Most of us have been through natural disasters and recessions, but coronavirus, or COVID19, is a new kind of disruption.
Meetings and events have been canceled. Employees are working from home. As I type this, all the public schools in my state have been shut down, another burden on those who have children who will now need care during normal working hours. All major sports leagues have been suspended, and the theme parks an hour away from me in Orlando have closed.
How long this will go on is unknown. The administration is saying it could be August until things get back to normal.
This will impact new construction, but not repairs as a clogged toilet or a broken pipe will still need to be fixed. In fact, service contractors may experience higher demand for repairs with people at home during the day.
Contractors need to implement safety measures to protect their technicians and their customers, including frequent use of 60%-plus-alcohol-based hand sanitizer and disinfecting practices for tools and parts.
Companies throughout the PHCP-PVF supply chain also need to communicate with their existing customers about the actions they’ve taken to not spread the virus, and change their voicemail to incorporate COVID-19 messaging.
Beyond important safety measures, contractors and other PHCP-PVF companies throughout the supply chain should plan for life after the crisis subsides. It would be unwise to expect a bounce back to business as usual any time soon. Here are four critical steps to take now to strengthen positions for a new normal.
Analyze and increase inventory levels in critical areas
Increase your on-hand inventory of common supplies. There will be major shortages over the next 120 days that may prevent a job from being completed, which will affect cash flow and customer loyalty – both of which are critical right now.
Stress-test your business
Stress-test your business under various revenue levels. Start by building a proforma with revenue levels of 80%, 60% and 40% of budget through the next four-plus quarters, and deliberate on the appropriate actions to scale expenses accordingly. It is better to identify what you will do with fore-thought than how you’ll react under the gun. Which positions will be eliminated? Which positions will be considered for salary reductions or reduced hours? Can leases be terminated or adjusted? Alternately, if business booms, do you have the capacity to meet customer needs?
Look at your balance sheet
To what degree and how long can your business sustain losses? Can you preserve capital by negotiating with your suppliers on payable terms? What assumptions should be made on the vitality of your accounts receivable? Are there risks relative to lenders calling in loans?
Consider the what-ifs
At some point the clouds will part, and the dust will settle. When that happens, the competitive landscape is likely to look much different. To prepare, focus on scenario planning. Scenario planning entails putting together a list of potential occurrences that you would need or want to react to. Some of these could be:
- A main supplier dissolves or becomes unable to fill orders.
- A product line becomes unavailable.
- Talent becomes available.
- A competitor in the market liquidates.
- A service company that serves the same customers or has a complementary offering is up for sale.
When your list has been put together, consider how you would identify its occurrence (some are easier than others), and what series of actions you should consider taking. Big market-share swings happen into and out of recessions. Those that retain capital sooner than others going in, and those that have capital to deploy coming out, can win big. So, even as we’re in the throes of some unprecedented disruption, keeping an offensive mindset can pay off.
Focus on strategic planning: Strategic planning in these circumstances doesn’t mean doing a SWOT analysis and looking five years down the road. It’s recognizing that there is an opportunity to make changes to your business while it’s still in a semi-state of shock. It is much easier to make changes during times of disruption than when a heavy sense of status quo prevails. Specific areas to consider are:
Organization structure: Consider the likelihood that personnel on-hand at the end of the year may look different than it did at the beginning. Use this opportunity to evaluate whether the organization itself has been asking questions such as whether there have been unnecessary bottlenecks or manager positions that may have been artifacts of the 1990s. Should you invest in digital marketing? Can you incorporate technology to improve efficiencies and increase cash? Get creative.
Cost-to-serve: It is important that visibility exists on costs, particularly variable costs. Understanding your costs will allow you to make decisions on service models and policies. If you have incorporated cost-to-serve into your business, recognize that old cost-driver values no longer apply.
We find ourselves in difficult and unprecedented times. It is times like these that new trajectories are formed. Recognize that the situation we’re in is likely not one that is just endured for a little while before things get back to normal.
It is going to be a struggle, but do not miss the opportunity that this disruption brings.