5 Ways Portfolio Companies Can Build Business Resilience
As the impact of COVID-19 grows each day, companies not only have to ensure their employees are safe, informed and prepared, but must also plan for the turbulent road ahead in order to protect their businesses.
Norwest leaders have been collaborating for the past several weeks to share knowledge and exchange COVID-19 communication policies, safety measures, relevant information on work from home and travel policies, as well as many other important details.
In addition to HR-related plans, your Norwest board member is available to guide you on the impact that COVID-19 is likely to have on your business operations, capitalization strategies, and business contingency planning. COVID-19 is currently affecting, and has the potential to continue to affect, sales cycles (revenue), cost to serve customers and inventory management, ancillary service providers and partners, and global supply chains. COVID-19 is impacting public equity markets and also will likely have an effect on private financing markets and capitalization.
Boards should be responsive to CEOs and find ways to help. One approach is to form a Rapid Response Team or Incident Management Team focused on the effects of COVID-19 on business continuity, as well as helping companies consider proper COVID-19 operating models and contingency planning.
Based on conversations with our companies and the work we’ve done with our executives during previous uncertain times, we believe there are five key areas companies and their leadership and boards should consider immediately:
1) COVID-19: SAFETY OF EMPLOYEES AND CUSTOMERS
Employee safety and wellness should be a key top priority for companies. Lean on your board members for best practice policies, data, and communication plans if you haven’t already done so for travel, work from home policies, and other relevant approaches. Consider what your thresholds are for shutting down your office or implementing a mandatory work from home policy. You need to be thoughtful about what is necessary to reduce risk but also to maintain operations. Creative solutions are encouraged.
This decision will likely be company specific for the time being, based on business models, potential exposure to the virus, current work from home policies that are already in place, and your respective geographies and case counts. If schools close, how do employees take care of their families while maintaining their jobs? If you do decide to shut down your office, how long will the office be closed? Companies with senior employees might want to consider implementing policies that are more stringent so that employees at risk take more precaution.
Here is a link to a crowdsourced list of public COVID-19 company policies, updates, conference and school closures, and resources updated several times a day (Source: Amplify Talent) to help you plan and determine the best route for your company.
2) COVID-19 EFFECTS ON REVENUE
Consider the potential impact on your business and potential revenue and then plan accordingly. There could be major commercial impediments you aren’t considering.
Does your sales process require in-person meetings? Will work from home policies affect that sales process, or will your potential clients’ policies affect your ability to sell? If you are attending conferences that are key to your business and the conferences are no longer taking place, how does this potentially affect your financial plan and potential client funnel for the quarters ahead?
Overall, companies should be closely examining how their businesses will operate in this current COVID-19 environment and how these unexpected changes can change their growth and revenue plans over several quarters and beyond.
3) COVID-19 EFFECTS ON YOUR COST TO SERVE CUSTOMERS
Businesses should look closely at their cost of goods and supply chain constraints. In order to deliver revenue, do you have sufficient inventory in place or will any employees or services you need to service customers be impaired? Do you have labor in other areas (India call centers, other remote locations) that could be affected due to COVID-19? Do you have materials or services that are sole-sourced that may end up being under containment or quarantine policies, for example in Italy, or China? For example, for W2 employees included in your cost of goods sold, your gross margins may drop due to reduced demand and if you determine that you need to close manufacturing or services operations due to COVID-19 risk.
4) YOUR COVID-19 OPERATING MODEL AND CAPITAL NEEDS
Every CEO and board of directors should be working on a COVID-19 Operating Plan soon and capital requirements for such a plan for 2020 and 2021.
Norwest can help its companies with this planning. We are already hearing from a number of our companies that they are needing to adjust their plans due to the unexpected blocking of channels and access to institutions, customers, or manufacturing facilities.
If you don’t have fixed costs, you might be in better shape, but it’s best to consider first, second and third-order implications of the pandemic. Make sure you have enough capital to weather the storm. This is also a good time for companies to keep a close eye on their burn rate.
Be open to establishing a line of credit at historically low rates. Companies can set up a revolving line of available credit and use it as an emergency fund should they need it. The current set of economic factors (low rates, the potential for a recession and decreased demand for some products/services) means that debt (revolvers, term loans, etc.) is a real option for companies and could be an excellent resource in addition to equity.
5) DO YOU HAVE A RAPID RESPONSE TEAM?
Board members should be responsive in a timely manner to CEOs and find ways to help, such as assisting with the formation of a Rapid Response Team focused on COVID-19 effects on the business involving a subset of the board and a few senior leaders that can be convened urgently.
CEOs should consider dedicating a small group of board members to dealing with COVID-19 and any other events which could involve foreign affairs, trade wars, financial turmoil, cybersecurity or anything that affects multiple parts of the business. Who is on your team? Having a Rapid Response Team in place for unexpected issues or crisis situations is a good exercise for now and the future.
SUMMARY
The spread of COVID-19 is uncertain, and it is not possible to predict exactly how this will continue to develop. However, we do know that a number of our portfolio companies worldwide have been impacted economically and personally by the spread of this virus. The effect on global supply chains, remote teams, customers, and executives with families who have been affected by the virus is real, and board members are here to help in safety policies, business planning, and capitalization assessments.
