Business Action Plan for the Coronavirus
What do these dates have in common? They mark the moments in history when recessions began, ushering in economic turmoil. Having worked with many outstanding business leaders through those exciting times, I want to share with you, some lessons learned.
Charting a Way Forward
I like to think of myself as a rational person, but I’m not one. The good news is it’s
Economic downturns, whether caused by an embargo, the unintended consequences of financial policy, or a rogue virus, can trigger a great deal of pain and uncertainty. What about our employees, customers and suppliers? What will the world look like tomorrow? What’s the path forward?
As a businessperson, you know the Coronavirus isn’t your fault, but as a leader, it’s your responsibility to look ahead and chart the next part of your company’s voyage.
Here in Michigan we are experiencing an unprecedented 3-week shelter in place order. Many businesses have completely closed and face a future full of unknowns. Many businesses are battened down like ships in port, waiting for a storm to pass.
Another option is for business leaders to use this time to chart their way forward. But how?
Strengthen Your Leadership Mindset
It’s tempting to charge off into headlong action. Fight, flight or freeze responses, are in part responsible for our success as humans. Leaders often feel pressured to “have the answers” and to act immediately. But this financial crisis isn’t a Lion, Tiger, or Bear. So, I encourage you to take a little time and mentally prepare for what’s to come.
When faced with difficult choices, it’s easy to get bogged down in research, deliberation, planning and delegation. This is how software was created in the past, and a big part of why it was so costly and time-consuming to produce. But today, most software companies use an Agile approach.
Agile is a team approach where people play specific roles. The Product Owner for example, insures there is a clear vision and strategy. They also break the vision down into useful outcomes and prioritize what they want. The team then works on the list, producing a series of useful outcomes in a short amount of time.
There are other things that are important in Agile. Things like transparency, communications and building a culture where people realize that setbacks and dead ends are opportunities to learn and discover. The advantages are you have momentum, you have something that works, and you are little smarter.
Developing an Agile mindset can drastically speed progress. It’s an organized approach to many of the activities you do today. But by adding clarity, feedback and teamwork, you go farther, faster.
Dealing with the Unknown
Will closures end in a few more weeks, or will this go on till June as some suggest?
Will funds be available to help us resume operations?
Will our employees come back?
What about our customers?
Could there really be over one million illnesses, and two hundred thousand deaths? Such a scale would touch every family.
With so much grim news, it’s hard to imagine better times. Fortunately, there are steps you can take to gain a more realistic perspective.
Anchoring bias happens when we place too much value on recent events. The tendency is to project the current situation into the future, and ignore other possibilities.
Bad news is unavoidable right now, finding us through friends, family, co-workers and the media. Being aware of anchoring bias helps us look beyond today’s bad news for clues and opportunities. 
Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms or strengthens one's prior personal beliefs or hypotheses. 
It’s easy to dismiss the opinions of those we don’t agree with and view them unfavorably. Their points of view might make others uncomfortable or they might seem to be troublemakers. In my consulting work I pay special attention to these folks. They may not be exactly right, but they often are onto something that can have a significant impact. What I’m saying here is don’t surround yourself with “Yes people”. Encourage people to speak openly and profit from their unique perspectives.
Confirmation bias also causes blind spots to information and facts that run counter to our personal models of the world. Better options are to seek clarification. Ask probing questions, seek to understand, dig for the roots of a problem, look for facts and truth.
Check in With Your Personal Ethics
In the coming weeks and months, you will be making many important decisions. One of the greatest minds of all time, Aristotle, had four ethics he used to guide his decisions. They were Prudence, Temperance, Courage & Justice. These simple words caused him to broaden his perspective and leverage the vision of who he wanted to be.
Listing your ethics need not take long. Instinctively, you use them throughout the day. But having them written down saves time and adds consistency. A quick way to do this is to write your 4-5 highest values (ethics) on the back of your business card. That way you can keep them with you or on your desk. It’s amazing how, when faced with difficult decisions, re-reading a few words can reveal additional information, add clarity, and improve end results.
Ask Better Questions
Before starting SpaceX, Elon Musk wanted to send a small greenhouse to Mars and try growing vegetables in the Martian soil. He looked at buying a rocket and found they are very, very expensive. So, Elon employed First Principle Thinking and asked questions like: What is a rocket made of? What do those raw materials cost on the open market? Why do we throw rockets away after one use? Why do we throw the rocket away after one use? We don’t do that with 747’s when we travel from JFK to Heathrow.
Elon found that only 3% of a rocket’s cost is for material. Sensing a big opportunity, he started SpaceX and set out to find better ways to build rockets. Today a Falcon 9 launch costs approximately $80 million less than the competition and is still very profitable. By asking better questions, Elon is achieving remarkable results. 
Be Goal Focused, Not Task Focused
The best CEO’s I’ve worked with had the gift of being clear about their vision and goals. In addition, they held their team accountable for bring those goals into reality. They weren’t completely hands-off, they wanted to see the plans; sometimes adding insights, sometimes guidance. They also regularly checked in to gauge progress and they gauged that progress against their goals.
So, I encourage you to clearly communicate your vision, goals and timelines. Let your team work out the details and coach them along. The vast majority of people want to do great work, they just need frameworks that allow them to thrive. And with a clear vision, goals and a timeline, they will have a way of knowing how they are doing, even without your asking.
Leaders who get bogged down in too many tasks, often become frustrated. One of my mentors once told me he managed by MBWA (managing by wandering around). What he meant was, that he communicated his goals, and let the people who worked for him take on many of them. This freed up his time so he could check in with them.
He would drop in for a morning visit, see how they were doing, answer questions, and provide guidance. This seemingly casual style, meant he was always up to date and involved, without being overbearing. And the performance of his people and the company’s performance, proved it’s worth.
Probabilities in a Changing World
It’s important to keep in mind in times of rapid change, that you are working with probabilities. It’s nearly impossible to be 100% on. Then again, we’re striving for much higher accuracy than a 50/50 coin toss. Some decisions will be off the mark. Suppliers will be late. Interruptions will happen. Or to paraphrase Moltke, “no plan survives contact with the enemy”.
The techniques that follow will create a clearer picture but are not perfect. The results will still require your judgment. Be open to learning rapidly, adjusting, and improving over time.
Getting Down to Business
Armed with these concepts you can knock some of the dust off the crystal ball and gain a clear picture of the future. A clearer picture will improve your outcomes.
Let’s put these ideas to use by examining the current Coronavirus crisis. As a businessperson, I’d like to know:
- Will there be a recession in 2020?
- What does our financial picture look like going forward?
- How will the Coronavirus crisis change our business; and impact our employees, customers, and suppliers?
Will There be a Recession in 2020?
Researching the first question “Will there be a recession in 2020?”, let’s first set a baseline and define what a recession is.
According to the Motley Fool,” A recession is a period of economic decline, normally accompanied by an increase in unemployment, a decline in the housing market, and a drop in the stock market. Historically, when the total value of goods and services produced in the U.S. (called the Gross Domestic Product or GDP) is in decline for two or more quarters, a recession is declared.” 
Looking at articles from Forbes 3/28/2020 (Why The U.S. Is Now In Recession), Bloomberg 3/30/2020 (Covid-19 Impact: Morgan Stanley Expects Global Recession In First Half Of 2020), and J.P. Morgan 3/23/2020 (Assessing the Fallout From the Coronavirus Pandemic) they all are predicting a recession for 2020.
We are probably affirming the obvious here, but it’s good to back up our instincts. With this information in hand, let’s go deeper.
How bad could this recession be? How long might the recession last? These are important questions because they will help us plan a course as we navigate the days ahead.
How long might the recession last?Historically, recessions have been as short as six months in 1980, with the longest being the Great Depression which lasted 41 months.
In the articles above, both Morgan Stanley and J.P. Morgan forecast a recovery starting in the July – September time frame, lasting 6-9 months.
It will be interesting to see how accurate these projections are, because so many unknowns are at work. Items like the duration of the outbreak, global monetary policy, stimulus packages, bank lending, and spending are examples.
How will this recession impact sales?
To gain insights into how the Coronavirus crisis will impact sales, lets look at data from the recession of 2008. During that recession, new orders for the manufactures of fabricated metal products, fell in the 19% per month range, for most of 2009. Keep in mind, the 19% reduction in orders is for metal fabricators. The impact on different industries varied. You can find more specific information by visiting the US Census. 
So, to recap:
- All indications are that we are in the early stages of a recession.
- The recession is projected to be about average in length, lasting 6-9 months.
- New orders may fall by 19% per month.
Projecting the future
When business is good, we typically review the financials once a month. The P&L looks good, check. Cash flow is positive, check. Sales are a little off forecast, but not bad. Set a reminder to talk to the Sales Manager, and file everything away.
But with a little fine tuning, these tools can be indispensable for decision-making during a crisis. It will help you run different financial scenarios, track your progress, and evaluate your decisions.
Cash flow Spreadsheet
Using your 2020 budget, or last year’s final P&L, you can create a cash flow forecast that reflects your original plan. It’s formatted like your P&L, but each month is shown separately, allowing you to see the entire year on one page. This forecast will serve as our baseline, let’s call it the Pre-Coronavirus Forecast.
There are no problems with cash flow throughout the year, and profits are reasonable.
By creating a copy of the Pre-Coronavirus spreadsheet, a second version can be used to test different scenarios that reflect your estimate of the depth and length of the recession.
In this version, revenues for April are reduced by 25%, and by 19% for May – September. Because experts are predicting a short recession, revenues were forecasted down 12% in October, 8% in November, and 5% for December.
The impact of reduced sales on cash flow and profits are shown in red. Without quickly reducing expenses, and/or increasing revenue, cash will run out in May 2020. A cash flow spreadsheet also helps you identify large cost saving opportunities like purchases, wages, marketing & promotion, interest, loans, and capital equipment.
In just an hour or two, you can create your own cash flow forecast. It will be a valuable tool in guiding upcoming decisions.
Of course, this is just one of many potential models. Your sales could actually go up, depending on your creativity and market opportunities.
There are many other shifting variables including things like:
- Your market.
- Your actual line of credit.
- Government sponsored loans.
- How the economy responds in the next few months.
- Customer orders.
- Supply lines.
That’s why it’s helpful to create copies of the spreadsheet, test different scenarios, and find a model that you’re comfortable with.
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Below is a list of activities that helped create successful outcomes during past recessions.
Many, you may have already taken, while others are the result of “lessons learned”. For example, learning what customers are thinking and talking about. Your Accounts Receivable department has a relationship with your customer’s Accounts Payable department. This relationship can provide useful information about your market’s ecosystem and assist you in making decisions.
Here is the list:
Do you see a cash flow spreadsheet helping your company during this crisis?
Was the action checklist helpful?
Please let me know by leaving a comment below.
- Anchoring bias, Wikipedia article
- Confirmation bias, Wikipedia article
- First Principles: Elon Musk on the Power of Thinking for Yourself, James Clear
- What Is a Recession?, Motley Fool article
- Manufacturers’ Shipments, Inventories, & Orders, US Census