as a company?

What advantages we need to build to generate momentum?

What advantages can we capitalize on now?

What could be an advantage?

Knowhow in knowledge industries

Goodwill particularly when it comes to extend credit terms

Supply chain relationship when it comes to international trade

Good banking relationships for debt capital if you spot an opportunity in the market place

Good client relationships which help in challenging times

Being able to secure help through government policy interventions for your industry

If this downturn lasts one quarter it can be absorbed in a year.

If two quarters then close to 2 years.

What if it lasts more?

It is an event based crisis based on a virus and hence not structural.

Businesses based on international work are likely to suffer, although certain segments may do well.

Domestic consumption will also take a hit if salaries are cut across the board though not for basic consumption items

Recovery may take longer than expected

The first round of central banks stimulus has happened.

Not to forget it is an election year in the US.

What would one look at next quarter?

       1.Streamlining existing businesses

        2.Identifying what parts of the business can be made more productive

       3. Looking at new opportunities and forming teams to work at that

       4. Looking at what part of the businesses to optimize or exit

What is the solution?

 A couple of things as discussed above.

All businesses are run on 3 fundamental drivers

1. Revenue

2. Costs

3. Reputation

Plan A – Phase 1

Secure cash flow

              Use technology

            Renegotiate agreements on key cost elements wherever possible

Plan B-phase 2

           Increase spends on marketing as economy improves.

           Now you would say it is counterintuitive but it helps to increase Marketshare. Data within your own organizations in previous cycles can validate it

          It largely depends on whether you want to deepen existing business or new side of the business.

          Deepening existing business may be a limiting strategy.

         It depends on your organizational situation. However if looking at new markets is a practice then

          The business stays sustainable.

           Can you share an example?

          A family business with a decent presence in the hotel industry had started a hardware business

         Years back. That small initiative is the core business of the group now

          If you are looking at digital as a medium look at a cost: income benefit of 1:3 at least, although 1:2

Is more seen.

          The way to look at digital is it increases reach at a lower cost as compared to print media. Specifics depend on your organization.

     What if the recession happens?

            One needs to ensure that one years fixed expenses are there at a company level and personally.

            As experienced in past situations one year is generally good for the basic situation to come closer to a normal.Vaccine trials are also expected to deliver results around a years time.

      What if it is longer?

           The business design would need to be reworked.Business would need to be digital in all aspects.

           Costs would need to be made variable.

            A good business design is one wherein technology costs or critical costs are relatively low in fixed costs.

Benefit of that is one can look at scaling up faster depending on the opportunity.

How will this help our company’s valuation?

As one takes steps to improve health through exercise the value of the business increases through daily steps taken in the right direction.

A simple 1% improvement every week can result in a 50% improvement in a year.

On What parameters?

Key elements of revenue primarily recurring revenue

Costs

Fixed

Variable

Value proposition

There is an interesting story I have come across which makes the point more lucid.

A revered monk was approached by two young boys.

One had a pigeon in his hand with his hands behind his back.

The other one asked him

O Revered one, is the pigeon dead or alive?

The monk calmly replied “It depends on your intention”’

Are we willing to stretch our minds and hearts to achieve it?

The choice is yours.

What if it is a wrong decision?

It can be reversed within a quarter.

Momentum is critical and enthusiasm is contagious.

If we are passionate as a team towards solving pressing needs of our key stakeholders we can thrive in any kind of economy.

What if we don’t?

It can be reworked if the problem is identified correctly.

If we think growth, stability happens.

If we think stability, survival happens.

If we think survival, degrowth happens.

The right thought will get us our true potential. Of course it needs to be deliberated, well thought out and timely executed. This is the foundation on which long term businesses are built. May you allocate capital and time wisely.

By

Anirudh Gupta, CEO, Ashina Financial Services

(Views are personal)