From Our Desk

What lessons should businesses learn from the COVID-19 pandemic?

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Sharad Dhawan

Director

The COVID-19 pandemic has probably been the most impactful event of all time. It has brought the world to a standstill – in a matter of a few weeks. Individuals, institutions, societies, governments, countries and indeed the entire world are now focused on addressing this situation.

The economic impact of the pandemic is also widely being felt and the projections are far from encouraging. Governments are announcing packages to mitigate this impact. Some industries are threatened more than others – some even facing an existential crisis. Stock markets have crashed.

What can businesses learn from this experience? The list is long but here are a few key things that come to my mind immediately.

 

Sustainable Margins – Businesses are operating at such unhealthy margins that a loss of revenue for 2 -3 months brings the business to its knees, if not closure. Operating margins are so low that they don’t cover overheads for even a couple of quarters. Some businesses are propped up by support schemes from governments. While these may be necessary at some stage of a business / industry’s life cycle, these schemes will not last forever. Businesses must provide for themselves ultimately.

Just as a human body becomes unhealthy, without a minimum level of hemoglobin or a small percentage of fat, a business without cash or reserves is unhealthy.

Hunger for growth has a cost – it necessitates capital infusion or debt, both of which come at a cost.

In a race for market share, leadership position, etc. reserves and cash positions take a beating. The race never ends, making it almost impossible to replenish reserves and cash.

It is every business leader’s responsibility to build a sustainable business. That can only be done by having healthy margins. Working on thin margins is very risky as a small bump may topple the entire cart.

What is a decent margin? In every industry, business has its norms. Governments have rates of taxes on sale of goods and services (with no direct investment in individual businesses neither exposure to risks), withholding taxes (on estimated profits) for different businesses. These can be indicators. Cost of capital can be an indicator too. Ultimately, each business needs to arrive at a figure that makes it sustainable.

Building a sustainable business also means contributing to the sustainability of the industry one is part of. Undercutting competition to enter a market, grow or achieve a leadership position is no different from digging holes and getting into them. The deeper you dig, the more difficult to climb out.

What is going to happen to the ‘Unicorns’ and ‘Startups’ which have been getting investments so far? What about the loss-making ones? What will happen to valuations, fresh investments, profitability? Would focusing on margins have made the situation different?

 

Customer focused – rather than being stock market focused. Most big businesses have focused way too much on their stock prices. They bring in experts at the top who can focus on things that impact the stock prices favorably, very quickly. The experts are rewarded and move to another assignment. A new expert comes in and the cycle goes on. A ‘force majeure’ event or a short cut or a cut back on a non-essential spend can result in a catastrophic effect on stock prices. Investing and focusing on customers always pays. Loyal customers are like insurance! Focus on building loyal customers. Focus on their needs, delight and value that you provide to them. This lasts for a long time.

 

Business Continuity Plans – for continuing your business with a 100% outage. Where possible, build and test such plans regularly (if possible once a month). It may be difficult for certain kind of businesses to do so – like manufacturing. In that case, try new ideas. Can you have reciprocal arrangements with distant competitors to use each other’s facilities in case of outages? This can even extend to using each other’s capacities during peak times. One may not need to invest in the top peak load demand then. Can associations help?

 

Use your Moral Beacon – to point you in the right direction. When at crossroads between business sense and moral sense, always choose the road moral sense shows. It may be difficult and expensive in the short run, but it is sustainable, profitable and more rewarding in the long run. Greed is tempting and shiny, but quickly takes over control. In tough times, you realize that it had taken away focus from every other thing that you should have been doing to build a sustainable business. How can consumer goods firms “Dump” on their distributors or retailers at this time? The strategy which worked for so long now appears fallible.

 

People – are your greatest assets. Respect them. Train them. Empower them. Invest in them. When the need arises, you can trust them with going the extra mile. It is your people who will get you out of this hole. We are all in a hole with this pandemic. Some deeper than others. It is our people who will help us climb out. Whether it is the knowledge workers, the blue or white-collared ones, the scientists, security, healthcare professionals or any other – they are the ones who will help us climb out.

 

A Probable Way forward – honor your regular commitments, to your regular suppliers as much as you can. Your customers do the same and what you pass around comes around. Use impacted industries and businesses as much as possible to help them recover – use hotels for meetings, airlines for travel – they will come back with lower costs probably or ask them for lower rates against some volume commitments. Do not cut all your discretionary spends.

If we all do this, we all will pass the buck around and it will come back to us.

We share this world, not only with our fellow humans, but also with the animals, birds, plants, forests, rivers, seas, oceans, mountains, skies and every other thing on this planet. All the other living and non-living things are reclaiming their space and habitat at this time. Let us realise that we are not the only ones on this planet. Let us not behave as if we own it.

The direction one points and drives towards is the one you normally reach. One could be off by some margin, but the general direction is where you head to. If businesses choose to cut costs, tighten purse strings, minimize losses – that’s what they will achieve. However, if they aim towards growth and profitability, that’s the general direction they will take. Hope this pandemic has taught us that in its wake.

Stay safe! Stay indoors!

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