There is nothing more terrible than wasting a crisis. And the most important is to not waste any time. So, being on the fastest trajectory is crucial for taking the most advantage of the situation through analysing and modifying your business, rather than sit and wait. McKinsey (04.2020): In times like these, being on the fastest trajectory matters more than having a great plan because plans quickly become outdated. Your job isn’t to know the unknowable but to be the first to know and the fastest to act. This requires a sentinel that can see the signals first, combined with a plan that is flexible and ready to act on the trigger points.
McKinsey (04.2020): Beyond the immediate challenge, the longer this crisis persists, the more likely we are to see transformative and lasting changes in behaviour.
The smartest will now also think about how the [real estate] landscape may be permanently changed in the future, and will alter their strategy. Those that succeed in strengthening their position through this crisis will go beyond just adapting: they will have taken bold actions that deepen relationships with their employees, investors, end users, and other stakeholders.
McKinsey (04.2020): ‘Individual firms’ abilities to weather the storm will depend on how they respond to immediate challenges to the industry—particularly the current declines in short-term cash flow and demand… Throughout, acting quickly and smartly will help determine the fate of players not only in these challenging times but also as the industry emerges from the current crisis and inevitably reinvents itself.’
Boston Consulting Group (13.04): ‘The essential enabler for effective planning is a tool that can evaluate demand and supply in usable ways, under varying scenarios, and at both broad and granular levels. In a crisis such as this one, in which the situation changes daily, the model must be flexible, updating as new and better data become available. The model must also present information in ways from which the user can immediately draw conclusions and plan accordingly.’
McKinsey (04.2020): ‘That ability to envision new ways of operating will be crucial to weathering the crisis. Those that succeed will set the tone for the next normal that will follow and define the subsequent generation of paradigms for consumer and corporate behaviour. These will become the operating structure for the next decade. Companies that hope to lead in this world should ask themselves some fundamental questions:
- How will your customer needs change as we head into a post-crisis “new normal”?
- How will you create human-like interactions with customers you will never meet?
- How will you repair devices you can’t touch or hold?
- How will you find your next digital star employee who sits across the globe and is in a different industry?
- How will you create resilience in your supply chain, without tying up more capital?
- How will you shift your costs and operations to variable structures to handle an increasingly volatile and dynamic world?
- How will you bring out digital products in days or weeks, as your competitors are trying to do?
These questions are second nature to disruptive business builders, who are used to overturning assumptions and innovating in the space left when an old assumption is removed.’
‘A structural break is the very best time to be a strategist, for at the moment of change old sources of competitive advantage weaken and new sources appear.’ McKinsey (12.2008)
► Segmenting portfolios
The venture firms themselves are segmenting their portfolios, especially for later stage, based on whether the pandemic positively (cyber security, some health-tech), neutrally (some business software) or negatively (luxury retail) impacts them,
“I believe all companies will be impacted, as new ways of working together will appear, as companies, entrepreneur and investor reputations will be made or torn on how they treat their stakeholders (especially employees) and how they maintain continuity in their word and trust, as profitability will now be a target for more companies to build resilience from the inside, as usage (travel, healthcare, leisure, education…) will be profoundly impacted by this period.”
Forbes (23.03): “The whole week for us at Project A is currently being dominated by assessing which portfolio company is hit by this to which degree and along what timeline and drawing our conclusions from this. Moreover, we try to understand which government schemes that have been announced last week will actually work in what way (whether portfolio companies are eligible etc.)’ How to complete a Reserve Analysis for your company, follow the link in Forbes.
► Consult with many people who have experienced not only the 2008-crisis, but previous crises as well
Forbes (23.03): ‘A senior VC discussing the premium on experience, commented that the vast majority of today’s VCs were not investing in ’08, while another noted: “If you aren’t over 40, you likely weren’t managing risk/people” during the prior downturns.
She feels “people that have been through quite a bit are able to at least broadly handle the beginning of what this is a little bit easier than others. They’re having an easier time of this and aren’t as anxious as some others. It’s ironic because those same people are probably even more affected adversely by Coronavirus.”
The preference for working with those who have experienced market turmoil previously also spills over to which new deals and partnering arrangements will make the most sense.’
► Complete your Hard-times-survival guide McKinsey (12.2008)
- If you can’t survive hard times, sell out early. Once you are in financial distress, you will have no bargaining power at all.
- In hard times, save the core at the expense of the periphery. When times improve, recapture the periphery if it is still worthwhile.
- Any stable source of good profits—any competitive advantage—attracts overhead, clutter, and cross-subsidies in good times. You can survive this kind of waste in such times. In hard times you can’t and must cut it.
- If hard times have a good side, it’s the pressure to cut expenses and find new efficiencies. Cuts and changes that raised interpersonal hackles in good times can be made in hard ones.
- Use hard times to concentrate on and strengthen your competitive advantage. If you are confused about this concept, hard times will clarify it. Competitive advantage has two branches, both growing from the same root. You have a competitive advantage when you can take business away from another company at a profit and when your cash costs of doing business are low enough that you can survive in hard times.
- Take advantage of hard times to buy the assets of distressed competitors at bargain-basement prices. The best assets are competitive advantages unwisely encumbered with debt and clutter.
- In hard times, many suppliers are willing to renegotiate terms. Don’t be shy.
- In hard times, your buyers will want better terms. They might settle for rapid, reliable payments.
- Focus on the employees and communities you will keep through the hard times. Good relations with people you have retained and helped will be repaid many times over when the good times return.
► Complete a Financial stress test for your business
Based on the scenarios which we figured out in the Corona Crisis PESTLE Analysis, develop crucial 3 to 5 possible scenarios that can considerably affect your company. Hence, plan how company financies might play out if any of the scenarios materializes.
As a result, in order to improve liquidity via cost control,
- Renegotiate agreements
- Give customers incentive(s) to make advance payments
- Ask banks for extended payment terms
Calculate what the working capital requirements per each scenario will be.
And surely, launch new products if these will increase your profits in the upcoming fiscal year.
► Check out the full Scenario Planning Series for lockdown business
Scenario Planning for lockdown business people, or What to do till the dust in the air settles
Cinemas are closed till real life feels like a movie, or Which trends during the corona crisis are clear
The Corona Crisis PESTLE, or Trends we see now that will affect us in the future (in 3 parts)
PART 1: Politics
PART 2: Economics
PART 3: Social | Technological
Race against Time, or What to do right now as soon as possible?
The RE-gnosis, or How to bridge the gap from the future to the present?
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