As the world economy grounds to a complete halt, a looming recession is at our doorstep and deaths and infections continue to surge everywhere, it is time for business owners to assess the impact of an agonizingly painful journey towards normalcy both on the family and the business aspect. Looking beyond this lockdown, we can expect that losses will be staggering. We also acknowledge that this unprecedented crisis is wrought with uncertainty. Yes, we can see the tip of the iceberg but we do not know how deep it is. If the infection spread decelerates, we can anticipate that the crisis will be severely felt in the third and fourth quarter of 2020. However, if the pandemic worsens, the economic impact will extend until the end of 2021. While we are all in a state of shock and making sense of this unheard-of disruption, it is important for business leaders to take a step back and make a full assessment on the severity of the impact and immediately plan on how to navigate, weather and hopefully bounce back as quickly as possible.
In a well written Forbes article by globally recognized family business expert and author Prof Dennis Jaffe, he highlighted that “today’s pandemic crisis is turning everyone’s world upside-down in ways that couldn’t have been anticipated just a short time ago. After a half-century of observing and sometimes resisting the increasing pace of change and the many innovations disrupting our behavior, we are now encountering a situation that makes it impossible not to change. However, there appears to be no clear way to reasonably plan what to do next or how to manage the extent of the upheaval. Yet every day we must act and even make some tough choices—despite the lack of any reliable information about the best direction to take.” He further added that “every business, large and small, is feeling threatened, and every family faces deep challenges just to stay afloat. Without being able to go to work or attend school right now, we cannot imagine how life will return to some sense of normalcy. That uncertainty and inability to control makes us anxious. And when we’re anxious, we can do impulsive, short-sighted things.”
As a family business advisor, my advise to entrepreneurs and business leaders is straightforward: Never, never give up even when the going gets tough. Sail along despite the headwinds and manage your emotions! When we help turnaround businesses, our go-to-mindset will always be on a long term view but in our current situation, it’s nothing but crafting a short term future. Time can be our friend or foe and speed in decision making is paramount. Additionally, alignment of strategies with well defined roles within the ownership and management team is extremely important. Every owner must learn how to adapt by constantly tinkering with business models outside his industry.
Focus on solutions
At this juncture, it is in the best interest of owners to break down the issues so ICU’s (Important, Critical, Urgent) that need immediate intervention is prioritized. As you start sorting the problems, you can now rationally focus on how you can move forward with a certain degree of confidence. One of the first few items that are usually raised is the current financial state of the business. Understandably, when the lockdown restriction was imposed, most companies experienced a sharp downturn in their top lines. When sales dropped, the natural reaction was to preserve cash while maintaining a workforce. By default, the leadership team should have stepped up and prepared a financial and workforce contingency plan outlining the operational aspect of cash flow and human resource management during and post lockdown. In my ICU interventions since March, sadly most companies did nothing, and their leaders were passive all throughout the lockdown.
Moving forward, any decision that can impact cash must be studied. But preserving cash is one thing, managing the workforce is another significant and sensitive variable in the equation therefore any decision that will impact people must always be thoroughly planned with a strategic intent in mind. Owners must demonstrate empathy toward its employees as work reduction and termination are highly likely options for as long as the crisis continues to compromise business operations. I commiserate with the owners as they are wrestling with many tough decisions – including being forced to let some employees go especially when the same employees may have spent a significant part of their careers in the organization. It is a very delicate balancing act and requires really tough decisions. Apart from cash and workforce planning, there are other key metrics that must be considered. Some of them are highlighted below:
· Capability and commitment of the leadership team
· Control of Operating expenses
· Managing inventory levels
· Compensation cuts of the senior team
· Temporary or permanent layoffs
· Elimination of dividends
· Rationalizing or deferment of capital acquisitions
· Communication plan for partners, employees, customers and suppliers
For skeptical leaders who think their businesses are so small and feel that contingency planning has no place in their companies, I urge you to think and reflect on this critical initiative. We are experiencing an uncertain environment out there and your inaction coupled with the impact of the COVID-19 virus on most sectors can lead to irreversible damage to your business. Believe me, without a plan, this crisis can take your business out overnight! It does not distinguish between big or small businesses. Just like when you were starting your business, every day was all about survival. That instinct must be reactivated. You must take action, move fast, rise to the challenge and decide on things that you need to do. Now!