What COVID-19 pandemic teach us
We are at the later stage of a health pandemic that is resulting in the biggest economic crisis of our lifetime putting extreme pressure on small and medium businesses. Many businesses will not survive. Those that do survive will see huge opportunities beyond the bridge to the other side. Those businesses that survive will see less competition on the other side and new opportunities. New business models will emerge, and we will create more adaptive businesses with more variable costs, lower debt, stronger balance sheets and with better risk management.
In my opinion there are six common characteristics of businesses that will survive.
Composed adaptive leadership
Adaptive leadership brings miracle, in this situation. Give importance to emotions than targets. This will enhance the dignity of the employees and willingness to work. How much we care them, that much they will give back. Share some jocks with subordinates in group chat, enquire about family, wish them good health. They will feel that they are also then part of the family and they will be more productive. Only with a Composed, empathetic, informed and adaptive leadership will be required to navigate this volatile and unprecedented crisis.
Low exposure to discretionary expenditure
Those with high exposure to everyday needs, home delivery and essential services are more likely to survive. However businesses which are exposed to travel, entertainment, hospitality and discretionary retail will find it difficult to survive post a government-directed hibernation.
Low reliance on people
Businesses that do not rely on people delivering services, such as online banking and e-commerce platforms are more likely to keep operating and generating cash flow. This situation is also a reminder that future is cloud based or ERP based workstations. Given social distancing guidelines, businesses that rely on people to deliver services in close proximity to customers such as taxi and ridesharing, hair and beauty and hospitality will find it difficult to survive.
Low fixed costs
Businesses that can quickly transfer the majority of expenses to variable costs are more likely to survive. Moving full-time labour to contract or casual labour and moving fixed rent to a percentage rent of sales, will move expenses to variable and allows businesses to compress costs in line with revenue declines.
Low debt and reliable debtors
Businesses with no or very low levels of debt, and with debtors who will reliably pay invoices when due, are more likely to survive. While banks are likely to show some flexibility to viable businesses, you want to be able to suspend repayments and limit bad debts to preserve cash. Liquidity is king through this crisis. Having cash reserves on your balance sheet will be essential in maximising the chance of survival. This cash can be used to transfer costs from fixed to variable and support the business and stakeholders as revenues get disrupted.
We will never forget this experience. We will overcome.