by futurist Richard Worzel, C.F.A.
By now, tons of business people have realized that the Covid-19 pandemic is going to do major damage to their businesses, and are feverishly pondering ways to keep from going bankrupt.
Let me outline what I believe are the dimensions of the problem – how big it is, and some of its downstream consequences – and then turn to possible resources to help business people try to reinvent themselves to cope.
You Don’t Have a Business Without Customers
The first, and most obvious, consequence of the pandemic is that governments are urging, and in some cases requiring, people to stay home.
My wife and I have a favorite café, where we used to go most mornings for coffee, and to read a newspaper. It was a pleasant routine. Our café now only does take-out, and may be about to close because of a regional lock-down. Rent, electricity, water bills will keep coming no matter, but their income won’t.
Meanwhile, they won’t be buying coffee beans, pastries, bread, meat, cheese, napkins, paper product, and all the pieces that are required to run a restaurant. And so, their problem now becomes a problem for others.
They may also have an operating line of credit with a bank, and it could well be guaranteed by the owners personally as this is a mom-and-pop operation, or it would be by the franchisee if it were a chain. That means the café’s owners are wondering not only if their café will survive, but if they’re going to be forced into personal bankruptcy as well.
According to the U.S. National Restaurant Association, in the first three weeks of March, U.S. restaurants saw sales decline by about 50%, losing $25 billion in sales, and laying off more than 3 million employees. Moreover, as the restaurant industry comprises about 10% of the U.S. labor force, this mirrors the national experience. Finally, 44% of restaurant operators have temporarily closed their restaurants, 3% have closed permanently, and 11% expect to close permanently within the next month.[1]And that’s just one industry.
Food outlets are visible to us all every day, but below radar, professionals are also being affected, like my dentist. He is a highly skilled man with a great practice that he and his partner have built up over the years. They have a staff of about 10 people: hygienists, receptionists, bookkeepers, and dental assistants. All of them have been laid off. Again, my dentist isn’t making any income from his practice, but still has to pay rent, probably interest on a financing loan for equipment, plus supplies, heat, water, and so on.
One of the agents that books me to speak for conferences and workshops said that all of the conferences for which he’s booked speakers over the next 3 months and beyond have been cancelled or postponed. This means he has no revenue coming in. He’s laid off his staff, telling them to apply for unemployment insurance, and cut expenses where he can.
And, of course, all of the conferences and workshops for which I was scheduled have been postponed, which means I have no revenue either.
This is being repeated millions of times, all over the world. Some businesses have deeper pockets, and more reserves than others, but all affected businesses are laying people off, curtailing operations, and losing what is, for them, massive amounts of money they can ill afford.
Worse, they are laying people off. Many, even most, of those people don’t have big cash reserves to enable them to survive even short periods without an income. An estimated 78% of Americans live from paycheck to paycheck[2].
And as businesses pull back on buying supplies, and have problems paying suppliers and servicing bank loans, and as workers are laid off, and have little or no income, and so stop buying things, the economy goes into the tank.
We don’t yet know how significant this will be overall, but some brave forecasters are taking a stab at it:
“[US] Federal Reserve Bank of St. Louis President James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product.”[3]
We Can’t Stop for the Virus, But We Can’t Just Ignore It, Either
One epidemiologist said that if the whole world would just shut down for two weeks, and everyone was isolated from one another, the pandemic would fizzle out for lack of new victims.
Unfortunately, that’s not possible. People still need to eat, which means the food supply chain needs to keep turning. Which means we need electricity, and delivery trucks, and store clerks to stock the shelves and accept payment, and…
We all know how this works by now. We can’t stop the world.
But likewise, we can’t just ignore the virus and go back to “business as usual”. That could lead to total disaster:
A study released by a team at Imperial College London concluded that if the pandemic is left unchecked, those beds will all be full by late April. By the end of June, for every available critical-care bed, there will be roughly 15 COVID-19 patients in need of one. By the end of the summer, the pandemic will have directly killed 2.2 million Americans, notwithstanding those who will indirectly die as hospitals are unable to care for the usual slew of heart attacks, strokes, and car accidents. This is the worst-case scenario.[4]
So, what can a business do?
Unfortunately, there’s no one answer because everyone’s situation is different. But there are some lessons from earlier disasters:
Quit now
This might particularly apply if you have bank loans. Banks are notoriously fickle, begging you to borrow money during good times, and demanding to be paid back when times get tough. And they often have extremely short fuses. There are many stories of banks that called in loans, without warning, not because a business was in trouble, but because other loans on their portfolio from that industry were going bad.
But sometimes when your bank isn’t so fickle and hair-triggered, it’s tempting to get an extension, even another loan from another source (perhaps the federal government) in hopes that you can make things work out. Yet, this is going to be a protracted process, not a quick one. If you can’t see a clear path to a continuing business, and can’t withstand a crisis that lasts at least 2 months, and perhaps much longer, you will probably be better off throwing in the towel now, especially if you’re on the hook personally for your business. In these kinds of situations, a quick amputation is often the least painful.
Never give up!
This contradicts what I just said, but it’s a different circumstance. If you can come up with a reasonable idea of how to survive, if you’re already in hock to the bank and can’t lose anything more through a bankruptcy, or if you can fall back on something else, then don’t give up. Ever!
I had a friend who ran a very successful travel business. He extended the business just before a recession, and lost everything. He kept at it for a while, then the bank took everything, and he stopped.
I spoke with him later on, and what he said surprised me. “I didn’t fail when I went bankrupt. I failed when I stopped. I could have kept going, working from the library, and using a pay phone if I had to. It was a long shot, sure, but when I stopped, the possibility of making my way back dropped to zero.
“I should never have quit, no matter what.”
The human will is an incredibly powerful force.
Remember: This is happening to everybody
It’s easy to lose perspective when your world is collapsing. Your rent is coming due, as is the interest on your bank loans, and the payments to suppliers, and…
But this is happening to everyone, including your creditors, so the first thing to remember is that they are probably just as scared as you are.
The second thing is to keep the lines of communication open, keep talking to them, describe your plans about how you’re going to get through this, and how you’re going to become a valuable client again. Don’t disappear on them.
I once had the misfortune to wind up as the de factoproducer of a documentary on the Middle East. It was a co-production between a group of broadcasters, but the director they hired was incompetent, and left them with an unusable mess. No one wanted to touch it, and the production company owed money 16 ways from Sunday.
I talked to all of the people the company owed money to, and got them to be patient with us. I kept them informed, and worked to get people working on the production again. Eventually, one of the co-production partners stepped up, hired a new director, and between us we managed to finish the production.
Once I saw all the suppliers paid off, I asked the biggest creditor why she hadn’t pulled the trigger and sued the production. “Because,” she said, “I knew that I wouldn’t get much if I sued, and because you kept me informed about what was going on. You always took my calls, and you made me believe the future was more promising than a lawsuit – so I waited.”
Remember that. Make your creditors’ future more promising than the pain of trying to collect right now.
Ask the Right Questions
Asking the right question is an art, but one that can save your bacon. Asking the wrong questions can leave you clueless, facing a blank wall, and uncertain how to proceed.
It’s hard to teach someone how to ask the right question, but let me offer some of the pointers given to me by one of my math professors.
Keep your questions broad, framing the entire situation, not just your own narrow part of it. Let’s assume you were in the restaurant business, for purposes of illustration. The question “How can I get some revenue?” is a bad question because it doesn’t suggest possibilities, it only focuses on your problem. Instead, ask broad questions like:
- “People have to eat. How are they going to eat? And how can I include myself in their thoughts?”
- “Where are people going to go to get food, and how could I get my food there for them?”
- “What could people do when they get bored of being in isolation and want some interesting food?”
- “Is there another way to get food to people when they’re in isolation at home? Are there alternatives no one has thought of?”
I’m not saying these are the right questions, I’m just trying to illustrate how you can broaden questions to bring in new elements that you might not otherwise consider. But more to the point, keep asking different questions until your questions start to suggest new ideas.
Don’t Discount; Innovate
It’s very tempting to offer a discount to encourage people to buy what you sell, but it’s usually a bad idea, especially when you need revenue. If people aren’t buying right now, it’s probably not because your prices are too high. They have other worries.
So, instead of reducing revenue, look at what you might do to add value to your proposition.
During one recession, my tailors came up with an interesting idea. Instead of discounting their regular stock, they went to their suppliers and said, “What do you have that we could use to give our customers an unbelievable bargain?” Then, every month of the recession, they sent out an invitation to everyone on their mailing list, offering this amazing deal, and inviting them to come in and see for themselves. One month, they offered a custom-tailored tuxedo (from a stock single) for $99. I couldn’t resist that, and so I went in and bought one.
I asked them later if their monthly specials had helped. They replied that some weeks it was about all they sold.
Consider Working With Your Competitors
In highly competitive industries, this might sound foolish. But you first have to get clients or customers to consider new ideas in order to get them to change their behavior. And having competitors work together can more easily move the needle than just one company on its own.
Using the restaurant industry as an illustration again, in my neighborhood, we have an annual street food fair in the summer called “Taste of the Danforth”, and it attracts mobs of people from in and outside the city, to the point where local residents often leave the city for the weekend. Every restaurant offers some of their specialty dishes, cooked out in the open, and people graze from kiosk to kiosk, mixing and matching as they wish, and tasting new things along the way.
Perhaps offering people a virtual street fair would work. If there were a central point for pick-up, then offering people a range of food choices in a single order might prompt more traffic for everyone than a single offering.
Or, for a higher-level example, consider working through your industry association to negotiate with suppliers and creditors, especially banks. One company might not have a lot of clout, but working through an association, and letting it be known that how a supplier behaves now is going to determine how the industry as a whole sees them when times are better, may give all members a lot more clout.
These are extraordinary times, so don’t get hemmed in by conventional thinking.
Practice Skating to Where the Puck Is Going to Be…
Unfortunately, in the normal press of affairs, we don’t get a lot of time or practice in the creative process of brainstorming, but there are things you can do to kick-start the process.
Brainstorming works better with a small group than it does on your own. You want someone else to bounce ideas off of, and you want their ideas to spark new ideas in you, so work with at least one other person.
But in doing so, there are a couple of key things to remember. First, you have to ban any and allnegative comments. The process of brainstorming involves coming up with new ideas, and they often sound wild, crazy, or stupid at first. In fact, in the futurist community, there’s actually a saying about this, called “Dator’s Law”, which says, “Any useful idea about the future will first appear to be ridiculous.”
And since no one likes to appear ridiculous, criticizing, chuckling, smirking, making snide comments, or in any way showing scorn for a brainstorming idea is almost guaranteed to shut down the process, and cause people to clam up. So accept allnew ideas, no matter how silly, stupid, or foolish they sound. In fact, since you’re looking for new ideas, you want things that sound silly, stupid, or foolish, or else they’d already be in use. And such ideas will often spark additional ideas that may be anything but silly, stupid, or foolish.
Meanwhile, you need to define the problem you’re trying to solve in the clearest, plainest possible terms, along with any constraints you will experience. It probably won’t help to come up with a brilliant new idea that you can’t finance, for instance, or that only works in another country. And, ironically, constraints can inspire creativity.
There are lots of brainstorming websites online, so spend some time researching them, and find a system or approach you like. I like, and have used, Edward de Bono’s 6 thinking hats from time-to-time, and have techniques that I’ve developed or adapted over time.
How Do You Want to Be Remembered Afterwards?
You need to be opportunistic in this time period, but keep in mind that people are going to remember you for the things you do now.
Several years ago, a local ice cream company had a fire at their ice cream production plant. They could have laid off their workforce until the damage had been repaired. Instead, they told everyone they would be kept on the payroll, and put to doing maintenance and repairs in other areas, as well as working on long-postponed projects. The upshot was they have a devoted workforce that will run through walls for them.
It also means that when I, and many other people, go to the store to look for ice cream, I always look at their ice cream first and last. I don’t always buy it because they don’t always have what I want. But I always give them a chance, and in case of a tie, I buy theirs.
So, what you do now will be remembered. Make sure you’re remembered the way you want.
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All of these points are very general. That’s of necessity because I’m communicating with a very diverse audience. It’s also because we are in an unprecedented period, something that no one alive has any experience with, so rather than providing a roadmap to a known country, I’m having to give explorer-type instructions to a land where no one has been before.
I hope you find them useful.
Next up: What will happen to the economy.
Blogs in this Series:
Part 1: What Are Stocks Worth?
Part 2: What Will Happen to Businesses?
Part 3: What Will Happen to the Economy?
Part 4: What Will Happen to Governments?
Part 5: What Will Happen to Society?
© Copyright, IF Research, March 2020.
[1]https://go.restaurant.org/rs/078-ZLA-461/images/National-Restaurant-Association-COVID-19-Survey-Infographic.pdf?mkt_tok=eyJpIjoiTURRMFpXWmtaV0ZpWkRNMyIsInQiOiJOSTBEXC9TVlRWanM2RldCUUZmdGVSYmloMUVGdUtsaW5uejZzS1JMSzhCbWFZVTA0dG42czI4RzFQcTViMzhraUVtUEJwdm90Wm8rcklKSnErQWtiZGltS3dlSUM0OFFQMEFkMnl2RCtyMWNTUG5GNWw2alJkdzRXNU5RKzBMMEkifQ==
[2]https://www.forbes.com/sites/zackfriedman/2019/01/11/live-paycheck-to-paycheck-government-shutdown/#315e9dc64f10
[3]https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q?sref=kOA1eblB&te=1&nl=dealbook&emc=edit_dk_20200323&campaign_id=4&instance_id=16991&segment_id=22604&user_id=2241efb6aa4e43c5909bbb44974d2f79®i_id=49578908_dk_20200323
[4]https://www.theatlantic.com/health/archive/2020/03/how-will-coronavirus-end/608719/?fbclid=IwAR388ydS-UrsoMMoMRzYqmQ06L_kTY_ayCAlAyOHpdRHgyIzKsbItYRFibk
