What does this mean to you as an entrepreneur?
Globally speaking, there is a clear disruption underway. Some of the obvious dimensions of this disruption include travel restrictions, social quarantines/distancing, closures of cities and lockdowns. Loosely translated, sectors like hospitality and travel/tourism are the ones to take the first blow. But then, what are the second-order consequences? If you are a consumer-facing enterprise it is very likely that your business and its demand will take a hit. Pre-empting a dwindling demand might serve well for such businesses in general. Stress testing your cash balances and working with a sufficient buffer to keep the business afloat is something that one could benefit from. In such uncertain times, sustainability takes priority over growth and speed. Live to fight another day! As entrepreneurs, these shocks have a lot to teach — capital allocation, decision making, risk satisficing, which otherwise are never really stress-tested. However, thanks to such black swans that is no longer the case today. So what steps can we take to ensure we see this through and bear only a few cuts and bruises? To begin with, we can take into considerations some of these :
Be very, very sure of the working capital your business needs. Multiply it by 1.5x-2x.
But what if we don’t have that kind of ‘multiplier working capital?’ Use the first principles. Strip down the unit economics and run a very tight ship such that it slows the usage of the working capital, which will help you last a little while longer.
Be in touch with your forward and backward supply chains consistently. Gathering intel on how your ecosystem and stakeholders are can help you plan better. Stretching credit terms is an invaluable source of generating working capital. Pull those vendor relations, increase customer engagement — keep information flow and on-ground assessment as a top priority and a real-time effort.
Unless you see some serious damage to the supply chain, over-stocking raw materials will lead to unwarranted blockage of working capital. Similarly, balance out the stock of finished goods as they may lead to unsold inventory. For eg — stocking of finished goods makes sense if your vendor is facing supply chain disruptions. You need to sell for the next 2–3 months with a limited supply of raw material or the absence of a few vendors.
Lastly — Sensitise with your clients and customers. It’s a general protocol but use this opportunity to build even deeper relations by regular communication. Advance payments are handy!
Panic responsibly!
While it is terrifying for most of us every time we confront a new piece of information about the spread of Covid19 with the increased numbers of registered cases and the way it is impacting the world around us, as leaders of our businesses, it is essential that we steer away from unnecessary panic while dealing with this situation responsibly!
Let things otherwise be business as usual :
a. As entrepreneurs, we have faced graver challenges, and this may be just as grave. In terms of struggles, history doesn’t repeat itself but it definitely rhymes.
b. From a business perspective, always remember hoarding and excessive buying will create even more stress on the supply chain of the given products, worse if it is essentials like N95 mask. The health workers who are monitoring the sick need them more than us. Plus, masks are only useful to the sick so that they stop spreading it; masks are less useful in protecting you from catching it.
c. This is an opportunity for one and all to make businesses more robust and rather anti-fragile. Be frugal, be liquid and have a half glass full!
d. Lastly, history is a great teacher. We have been through SARS, H1N1, Ebola and we are willing to bet that this, too shall pass. Human civilization as a bunch is better prepared to tackle and survive such epidemics owing to technological advancements. And who would know it better than us, the entrepreneurs!
Expect us to be a regular, as this is just the beginning. Letting the experience speak, we will be back with our sequel article exploring the employees’ perspectives in such uncertain times. Till then, be safe and be strong.