News———

Resilient Bodies and Resilient Companies

26 March 2020

Author, Joe Cohen 

For business, the past three weeks have already made 2020 a year to forget.

As I write this, 472,000 people have confirmed cases of the novel Cornavirus, 21,000 have died and the virus is spreading exponentially (67 days to 100,000 cases, 11 days to 200,000, 4 days to 300,000 and 3 days to 400,000).  We all know those numbers.  Health officials have also told us that the best method of suppressing this virus is to enforce rigid a containment strategy, something our individual-led medical systems and societies are not built for.  For most of us, the human body is a resilient system that can ward off the attack of the virus.  The coming weeks will show whether our health care systems are as resilient.

This virus is insidious, using the young and healthy as carriers to attack the elderly and sick, and capitalising on our highly mobile, highly interconnected world for its spread.  Combating the Coronavirus in the community requires us to act contrary to our economic self-interest in the near term, as Richard Baldwin from Harvard’s Kennedy School of Government charts.

We don’t want to stop the economy, but if we don’t greatly reduce human activity there will be fewer of us around, and those who remain may no longer have a health-care system to rely on.

Addressing the Shocks

These containment policies created a shock first in Asian supply chains that has become a demand shock in Europe and the US.  The resulting economic deceleration has thrown us all off our axis — it is unrivalled in living memory.  Companies were caught flat-footed and now need to respond quickly.

Government has stepped in with monetary policies to calm markets and are also implementing fiscal measures largely for business.  These measures, which will provide enough to keep people housed and fed, won’t bring back the levels of consumption we’ve seen in the past few years.  Out of home entertainment & leisure, restaurants, and travel will take many quarters to regain their standing.  Just as our bodies must be resilient to repel the attack of the virus, so our businesses must be to survive the impact of the containment measures.

As a board chair and advisor to a number of companies, I have spent most of the past three weeks helping to craft rescue plans, negotiating with investors for cash injections and vendors on payment terms, determining the credit-worthiness of long-standing clients, and trying to provide a sense of calm in the storm.

The early-stage companies we work with have sorted into three distinct groupings.  Seeing these divisions is instructive in thinking about how to build resiliency into companies in the future, as all we know this will not be the last shock we face.

Companies proceed along three vectors 

The Accelerated Future – The companies that make locked in life possible including videoconferencing, food delivery, social media and money-saving services.  Zoom is now worth more than Expedia, Royal Caribbean, MGM Reports, American Airlines, AMC Cinemas, Hyatt Hotels, Harley Davidson, GoPro and Macy’s combined.  These companies are at battle stations to add more server capacity and delivery riders.  They were already on the edge of a behavioural shift that has been accelerated by a sigma event.  While we can’t predict such black swans, we all can think long and hard about where the future is unevenly distributed. #food, #spirituality, #onshoring

The Pivot to Address The Crisis – These companies may have seen their original or core business fall away in the past month, but they discovered something they were doing already (maybe as a consequence) was now in high demand.  They include distilleries now making hand sanitiser, materials start-ups 3D-printing ventilator valves or Koru Kids who are looking after the children of key workers.  They all saw a yawning need in this crisis and jumped with both feet.  For some, there may be no revenue in these activities, but they build great brand goodwill and a sense of purpose for their teams.  It’s likely these companies emerge from the Virus Age in better health than they began it. #innovation #healthcare #pivot

The Hunkered Masses – The vast majority of companies who have seen demand fall off a cliff, have largely on-site workforces or massive supply-chain interruptions.  This group makes up the vast majority of businesses in the early-stage world.  The bad news is they have lost a lot, and many will not survive.  The good news is the ones that do will be highly resilient, lean and will have proven they can stop on a dime and re-calibrate. #opex #hunkerdown #survive

Dealroom.co recently surveyed a group of early-stage companies in the Netherlands and found that 70% would be out of cash in three months or less.

As many companies are working to reduce their opex and pulling in their wings, it’s likely many investors will do the same.  I expect VC’s to cull their poor-performing investments and follow-on to support only those who had already demonstrated self-propelled lift.

I am advising consumer companies to expect zero revenue until September and likely exit December 2020 at 33% of their February sales.  While the future is hazy, it seems the adaptive pulsing of containment measures may be the way until a vaccine is rolled out in 2020-2021.

The only sane approach seems to expect a bear case and be pleasantly surprised if things turn up sooner.  There are some factors (eg results in China and Korea) that present a hopeful end to the year, but at this point expecting them would be folly.

I have made myself available to any company that needs help on a purely volunteer basis.  I went through a similar shock in 2001 and 2008 and want to pay forward the help I got back then.  Doing so can help to build the same resilience into the current generation of entrepreneurs and motivate them to do the same when the next shock occurs in the years ahead.

Original Article

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