By Marius Ghenea, Partner Catalyst Romania
These days, I see two approaches to the Corona crisis which are clearly polarized in many countries. In the social, political and also business environment, there are some people in the decision-making positions who seem to think about everything as if times were normal and taking measures accordingly. Luckily, there are also others, trying to rethink everything from scratch, saying that “in an unprecedented situation you can’t take measures based on the precedent”.
I also support this idea. It seems logical to me that we have to do things differently now when facing a completely new situation. If everything was “normal”, we wouldn’t have an emergency state, military ordinances, closed and isolated cities and billions of people locked up in their homes, without knowing what will happen in the next weeks.
It is at least bizarre that in these conditions, as far as economic thinking is concerned, there are still too many that think based on a traditional paradigm. Starting with the Romanian government and relevant ministries, they do so both from the state budget perspective and from state-private businesses relations perspective.
Today I want to focus on the concept of “rethinking from scratch”. I think it is needed that every company rethinks its strategy and takes decisions based on what is happening right now in the economy. It doesn’t serve us right now to rely on what we previously knew, on what we learned during our studies or management tips we received, and which were valid during normal times. If we don’t rethink from scratch like this, it is possible that our business will collapse, and we will have to start completely from scratch instead!
Here are some arguments for this type of business thinking and some in my view useful ideas for entrepreneurs:
· If we talk about cash: Before the crisis, we would have said that any amount of cash that is not reinvested in the business and stays idle in the account represents a lost opportunity for the company. Under the new circumstances, we must admit that cash is essential and that companies having a lot of cash in their account are somehow less at risk and have more chances to survive the crisis.
· According to the same thinking, a company with significant current assets (not necessarily cash, but particularly receivables or inventories) is a company well positioned in the market, because these are meant to turn quickly into cash. However, receivables can be risky for companies, as theoretically they are near cash, but in practice they might never be paid by customers due to the current crisis. And inventories must be re-planned too, because we must think differently about the supply chain. Now we are in a strange situation in which there’s neither a suppliers’ market, nor a customers’ market. Some products are in high demand but are not available (disinfectant, masks, etc.), and other products are stocked abundantly but are not demanded right now (nice-to have products). Depending on the product type, a company should target either zero stocks or as high as possible stocks and all the rules and theories about stock rotation and just-in-time and just-in-case inventory management are no longer valid.
· Probably the most sensitive and painful point is the one related to employees. Normally, traditional thinking tells us to try to work on a certain budgeting of staff based on two indicators: headcount and payroll. But again, at this moment, all the traditional theories are deficient. There are two vital questions for the business now: “who is needed immediately?” and “who will be needed later, when we try to relaunch the company?”. Unfortunately, it is possible that those needed right now are not the ones suitable for the business engine restart later, and vice versa. In such conditions, we can throw the traditional management book away because we will not live to see what happens “later”, if we don’t survive the “now”!
This reminds me of images with crash-test dummies, those where cars crash at full speed into a wall to determine impact damages.
That’s what we are experiencing now: many investors, managers and entrepreneurs are running their businesses as a kind of crash-test dummies hitting the wall in an unprecedented business trial.