7 steps to successfully lead your company through crisis — including the one caused by Covid-19 / coronavirus
As we are nearing official beginning of spring in 2020, the Covid-19 virus is wreaking havoc around the world. Its most profound influence is on human health, but it has also significant influence on the business world. It seems it managed to successfully trigger the economic crisis and recession. I believe it is safe to say that none of us has been in a situation like this (me included), at least not in the last few decades if not longer. Personally, I have been involved with a number of business turnarounds in the past 10–15 years, where I managed to lead several different companies from the crisis they have been in to stability and growth. Additionally, I have been and still am active as investor, founder, advisor and board member in a number of start-ups, which are the types of companies that constantly operate in crisis mode. They have (almost) always limited funds and need to constantly adapt in order to find their product market fit, otherwise they risk of running out of funds and dying. Thus, I want to share few tips regarding how to approach leading your company in times of crisis, which I believe are relevant also in the current situation.
The biggest danger for any company in the time of crisis is that it runs out of cash before the crisis ends or before the company finds the right product market fit in the current situation — and with it also growth and profitability during the crisis period. Some companies are fortunate enough to have sufficient funding available today. Two of the companies I invested in, Cleanshelf and Cognism, managed to raise significant funding immediately prior to the outbreak of Covid-19 and are today well positioned to survive the crisis and thrive.
However, majority of the companies do not have the luxury of having abundant funds availableefore, they need to react appropriately. If you are leading such company, you should focus on understanding your situation first — your liquid position, your burn and your runway. Thoroughly determine your situation, because it very likely changed significantly because of the crisis and is most likely worse than it was before the crisis. Determine how much cash you have, what kind of burn you anticipate because of the crisis and for how long does your current cash position suffice. Based on this information, you should then make decisions and act accordingly. 7 steps that will help you to successfully lead your company through the crisis are the following:
Step 1 — How much cash do you have?
Determining this should be relatively easy. First, you look at your current cash position in the bank and then you add any assets you can convert to cash very quickly and easily.
Step 2 — What kind of burn do you anticipate?
Burn presents how much cash you need every month to finance your operations. If your company has a certain burn, this also implies that your company is operating at a loss. This is the case with quite a lot of companies during the current crisis. In any case, answer to the stated question is a bit more complex, because you need to think about a few scenarios and answer few additional questions first, which should help you get a more accurate answer. Therefore, you should answer the following:
- Step 2a — How does your company perform without the effect of the crisis? If you do not know this by heart, make sure to determine how your operational business was doing as soon as possible — what kind of revenues would you normally make, what kind of costs do you need to cover, what is your monthly EBITDA etc. This is of utmost importance because it presents your baseline for determining your anticipated burn during the crisis period. I will not do a deep dive into the topic here, because you really should be able to answer this question every month — this presents basics of management and good governance of the company (btw. if you need help with controlling and reporting, reach out or check SASH reporting — https://www.sash-reporting.com/en/).
- Step 2b — Will you be able to maintain your current revenues? You should verify, whether you will be able to continue to invoice as you have in the past or will your invoicing capability be significantly reduced. You should understand, whether the crisis mode and with it connected government decisions directly influence you (shutting down of certain types of businesses etc.) and whether they directly or indirectly influence your customers, which could mean significant change of their purchasing habits (they could push to get out of contracts, not sign new ones, stop all investments etc.). Industries, that will be the most affected by the current coronavirus related crisis, are hospitality and tourism, travel, public transport, non-FMCG retail (especially “brick&mortar”), personal services (hair-dressers, cosmeticians etc.), mining, production of non-essential products (non-food and non-medical products) and a number of other services industries (marketing, management consulting etc.). Worst-case scenario, which you should consider, is that your revenues dry up completely and you are left with fixed costs. However, if you are not directly affected by the crisis decisions, you should be able to keep at least part of your revenues — and do determine this part of revenues diligently.
- Step 2c — Will your customers continue to pay regularly? Being able to do work and generate revenues does not always equal also the amount of cash you receive, especially during crisis time. Do go over the list of your customers and define which are likely to keep paying as before, which are likely to start delaying payments and which could potentially go bankrupt during the crisis — and thus not pay at all. You can best do that, if you classify your customers according to industries they are active in — and attribute certain risk to those industries (in the sense of how much is the respective industry influenced by the crisis). See Step 2b above for list of the most affected industries by the current crisis. Please note, that this list might change (and expand) in the next weeks and months).
- Step 2d — Which of your costs are absolutely necessary? You should determine, which costs are a given for you in order to be able to continue to provide your products and services to your customers. Furthermore, you should also determine how quickly you could lower your costs. Please note that you should not aim to cut the costs just for the sake of cutting, but you should be willing to make the company as lean as possible, while still being able to further develop and grow your business.
Step 3 — How long is your runway?
Based on your cash position and the monthly burn you calculated from your past performance (before the crisis) adjusted for anticipated change of revenues, change of payments collections and optimized costs, you are able to calculate how many months can your company survive with your current funds.
Step 4 — What kind of funding and assistance options do you have from the government and from the banks?
Inform yourself regarding various options you have to get additional funding, grants and bridge loans from the government and the banks in your country. As I write this, majority of the countries already published intent to secure significant funds to help companies survive during the crisis period. Additionally, they have also said, that they will delay if not reduce the tax burden of the company during crisis period. Besides possibility to get direct help from your government, you should also consider using standard options. These include reducing work for a limited period and applying for a bank loan or another suitable financing instrument. Some governments will finance at least part of the work time reduction, which enables employees to easier survive such situation (because they receive lower salary during the mentioned period). In any case, do reach out to your and other banks to understand what financial instrument they can offer and whether your company is eligible for it.
Step 5 — Are you able to raise funds from your shareholders?
Keep your shareholders informed of the situations and the measures you are taking to mitigate it. Good and transparent relationship with your shareholders enables you to be able to come back to them at the appropriate time and have a chance to get additional funds from them in order to be able to survive the crisis period. Unfortunately, during the crisis period, it will most likely be quite hard to get funding from other potential investors. Although you should consider also this option, if you see it as realistic.
Step 6 — Consider all of the above, decide and act.
Your runway determines, whether you will be able to weather the storms of the crisis. Thus, you need to make sure, that your runway is long enough. Based on current developments, I strongly suggest that you should have at least 6 months of runway, if not more. If your runway is around 6 months or shorter, you should immediately use any funding and assistance you can get from the government and banks. Additionally, you should also act diligently and make your company as lean as possible, even if this means that you need to take some hard decisions (cutting certain costs, potentially letting few people go etc.). You need to be aware, that if you do not make the hard decisions, you could fail at both getting support from the government and the banks, as well as from your shareholders or other potential investors. Even if your runway is longer than 6 months, you should still act diligently, reduce costs as much as reasonable and at least consider, whether you could make use of the support that governments and banks are offering. You can rest easily only in the case that you do not see a limit of your runway, because in such case you have a business that runs well also during the crisis times, operates with a profit and hence does not have burn at all.
Step 7 — Regularly observe what is happening and act accordingly.
You should make the effort to regularly revisit all of the above steps and adapt your decisions and actions accordingly, if anything changes. Additionally, you should also think about, whether your offering is still the right one and whether you should perhaps offer your services and products in other niches and with different business model in order to succeed in the changed environment. This is especially important with the kind of crisis that we are living through today, because it has the potential to significantly change and transform certain aspects of our life. Every change brings with it new opportunities and some of them might enable you to capitalize on them.
By going through each of the steps above diligently, you should be better prepared to lead your company through the crisis and potentially come out of the crisis as a winner.
CALL TO ACTION! — FREE / PRO BONO CONSULTING
If you would cherish additional input regarding the above and if you would want to verify your approach, do not hesitate to contact me. I really mean it, because I believe we will only be able to successfully get through this crisis, if we work together. This is why I am offering free consulting in the form of 1 hour discussion to 10 companies that will reach out to me. Since I am living in Zurich, Switzerland, I would especially like to help Swiss companies. Nevertheless, do not hesitate to reach out also in the case that your company comes from Slovenia, UK, Germany, United States, China or any other country around the world. In any case, when you reach out, do explain what makes your company special and why I should help you (please, get in touch before April 15, 2020). Looking forward to hear from you! We can beat any crisis together!