We are living in the new normal and that means the potential solutions to this new “illness” (self-isolation, lock-downs, quarantines, curfew) are the problem with the economy.
As you probably already know the economy is something that we see from a macro perspective, from a bird-eye view but crucially it consists of many individual transactions.
The thing that we have to realize and adapt to is that many of these transactions in the economy happen in-person, which means the products and/or services that we buy are experienced in-person.
Actually, the businesses that are suffering the most require in-person transactions or in-person experience for the value they provide. High fixed costs and low cash reserves for these businesses act as force multipliers to this equation.
The examples are well known already, so industries like accommodations, educational services, retail trade, food services, airlines, etc. are and will be affected since the customer behavior has changed due to physical distancing and mandated operational restrictions.
The old way of consumer behavior and habits are long gone. The sooner we realize that, the better.
Many businesses have a large decrease in sales, while their costs stay the same and many of them have/had 3-6 weeks of cash in the bank before they’re bankrupt.
What to do about it, how to survive and thrive in the New Normal?
The answer to this depends on the nature of your business.
I see some of the businesses such as in retail or tourism are doing staff layofs, cutting costs, and seeking bridge financing to keep a skeleton operation in place until the storm is over and things return back to normal.
I am not saying to do that. On the contrary. Now is the time to go on the offensive.
Start a digital transformation initiative. Part of your business (or the whole one) should move towards “Going Digital”.
More and more evidence shows that the recovery will have a K shape, so not everyone will recover the same. Take advantage of that.
If you’re doing business mainly online, you don’t need to change anything per se, you simply keep operating the same way you were before.
People still need solutions to their problems and they’ll still pay money to get them. That will never change.
From studying history, recessions typically result in decreased spending, which means sales typically go down a bit, but at the same time costs go down, so it’s all relative. Cash is king during recessions and this is why I’ve always stressed the importance of keeping large cash reserves.
The way forward is to keep doing what you’re doing, keep costs low, sales high, and hold cash reserves to weather unforeseen storms (the same advice I’ve always given). Leave market speculation and opportunistic business changes for the chasing crowd, stick to your (digital) business model and focus on the main thing in your business, the thing which is bringing the most value to the marketplace.
