After reading this you will know:
1. Two scenarios of how COVID-19 will impact the economy.
a. Which scenario is likely?
2. What that means for your business
3. Which business will fail to survive?
4. How you can avoid that – The key actions that you need to take NOW
5. How to thrive in and after the crisis is gone -> While everybody is going down, you go up.
The article will be updated as new data is available on an ongoing basis
WHAT to do is worth nothing without the HOW. Thus, here’s what we will not do or cover.
Simple Business common sense and BS that everybody already knows:
This article is about hands-on stuff, not intellectual, meta-level theory. It’s bases on sources from HBR, McKinsey and in-depth research of the reactions of the Chinese manufacturers in the Hubei province. They provide key insights on what to do during the peak of the acute crisis and after it. Furthermore, it builds on years of direct business experience from working with dozens of businesses.
The premise is this: The article helps decision makers act now and to act right.
Before we can get to the practical stuff however, we need to think of what even can happen. For what are we preparing exactly?
Here’s a list of the current situation in Europe and the measurements taken by the national governments as of 22.03.2020.
Figure 1: Informationsstand: 22. 3. 2020, 20.30 Uhr.
Social distancing measures slow down the spread of the virus significantly and will peak in July instead of May. The goal of Western countries is mitigation to avoid a collapse of the healthcare system as we saw in Italy.
Lockdowns and travel restrictions bring the economy to a temporary halt, resulting in a recession in Q2. Even with the epidemic becoming less sever and under control, fear amongst consumer and businesses slow down the economic recovery prolonging the recession until Q3 or Q4.
Monetary policy of lowering interests’ rates even further and quantitative easing have only small effects given the small room for movement as we’ve seen by the market reaction’s to the announcements of the FED. They had little to no positive impact. The hands of the federal banks are tied as they moved themselves into a corner. Fiscal policy has some impact on the survival of SME’s. Global GDP 2020 is in slight decline.
The virus spreads throughout the summer when it peaks in June in Europa and the US. Countries are forced to keep the lookdown for a prolonged period of time. Companies, especially in directly effected sectors layoff their personnel and take further actions to cut costs. Consumer sentiment hits rock bottom. This self-reinforcing downward spiral leads to an economic depression throughout 2020 and 2021. The fiscal and monetary policy responses cannot support the system as they proof to be insufficient to break the downward momentum.
Given that a shutdown over a long period of time is almost certain to cause severe social unrest due to the economic downturn, an increased gini-coefficient (i.e. inequality of wealth distribution) and simply bored people (Beware of Dostoyevsky’s quote from Notes from the Underground:
"Shower upon him every earthly blessing, drown him in bliss so that nothing but bubbles would dance on the surface of his bliss, as on a sea...and even then, every man, out of sheer ingratitude, sheer libel, would play you some loathsome trick. He would even risk his cakes and would deliberately desire the most fatal rubbish, the most uneconomical absurdity, simply to introduce into all this positive rationality his fatal fantastic element...simply in order to prove to himself that men still are men and not piano keys”
We will not focus on an even extremer scenario. If people go to the streets because they’ve been locked for 3 or 4 months, lose their jobs and simply stop carrying about the elders - “They didn’t care about climate change, why the hell should we now care about them?! We won’t die from COVID19” is a statement that I’ve already heard on social media - then we have a crisis at our hands on a scale of magnitude they pretty much no one living today has experienced. It could end up like during WWII or the Great Depression of 1929: general scarcity of any goods, food rationing etc. If that happens, nobody knows how to act and prepare. Giving any advise for this scenario is absolutely fruitless.
Thus, even in Scenario two, shops will have to open again in May as the social unrest will be boiling by then. The economic and in turn social costs are simply too high to risk a total collapse of the economy – even if it means that the elder people will die. It’s cruel but true.
To ensure liquidity businesses will cut their costs and closely monitor their expenses. Positions such as the expenses for tools that are only nice to have will go down in the first round. Same goes for marketing expenses. Ads spend will plummet. Big corporations spent millions of dollars in branding so they still are in the head of the people even without constant advertising. Cutting budgets to 0 for 3 months will not affect their sales in the long run.
If you are a SaaS or a marketing Company, you will feel that impact immediately. Is your product not crucial for the business and can be cancelled at a months’ notice? It’s gone. That project to market our event? Well the fair is not happening anymore, so no more need for your marketing service either. In a nutshell; if your product or service is not crucial in the mind of the financial department (i.e. does it contribute to the bottom line?) then it’s gone asap.
As business have to navigate through a lot of insecurities and deal with a high level of uncertainty they will be hesitant to commit to investments. This wavering causes buying cycles to get longer. It will be hard to close new deals. Again, as a B2B business sales rep you need to convince not just your counterpart but also the financial department. If Rick from the marketing department likes you and you guys go for beers after the sales meeting it means nothing if Rick is not able to sell you to the misers that tightly sit on their pockets. Unless you positively impact the P/L there is no budget for you. Period. Thus, focus communicating the value of your solution. Show ROI calculation. Do you help save costs? Do you bring more revenue? Showcase that.
Digital will be the new normal even more. We now learn how to live and work for months inside our walls now. People adapt fast. And change their behavior. It’s simple: Business that are not present online now will not be seen. At all. This behavior will not switch back. If people find their new favourite restaurant that delivers at their door free of charge, they will stick to that, even if they can go outside again. This is not a new trend. It’s been happening for the last 20years since the rise of the internet. But it catapults the trend fast forward. Business have to adjust to a new normal. A normal where offline is the exception. Not just for fashion stores in the B2C segment. This will impact B2B even more.
Conferences and Events are all being cancelled. On one hand that will set free some budget that will help with your liquidity. On the other hand, you will not be able to have your outbound sales reps there at a booth or as attendees handing out business cards and going to networking pizza & beer events. If your sales does not work online yet, you’re in trouble. Conferences are already preparing to be streamed online. Again, this is a permanent shift to online. It will not switch back just like that. As B2B has not been forced to go online as much as B2C has, the impact is bigger in that area.
After we outlined the impacts that COVID 19 will have on businesses you might ask yourself: “What does that mean for me?". Now, it’s time to dive into the specifics and hands-on advice. What are the key Objectives for Q2 & Q3?
To give you a basis to estimate the impact and what it means for your cashflow I’ve created a simple scenario calculator for your revenue. You may access it here. It should give you a basis to see which area needs to be prioritized. To help you with that I’ve outlined the 4 Key areas that you need to take action on to secure the survival of your business.
The very first thing to do is to get an overview on what COVID 19 means for your revenue coming from existing clients. Are any projects on hold now? Is anything cancelled or will they churn? This will help you to get your financial forecast right. Without that, financial planning will be impossible.
More importantly however: Use that phone call to really deepen the relationship with your partner. We’re all in the same boat. A little empathy can go a long way. Take this German bakery for example: The owner went live on Facebook and directly addressed their clients with truly heartfelt words. Watch it here. And in a moment of existential crisis for his business he even finds ways to be a giver to the men and women out there working 24/7 in the hospitlas to rescue lives.
As mentioned, Sales cycles get longer, budgets get tighter. You have to be able to sell. Does your sales team have a clear sales process that is tried and true? No guesswork, no just winging it. Templates, and structures, checklists and call scripts, automation and clear ways of measuring your sales are what you need now. So here’s how you get there:
Without data you’re flying blindly. That’s always a bad idea. But caught in a storm? Good luck bringing that plane home safely. So, what do you need to track now? The basic unit ecomics of sales:
What are they? Basically, they help you answer 3 questions:
How big are your average deals? What drives their size?
If you win a customer, how long do they keep bringing you money? Is it recurring revenue or just a one-time project? How can you make it last? If you’re a start-up that existed for 2 years there’s no point in putting an expected CLTV of 5 years on there. You don’t even know if you’re still there in 2 years.
How long does it take you from the initial contact to get to the cash coming in? What are the roadblocks to make that faster?
Visitors -> Leads -> MQL -> SQL -> Opportunity -> Closed won -> Closed lost
You need to know your conversion rates at each step of the cycle. How else could you make any financial forecast? In order to help you with this, I’ve created a template to calculate all these metrics including benchmarks for SaaS companies.
Check it out here
How much do you spend for marketing and sales to get a customer? This includes overhead costs as well as salary and any ad spend.
Sales Velocity V = (#opportunities x $ Deal size x % win rate) / Length of the sales cycle
What to do once you know these metrics? If your CAC ratio is 1.5x, you are generating 50% more than you are spending to acquire that customer. Is this good? Depends on your business’s situation. A CAC ratio < 1 may be fine for your first 10 months if you have reasonable plans to improve it and enough in the bank. But if it’s under 1 and you have 3 months of cash in the bank with no plans for improvement, you’re in trouble. Some businesses target a CAC ratio of 3x. Others are happy if they are over 1, with plans for improvement, money in the bank, and growing.
That may sound all nice but what do you do with all these numbers? Just collecting data won’t translate into sales automatically. Correct. So here’s what you do:
Do your Sales Reps take too much time in writing follow up emails and writing quotes? If there’s no templates for doing that fast, now you add it unto your task list. Do they still have to follow up manually or is there an automated sequence that interacts with the potential buyer automatically? Time to set that up
Your Sales agent calls a lead for a connect call? What does he say? Does he have a script? Is that written down? What happens during a discovery call? Which questions need to be answered? Is that written down and has everybody access to it? What happens next? How does the demo or the in-person meeting happen?
Each Sales rep in your organization needs to be able to answer every single question. Period. Closing will be hard and only if you can wake up your sales guys at 3am and they know how to close you will survive the next 3 months.
Your business needs to be very clear on how to answer the following questions:
Notice that I did not include the what question. Why you might ask? Because it does not matter what you and your products do. Nobody cares about the features. It’s about HOW it helps people to solve THEIR job. We all know the example that’s coming now:
“People don’t want a 2 cm drill; they want a 2 cm hole in their wall”. The drill is the just the tool to get them there. They don’t care about the drill. They care about the 2cm hole so they can put their flat screen TV on the wall to watch the latest season of Narcos on there while they’re in quarantine.
Simply put: Stop selling your product – sell the results they deliver.
If another solution or product can do that too better or cheaper then they will switch – unless…Unless, they have a reason to care about you and your business. WHY should they care about you and your business? If your company goes belly up tomorrow, who would give 2 F**s about it?
If you cannot these simple questions above and communicate them to your audience, you will lose. Nobody will listen because nobody cares. People have no time for lengthy explanations. Not in quarantine, not after.
Thus, all the questions above need to be boiled down into one single statement, your value proposition. Here’s a framework that’s easy to use and guides you perfectly:
We help [Buyer Persona/ICP] to achieve [The results they want to achieve] by providing [How you get them there].
So how does that sound for our company, BEE?
We help Swiss SMEs & Scale-ups to grow faster by establishing scalable & repeatable marketing & sales motions that deliver measurable results.
|ICP:||Swiss SMEs & Scale|
|RESULT :||Grow their business through focus on marketing & sales|
|HOW:||Finding and establishing processes for Marketing & Sales that are scalable and repeatable. To achieve that we have a performance driven approach: we measure, learn and optimize.|
There are four areas that you need to focus on:
2. Lead Generation
3. Operational efficiency
4. Positioning of your brand
First, assess in which area you need help immediately. The case calculator and talking to you customers will help you with that. It will identify your Achilles heel.
Second, create a brief concept on how to fix the different problems.
Third, prioritize your actions by looking at the impact and the effort it takes to get there. Focus heavily on speed of implementation (i.e. effort). No matter the impact, if it takes too long it might not matter anymore at all.
Fourth, look at the data again. Did your measures have a positive impact? Why? Why not? Learn from it.
You might think: “That sounds all good and makes sense but: Aren’t you just saying all these things because you provide the services to achieve them?” Yes, that’s true we can help you with all that, this is our business. The list of actions to be taken is not complete, it does not aim to be. But I only write about stuff that I know how to do. There are other points to be taken care of such as financial stress tests or reorganizing your supply chain. I’m not a consultant for CFOs or supply chain managers. Thus, I have nothing to say about these topics.
Now obviously, if you think: «Hey Lanny, that was some actually powerful advise and I have some questions and maybe you can help me with my specific case» Then sure, please be my guest and book a meeting using this link.
It’s connected to my calendar and you can book your 15min slot there. If we can help you, we take it from there.
So far so long. I wish you all the best, stay healthy and as always:
Onwards & upwards