There is much debate about the right way to reopen the economy in the aftermath of COVID-19. Regardless of where you stand on the issue of balancing health and economic concerns, one thing is certain, businesses will begin to reopen at some point and economic activity will start.
Your specific industry and how the pandemic affected your business will determine how your business will look after the crisis and its lasting impact. Regardless, no business will look or run the same as it did before the coronavirus (“BC”). We need to start focusing intently on what our business will look like after the pandemic and how to not only recover but prosper as we move forward.
The visual that comes to mind is that of a tsunami coming onto shore with the water being the economic impact of the crisis. Those closest to the shoreline are those most set back by the pandemic, think restaurants and airlines, while those less hurt are furthest from the shoreline, like trucking and essential supply chain. Everyone is impacted. However, depending on how close you are to shoreline will determine how drastic you will need to react in its aftermath.
We believe that no matter where you are on the beach, planning, analytic measurements and innovation will determine your ultimate success.
Planning for the first wave:
To combat the economic crisis, businesses have cut expenses to reflect their decrease in revenue. In some cases, it has been scaling up to match new demands like online shopping and grocery stores. None the less, as businesses open, we will see an initial shift in consumer patterns. Depending on your industry, this could mean a short-term spike in sales due to pinned up demand, hair salons and dentists come to mind.
It is critical that you forecast and model this initial impact to your business. There are lots of factors to consider, such as when and how employees return to work and changes to customer interactions along with new regulatory requirements. This not only affects how your business operates but the underlying financial impact on your business. There will be an immediate change in revenue, cost, and profit.
There has been much publicity around the Paycheck Protection Program (PPP) which provides loans to small businesses to pay employees and certain overhead, such as rent. This access to capital will be essential for how you map out your recovery. It is critically important that you fully understand how the first wave of reopening will affect you and the capital it will take to return your business to profitability.
This is a complex decision for your business with lot of considerations. It is vitally important that before you begin to execute, you construct a short-term business model, financial forecast, and budget to work out the details and supply a blueprint for the weeks ahead. This will provide you with the basis of making decisions and monitoring progress so you can adjust, as necessary.
The need for a life jacket
As Warren Buffet said, “only when the tide goes out do you discover who’s been swimming naked.”
Unfortunately, this was abundantly clear as businesses felt the impact of the coronavirus. We saw immediately which businesses did not have adequate reserves and those that only had a single sales channel.
Restaurants have been most adversely impacted by the crisis and demonstrate the impact of a single sales channel strategy. Most restaurants derive their revenue from customers coming into a brick and mortar location, a single sale channel. When the crisis forced those locations to close, restaurants had to quickly develop an alternative sales channel. This took the form of carry out, curbside pick-up and delivery.
The lesson learned is that we need to develop multiple sales channels to mitigate our risk. As we think through the first wave of reopening, it is important to implement or expand a multiple sales channel strategy into our business model and forecasts.
The PPP can provide us with an opportunity to fund the expansion of our business model. PPP supplies us the opportunity to hire employees and pay them with funds provided by the federal government. However, it does not require us to hire the same role. For instance, instead of hiring wait staff in a restaurant you might hire drivers or marketing staff to support the expanding sales channel.
Monitoring your progress and adjusting as necessary will be critical during this stage of recovery.
Getting in the boat
As we start getting more comfortable with the new economics, we need to innovate.
Since the pandemic forced us to deconstruct our business plan, we can reinvent our business to provide creative solutions to unfamiliar problems . Technology will initially play a big part in this for most businesses. Video conferencing and applications for pick up orders are easy examples. However, the innovation will need to go much deeper. How will remote workers fit into your new business model? What impact will it have on your current space or security infrastructure? How do you manage and motivate remote team members? All of these will have to be considered, developed, and monitored as your new business model evolves.
Depending on the type of business, social distancing and regulations will create the biggest challenges. However, creative solutions are already beginning to surface. As I write, there is active debate over the prospect of closing streets to allow restaurants to expand its seating capacity into public space. The idea is creative, innovative, and interesting, but the devil is in the details. Under this idea, we would need government approval, traffic, parking, and resident considerations need to be addressed, sanitation concerns, licensing, budgetary impact, and the list goes on. This might have too many barriers, but the idea of one restaurant to convert its parking lot into a drive-in theater has less barriers and achieves sustainability quicker. During this time of recovery, it is critical develop innovative strategies that best use the resources at your disposal.
Plan on paper and implement in stages, your customers will tell you what works. “The Lean Start Up” by Eric Ries can provide you with great insight into this approach. Monitor your progress and adjust, as necessary. Develop key performance indexes and measurements before you begin to provide you with the information needed to navigate the changes.
Although things are bleak at this time and not all businesses will weather this storm, we are confident that in time we will return to calm waters. We believe that creative entrepreneurs with strong financial fundamentals and analytics will develop stronger more resilient business than before the crisis.