Even if you are not active in the hospitality or travel industries, you should expect to encounter a severe demand reduction and longer sales cycles. Check whether you need to adjust your go-to-market strategy. Analyze how the customer journey has changed in terms of customer reactions at each touch point and the ways in which your conversion funnel is being impacted by the crisis.
Can you improve your conversion funnel by adjusting your lead generation activities? For instance, you may be tempted to reduce your search engine advertising (SEA) spend, as customer interest declines. While this may appear to be the obvious thing to do, you can assume that many of your competitors will be considering the same action, which could lead to a situation in which you can buy key words and paid website traffic cheaply. Test if this is the case and analyse the respective conversion.
Investigate your marketing content. As always, it needs to be relevant for your customers. However, you should now determine whether you can create marketing content that is more relevant for your customers while they are in crisis mode, especially if you provide products and services that can help your customers cope with their current challenges.
Irrespective of whether you pursue an inbound and/or an outbound go-to-market strategy, it is fair to assume that your salespeople do not currently operate at full capacity. Look for ways to use your salesforce effectively. You may consider asking your salespeople to (partially) switch to inbound or prospecting activities or to temporarily join the customer success department that is probably under immense pressure now.
The role of your board of directors is to create value by helping you make material operational and strategic decisions. The current crisis requires you involve your board of directors immediately and frequently. Inform your board members and discuss with them your plans going forward and the bold actions that you want and have to take now. Be honest and transparent! Trust is of paramount importance, always and even more so now. If you have carefully chosen your board members, you are not alone in this crisis. You can tap into the collective knowledge and experience of your investor group, who has probably gone through similar crisis before.
A fully remote workforce means that your employees and teams cannot communicate in person. Your employees need to have virtual communication tools at their disposal, ranging from email and chat services to web conferencing and videoconferencing. While your employees may – by default – use communication tools they are used to, some tools are better suited for specific messages and tasks than others. And communicating with the “wrong” technologies can lead to misunderstandings, ineffective communication and avoidable challenges. You should therefore provide your teams with guidelines about when and how to communicate virtually. E-mail and chat may be well-suited for conveying certain one-directional or immaterial chats but should maybe be avoided in connection with sensitive (interpersonal) topics. Web conferencing and videoconferencing are richer, more interactive tools that should be used in connection with complex tasks and group discussions.
Virtually touch base with your leadership team on a daily basis and align on key objectives and actions for the day and/or week. Your teams should define specific times for check-in calls that keep everybody in sync and types of information that are to be shared widely across teams, the C-Level team, the CEO and/or the whole organization.
And you may want to additionally encourage employees to carve out small moments to connect digitally, e.g. for virtual lunches or just a small chat about personal topics and personal well-being.
Clearly conveyed guidelines can make a significant difference.
You should adjust your revenue forecast to the new situation. You should establish a realistic and a worst-case revenue forecast. Forget about a best-case scenario for the time being. Don’t be overly optimistic about a return to normality, the likelihood that a recession does not set in, demand recovery and a strong recovery of revenues. If you are overly optimistic as to your future revenues and your revenues fall short of those plans, your bottom-line and your cash balance will be impacted negatively. If you manage to eventually outperform on a topline perspective, even better!
Prior to the Corona outbreak you might have been in full growth mode and invested heavily to fuel your growth engine. But your focus needs to change now, from high growth to cash preservation and going concern. You need to look into each and every corner to identify unnecessary costs of goods sold (CoGS) and operational expenses that are not mission critical.
Involve each department and push each of them to submit a list of potential cost savings (in realistic and worst-case scenarios).
Many companies I have looked at in the past have shown signs of inferior productivity reflected in a sub-optimal relation between (new) revenues and headcount. If you have not always ensured an efficient ratio of FTEs to revenues and if you feel your company might be overstaffed, the time has come to streamline your organization and return to increased employee productivity.
If the going concern of your business requires layoffs, this is tragic, but given the current crisis you need to implement these fast. Remember, you have a responsibility for all employees and stakeholders, and you need to ensure the going concern of your business.
In some countries, short-term working programs exist under which working hours and salaries can be reduced in order to avoid layoffs and lost income is partially paid by the government. Figure out whether you can tap into these short-term working programs and other measures that are currently being launched specifically for the crisis.
You may also ask your employees to agree to salary cuts – but be a role model and cut your salaries and benefits first!
The question how deeply you should cut can only be answered on a case-by-case basis, but - as with your revenues forecast – don’t be overly optimistic. As a general rule, you should cut costs deeply and quickly in a way that minimizes the impact on your business. The aim is to get out of this crisis more resilient and being prepared to scale again once the worst is behind us. Discuss your plans and align with your board of directors, as these are material decisions.
You are likely leading an operating cashflow-negative business and have been burning cash each and every month in order to achieve high growth and significant scale. But if you run out of cash, your business will hit the wall. You should therefore deploy a turnaround mindset and monitor cash on a daily, weekly and monthly basis. Cash is king! Only you or your CFO should be able to approve payments above a certain limit.
Needless to say, do not confuse revenues (or MRR, Sales, Bookings) or EBITDA with cash inflow. Disregarding external financing means cash inflow derives from the conversion of your company's EBITDA (or net income) into cash. It is therefore crucial that you do not only forecast sales and EBITDA but also your operating cash flow. In the current crisis, you should make conservative assumptions and expect that the customers that do not churn and can be retained either pay late or not at all for a certain period of time, while you may have to continue to pay your key partners and suppliers on time. The increase in bad debt and account receivables and a potential decrease in accounts payables will negatively impact your change in net working capital and therefore your operating cash flow.
Another negative impact on your cash flow from operating activities may derive from a necessity to increase your inventory now, either because you anticipate supply chain disruptions and/or because you want to put yourself into a position in which you can meet customer demand as soon as the crisis is over.
Don’t be overly optimistic about the change in net working capital and your cash runway.
If you planned to make capital expenditures or to engage in M&A activities before the crisis, you need to check whether the implementation of these plans is still the right thing to do. The best companies divest before a crisis and invest in or after a crisis. But if your company is among those with a lot of cash in the bank, the current situation might also be a great opportunity to cheaply buy assets and companies, including your competitors.
Since you have probably been running a business with significant negative cash flows from operating and investing activities, there is a high likelihood that the current crisis has further deteriorated your cash flow before financing activities. Make sure, you have a clear view as to your actual cash balance and short-term liquidity means and that you forecast your cash runway and corresponding need for external financing cautiously.
The financing climate has already changed. At this time, it is therefore prudent to evaluate all possible external financing sources.
Look out for public support programs like the aforementioned short-term working program. The first measures were already announced in various countries and you can assume that there are more to come.
The venture capital funding climate has already changed too, and you should expect difficulties finding investors that can or are currently willing to invest. At the same time, this environment will provide investors with opportunities for large returns (if valuations are adjusted downwards). But when evaluating deal opportunities, they will be even more selective and will be looking for companies with the ability to overcome the obstacles presented by coronavirus with an otherwise intact business model.
If you have to raise funds now, you will have to convince potential investors that your business model works and that the additional funding provided will enable you to emerge out of this crisis in an even stronger position. You should adjust your pitch deck accordingly. Nevertheless, you should be realistic in this regard. If you face an immediate financing need you may have to ask your existing investors for a (bridge) financing.
In crisis situations, a leader’s ability to lead proactively and react quickly can determine whether a company fails or succeeds. You need to take on this challenge and demonstrate strong leadership. Clear and frequent communication and trust are key. You will have to take some bold actions and convince the entire organization to follow you on this difficult journey.
When communicating, be careful not to be overly optimistic. For instance, if you have to lay off employees, you should refrain from indicating that no further layoffs are to be expected. The future is uncertain and may change rapidly.
Act decisively and communicate transparently. Your employees will thank you for realistic messages and strong leadership during this stressful time.
Navigating the turbulence of COVID-19 is a leadership challenge you have to take on. Be a reliable partner for your employees, customers, partners and investors. A strong focus on customer success is even more important today. But look for mutually beneficial solutions to the problems at hand. Cash is king. Find ways to reduce your cash burn and to extend your cash runway without fundamentally hurting your business (if possible).
Remember, many of the most iconic companies were founded in or have weathered difficult times like the dot.com bust or the Global Financial Crisis.
