“. . . For those of us that have experienced both the dotcom bubble (between 1995-2001), and the global financial crisis beginning in December of 2007 the biggest lesson learned is to make quick and significant adjustments as the circumstances are rapidly changing. Having lived through and run businesses during each of those times, one thing I can tell you with absolute certainty is that the Corona Virus has hit the US economy, and the world economy much faster and considerably harder than anything I’ve experienced in my 35 years of business ownership.”
Crisis management is the methodology employed by organizations to respond to disruptive and unexpected situations.
In crisis management theory, they are typically three elements that make something a crisis:
- A meaningful threat to the organization
- From an unexpected event
- That must be responded to quickly
The coronavirus pandemic is a very good example of something that meets all those criteria. It presents a significant threat to many businesses, was broadly unexpected and responses must be quick.
I have spent much of the last few weeks thinking about how best to respond to this crisis.
There are many factors at play during this crisis both macro and micro economics as well as all the uncertainty of how long it will take to turn the corner and get the US economy opened back up – this is what makes a systematic approach to crisis management all the more important.
Much of what we do as small business owners during this time will fall into the “Plan for the best and pray for the best” mindset.
Normal vs. Pandemic times.
Most of the time most businesses operate in a ‘normal’ mode. During such an environment, management can focus on expanding their market share and strengthening systems.
During this pandemic however, management is struggling to avoid going out of business. Concerns about the health of their workforce are weighed against maintaining some level of revenue. It is virtually impossible to make any long term plans, and yet vitally important to do so.
A dramatic macroeconomic change, as we are witnessing during the pandemic, will have tremendous impact on a business of which many business owners and managers have never seen before. This, for example, is made evident by taking notice of the unemployment claims; they are the highest they have been in history.
Both the supply side and demand side of the economy are experiencing tremendous negative impacts – like never seen before. The supply impact happens because workers need to go to a physical location to be productive – assembly line workers, bartenders or servers can’t work remotely. The demand side has dramatically decreased because people are not conducting themselves as they would in a ‘normal’ environment – basically almost everyone is staying home and only going out when absolutely necessary.
Of course, not every business is experiencing the dramatic declines in revenue I am discussing but those are few and far between. For those of us that have experienced both the dotcom bubble (between 1995-2001), and the global financial crisis beginning in December of 2007 the biggest lesson learned is to make quick and significant adjustments as the circumstances are rapidly changing. Having lived through and run businesses during each of those times, one thing I can tell you with absolute certainty is that the Corona Virus has hit the US economy, and the world economy way faster and much harder than anything I’ve experienced in my 35 years of business ownership.
During normal times a business leader has time to think and process and let people with diverse viewpoints offer feedback. During this pandemic most business leaders do not have that luxury.
If you wait to make hard decisions quickly it will most certainly lead to much harder decisions with worse options in the future.
With that in mind, I’m going to lay out a crisis management plan with multiple options to think about and work through.
Be Alert to your Employees and Customers Well Being
First off, the health and wellbeing of your team and customers is paramount.
Anyone who can work from home should do so. For those who cannot work from home, individualized plans and decisions will need to be made and updated as needed – more on this in the final section.
Business leaders must be open and honest with their employees and key people/stakeholders.
Everyone should be reminded to take care of their physical AND mental health. While this may seem unnecessary to mention it is very common for workers unaccustomed to working at home to lose control of an appropriate balance – they tend to work excessively and ignore their health and mental wellbeing. Employers should take time to provide guidance on this subject.
Develop Multiple Game Plans
It’s critical for a business leader to develop a planned roll out of a variety of potential actions based on how scenarios unfold.
If you’re running your business today the same as you did at the beginning of the month, you’re in denial.
It’s the common nature of most entrepreneur’s to be upbeat about business in general, so if you are trying to remain optimistic you’re not alone – however, you must still quickly assess the reality of your businesses individual current situation and adjust accordingly –
Have your sales dropped? Are your supplies getting more expensive / taking longer to get?
Early on in the mortgage crisis of 2007-8, most people assumed that the crisis would be limited to the real estate market. It became very apparent that the global economy was more interconnected than most people realized and the economic devastation spread around the world very quickly.
It is dangerous to think this time will be different – however, it does seem that the opportunity to correct the financial impact of the Corona virus is more apparent and IF we are able to get the US economy ‘open’ fairly soon the foundation is still strong and we can rebound quickly. That is why it is vitally important to run multiple scenarios involving many variations of what may happen. You do not need to try to predict what WILL happen, you just need to develop plans for bets case, worse case and then create variances between the two.
You must, do the planning – your natural optimism needs to be tempered by real world facts.
The objective is to figure out what cuts would need to be made under each scenario to keep the business sustainable.
Doing this planning now is very important. You do not want to be building the bicycle as you’re riding it – especially with something as emotionally driven as having to lay people off or close down operations – to some degree.
Here are some methods to cut expenses.
Negotiate advertising expenses from the position of eliminating them entirely. Many companies would rather offer a very steep discount than lose you as an advertiser altogether because they know it will be much harder to get you back.
If you rent space call your landlord. Most landlords would rather work with you than have an empty space in the middle of a collapsing economy. They may be able to get a deferral on their mortgage payment (if they have one) and can pass along the savings to you.
Many non-collateralized lenders are willing to cut monthly payments for a while until things get back to normal. Even if you are able to make the payments you should take every advantage available to retain as much cash as possible. I’m sure you’ve heard the old saying “Cash is King” well this is an excellent time to maintain as much control as you possibly can and horde cash.
It’s a good time to cut non-essential employees. I don’t know any business owner that likes to fire people – it sucks. However, right now the Federal Government is backing state unemployment insurance program to make sure they stay solvent and are also offering a significant increase in weekly payments. So, you may not be a ‘bad boss’ by openly discussing the options and providing guidance and support of your employees during the process.
Cut any nonessential monthly obligations; for example, at the restaurant I own we have already cut the monthly linen services to the absolute minimum of hand towels for the cooking operations only, we have cut trash pickup, we regularly run a credit with the utility and natural gas companies so those monthly payments have been stopped to use up the credits, debt payments have been negotiated and stopped, the landlord agreed to stopping the rent (we will revisit monthly).
Cutting Less Obvious Expenses
At this point, who can possibly answer whether this is a monthly problem or a yearly problem?
If it is only going to last a few months, or less, some of the steps above combined with a sufficient cash buffer will probably do the trick.
As it stretches out longer more extreme actions will be required; permanent layoffs, selling equipment, closing locations, complete renegotiation of all contracts, eliminating receivable payment plans, and more. These actions must be taken quickly. In 2008, too many business owners were too slow to quickly reduce expenses and they burned through all their cash, resulting in much more drastic cuts, or losing everything and shutting down completely. It was a very sad time and many good people never recovered.
Across the board salary cuts is a first step that often times is more readily received by employees, and for many companies it provides enough relief to weather the storm a while longer. It also has the added benefit of creating a common enemy for all employees to target and fight against together.
If it is possible to reduce hours and get unemployment for those earning less, that is likely a better solution for everyone than having to do massive layoffs in the future.
Here’s where a very serious and realistic ‘look in the mirror’ is required. If your business was struggling in good times, it’s unlikely to start booming in bad times. Make the decision upfront when you will cut your losses. Sinking more time and money into a struggling business as we go into a recession is not a good plan.
More Revenue Helps a Lot
Mark Cuban is famous for saying “Sales Cures All”… I do not agree with this statement as it stands by itself. All the sales in the world will not overcome poor financial management. Of course Mark Cuban knows this, but it doesn’t grab headlines when it has to be spelled out…
Creating new and innovative ways to generate more revenue is an excellent way to continue to survive in a downturn. For example; we also own a food truck that shares the brand with the restaurant I mentioned previously. Now, while the many of the large food truck events have dried up (food truck rodeos and such) we have reached out to numerous neighborhoods and have had many respond very positively by inviting us out to provide hot meals to the neighbors while still maintain social distancing… it’s a win, win scenario for all.
Use your email list or social media tools to sell gift cards to existing customers. Most people don’t want their favorite restaurant/cafe/bar to go out of business and are willing to help out. We have personally experienced this and the feeling of love from the local community has been almost overwhelming.
If you have inventory, but can’t move it traditionally, try to sell on eBay, Craigslist, Amazon or Facebook marketplace – it’s better than eating the cost.
If you have the ability to pivot into a new category (most businesses don’t), then you should absolutely take advantage of it. Some businesses were able to repurpose existing production facilities to manufacture in-demand goods. Think ‘My Pillow’ that is now making face masks, even if it only breaks even it helps keep people employed and sends a great message to the country.
Working to upsell or cross-sell can be a big help to increasing revenues and is especially helpful because it is free to do. Email marketing is also a free thing to crank up right now, and it tends to be a high converting channel for most businesses. Send your customers an honest email explaining the situation and asking for their support – you may be very surprised by the response you’ll get, especially if you have a great relationship with your customers before the crisis.
Managing Supply Chain Exposure
If your business has significant exposure to its supply chain, it’s worth thinking through what you will do if you suppliers are unable to meet your demands or factories do not quickly return to full production capacity.
Countries around the world have effectively turned off their economies. Restarting them will not happen overnight. Think through how that will impact your operations and sales.
Finding alternative sourcing options in unaffected areas would be ideal, but that may not be possible or make require negotiating new contracts while you are still obligated to your existing ones – effectively making it impossible to move away from your current suppliers.
Call your suppliers and have an open and honest conversation about their own supply chain exposure and what (if anything) can be done to mitigate it. Regardless of the difficulties you face, having complete and accurate information will help you make better decisions.
Managing Production/Fulfilment Centers
Here are some possible safety procedures for warehouse and production teams that are still coming in:
- Staggered shifts to spread out the people in the building.
- Enhance cleanliness – Disinfecting between shifts.
- Hand sanitizer and wipes at all stations.
- Gloves and masks for all employees if possible.
- Re-organizing and spacing out stations throughout the work spaces.
- Moving to “pick your own orders” rather than dedicated pickers passing bins to packers.
Establish an Ongoing Planning Process
The situation is changing very quickly and likely will continue changing in the future. If you have a senior leadership team, establish daily meetings to update the situation and make sure everyone is responding quickly. *These meetings should be done virtually.
Here’s a simple agenda that can be used for this:
Each person discusses:
- What’s on their mind?
- What progress has been made since the previous call?
- What challenges are they seeing or hearing about? Anything bottlenecking operations?
- Share what your daily goals are? Have them share theirs?
- Housekeeping – anything else that needs to be discussed.
If you don’t have a leadership team, consider setting up a mastermind with other business owners in your industry. Set up a weekly call for everyone to discuss what they are doing and share ideas and best practices.
Below is good advice in normal circumstances, but it’s especially good advice in a crisis. . .
In a letter to his shareholders back in 2016, Amazon CEO Jeff Bezos offered some good advice:
“Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
Remember, you can always course-correct at any time. So if you’re procrastinating on making a change, ask yourself how hard it would be to simply revert back at some point in the future. It’s not all that hard.