We can be sanguine about the Coronavirus or be concerned or frightened – but we can't ignore the dramatic effect this crisis has on the global economy.
Since this blog isn’t about macro-economics of the national or global levels, but about a business (or family finances), it's our duty to prepare for the worst outcomes while acting according to the situation as it is. By which I mean, preparing for the worst outcome doesn't mean it'll happen tomorrow. Be prepared, but in the meantime act according to how things are.
In this article I don’t intend to give instructions like those issued by the government, about crowds and the like. I write about the business aspect, with all the issues you should deal with.
To be Hedgehogs or Gazelles
Before I delve into the issues and my recommendations, I want to present tow possible strategies:
- The first, the hedgehog strategy. When faced with danger, the hedgehog curls up and hides behind its thorns until it passes. Once it's curled up, the hedgehog is passive, hoping its defense is good enough.
- The second, the gazelle strategy. When faced with danger, the gazelle runs forward. It looks around, evaluates the situation, and runs forward. It's always active. It can change its tactic and direction but it makes decisions according to its constant evaluations.
Every crisis is also an opportunity for regrowth. The current crisis shuffled the deck, allowing us to start from a new and better position. A crisis is exactly the time to use all of our company's hidden strengths and find the benefits these will give us in the new situation.
For example, the great demand for disinfectants emerging all of a sudden is a great opportunity for companies making soaps and detergents.
So as not to stay in a level of hyperboles, let's get down to details.
What Are the Issues to Consider on the Manufacturing Level?
The most critical issue which can allow you to act in a considered way and take advantage of the opportunities unfolding is your bank account, but first I'll discuss materials and production costs.
Materials
Do you have enough materials to produce your planned sales? Where do you buy it from? China? Italy? Other European countries? Are your suppliers still working, or are they under quarantine? If your suppliers are in Israel, where do they get their supplies from? How would that affect you?
What to do: map your forecasted material use and the situation the suppliers are in. Check alternative suppliers. Examine who among your competitors or similar companies needs the same materials.
Competition for materials from other companies can both threaten and help you. Other companies can compete with you for a limited national or global supply. On the other hand, you might be able to collaborate with them, for example in importing large shipments, or in other ways.
It seems production in China is reawakening, so for some of you this is a small problem. When a real or imagined shortage happens, some local suppliers are quick to up their prices. The wheel turns and in a few weeks or months the shortage will be resolved. I recommend you keep in mind which suppliers were fair and loyal, and which took advantage of the crisis to price-gouge. In the future you'll have a chance to repay the favor to your loyal suppliers, and not leave them for a slightly cheaper one.
You can be proactive and agree with suppliers on a long-term alliance which will help you today, and them in the future.
Production Costs
When you think about changing costs, the first thing that comes to mind is production. And right on its heels, the conclusion that you must fire employees. But before you start doing that, remember how difficult it was to recruit and retain them. At least some, if not most, of your current employees are past the mobility stage. They're settled with you and won’t be quick to leave. If you fire them, you'll have to recruit new employees, train them, and pay for the turn-over and lack of professionality from the new employees, who'll keep on changing.
Firing employees, even some of them, will immediately affect the remaining ones, and in the future might damage your ability to recruit. People talk and exchange opinions. When you recruit, you're not the only one talking to references. Potential employees will talk to former ones in their social circle.
In companies I've worked with, I see how difficult it is when you don’t know how to retain employees – when you come to recruit new ones. Their ads aren't answered, and they miss out on the word-to-mouth factor. Such companies don’t have a good reputation with potential employees, and now find it difficult to recruit.
Firing employees should be a last step before closing the business. Before you press the trigger, note the cost of recruitment.
What to do: figure out how to afford production costs with lower sales, or even in the extreme scenario of closing for a week or two.
At the same time I suggest you leverage the situation and your decision to retain employees, and change the work culture in your company.
Gather all the employees, present your decision to keep going together. Strengthen their job-security in this crisis. Ask them to pull together during this complex time, and implement new rules. For example, to get rid of frequent smoking breaks, using cellphones during work hours, drinking coffee and smoking next to the machinery, etc.
Rules which in the past would have caused unrest will now be accepted more easily. Remember, you can't limit bathroom breaks. Not on a human level and not legally.
Cash and Credit
Your bank account can be the factor deciding whether you’ll survive this crisis or not. At least in the short term, the financial factor becomes the most important. Under normal circumstances, you can make do with your cash flow. But the new situation changes the rules of the game. Sales and revenues can change while costs stay the same. Particularly those so-called set-costs , such as rent, city texes, salaries, loan-repayments, etc.
Cash flow decreases and if you don’t get funding you won’t be able to pay what you owe (including salaries). Since your “troubles” are shared by many companies, banks will likely be more suspicious than normal and could refuse your request to extend your credit or get a new loan.
What to do: first examine your expected cash flow in the short term, and given the “new normal”. Which costs are you already commited to? Might some clients not pay what they owe you (due to bankruptcy, difficulties, or just “taking advantage of an opportunity”)?
The need to ensure revenue means you have to re-check who owes you money, and despite difficulties, re-focus your collection efforts.
With the situation clearer, think how you can prepare for it, and take precautions. Where can you get funds? Which costs aren’t crucial right now, and can be postponed?
Check which reserves you want to prepare in case the economic situation worsens, and I recommend also reserves for new opportunities (more on this in a moment).
This crisis creates a golden opportunity to end activities which have been weighing us down for a while, and have been maintained for non-financial reasons.
And What if an Employee Gets Sick?
One of the more complex scenarios is that one or more employees get sick, and all employees will need to enter quarantine. If you have a small factory, it could shut down. If your site is bigger, with several buildings, there’s a good chance parts could keep working. Then you could operate the machinery in the building whose workers are quarantined.
What to do: write down the possible scenarios and prepare work-plans. It’s better to prepare for every problematic scenario. Do more than just mention the possibility, actually plan how you’ll keep production going in each one.
If it becomes clear that production could stop, try to think creatively - how will you honor your commitments to your client. Your agreements could have a “higher power” clause, but when the storm calms, if you managed to supply your clients, they’ll remember they can count on you even in a crisis.
Sales, Imports, Exports, and Logistics
Once you’ve considered and created a work plan regarding materials, employees, and funds for every scenario - turn to sales.
How and to whom can you keep saling.
If you're a manufacturer, sales depend on your ability to produce.
If you import, will you still receive merchandise? Which suppliers and import routes keep working?
If you supply other businesses (B2B), do your customers keep working? Which of them can you keep supplying and how?
Look for every way to keep salling to those clients who can pay you.
If you sell to the retail market, consumer panic affects you very much. Stores, shopping centers and malls closing down.
This is a great opportunity. Consumers, especially those under quarantine, will replace going to the store with online shopping. Do you have an online store, to reach all those staying at home?
If not, find alternative solutions. Ad hoc ones. Like with a call center, and advertising in all possible places (facebook, instagram, your website, or direct mailing. Try to get to those quarantined clients, even those who don't know you).
New Opportunities
If you choose the gazelle, rather than the hedgehog, strategy, imagine a playing board, when in the middle of the game someone upturned the board and scattered all the pieces. In a way, this is the situation now. You need to re-arrange the board.
This can be a great opportunity. There will be a lot of challenges ahead, but don’t neglect the new opportunities opening up. I don't mean unfair ones, like price-gouging and taking advantage of desperate clients. That’s a short term opportunity which will come back to bite you.
I mean real opportunities. Like replacing an importer. If you can fill the gap made by an importer being unable to work, that’s an advantage which will continue even when the global market recovers. Try to locate new needs cropping up, new markets or sectors. Those created by the crisis.
I suggest you create a team dedicated to locating new opportunities. This should be a team with innovative thinkers, both from within the company (employees and managers who aren’t usually involved in problem-solving) and without. In order to come up with good ideas you need to think differently. Recruit a large team, and once you have ideas, you can create a smaller team to develop them.
"Situation Room"
We are now in a global crisis. There are constant developments to consider and react to.
If you're a small business, then one team can deal with everything I presented above. But if you're a medium business or larger, it'll be too much for one team. I suggest you appoint several teams, each dealing with a different aspect.
If you have several teams, set up a kind of situation room, gather information daily, and thus ensure you remain on top of things. Even if you only have one team dealing with all issues, gather everything that's been done on a daily basis. Have a short daily meeting, even over the phone, but make sure you're always aware of what's happening and reacting accordingly.
As to opportunities, as I wrote above, I recommend you have a separate team. A wide team which includes people who aren't usually a part of the decision making forum, and will bring to the table different points of view.
Summary and Recommendations
The Coronavirus crisis creats great dangers and also new opportunities. I presented a wide variety of important issues. If you have other obstacles, you can approach them in a similar manner. Examine the threats, work plans, and opportunities.
Opportunities are reserved to those companies employing the gazelle strategy.
I suggest you go issue by issue, examine each thoroughly and in detail, build an action plan with personal responsibilities, and monitor its progress as well as new developments.
Remember, every crisis creats new opportunities. Look for them.
My team and I work with several companies, and see a wide picture. So, if you're interested in our professional help in dealing with the Coronavirus crisis, the best way to do so is to contact me through my website here.
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