The Covid-19 pandemic pushed many companies to the brink of bankruptcy and focused attention on risk management practices. Years of operating assumptions were thrown out the window almost overnight as weaknesses were exposed left, right and center.
To be sure, there were major winners and losers in the pandemic. Some businesses were actually prepared for the fallout, either by pure happenstance, proper governance, or a combination of both. Digital companies were some of the biggest beneficiaries, because the pandemic was made for a digital world, and the tech companies were already properly managed and flushed with cash to capitalize on the opportunity. But the fact is that the winners far outnumber the losers.
While it might be impossible to fully plan for the next once-in-a-century business disruption or systemic shock, now might be an opportune time for smaller companies to start thinking of their critical risk areas and how to build resilience into their businesses.
Here are some lessons learned from the Pandemic.
1. Work From Home (WFH)
Working from an office is no longer a given. Except for staff that is required on premises (cashiers, restaurant servers, etc.) experts now believe working from home for most people will be the latest trend. And for those with hybrid work from home schedules (some days in office and some days out), office hoteling (same desk rotates among staff in office on any given day) will be a viable option to consider.
This means companies can save substantially on real estate and related costs (insurance, utilities, etc.) These savings will improve profitability and cashflow for more returns to the owner or investments into areas to further drive the business, such as marketing and advertising.
WFH arrangements will also increase the resiliency of the business – sudden disruptions that would previously cause people to miss work (such as inclement weather, strike, disruption to transportation, etc.) will be more easily mitigated.
2. Digital and Physical Hybrid
The pandemic proved once again that a hybrid business model is perhaps the best operating model for most businesses. When physical movement and gathering were restricted, digital commerce proved indispensable. But there could be a scenario where digital might be down for an extended period, in which case the physical would have to pick up the slack. And of course, in normal times a physical presence is great for marketing and customer experience where digital is great for driving volume sales.
Consider if or how your business can benefit from a hybrid model and especially think about how you could structure your company so the physical will pick up the slack if aspects of the digital is down, and vice versa.
3. Cash Management
For many companies that failed, the breaking point was lack of access to cash to take them through the pandemic (or at least, through the early stages of the pandemic).
There’s a financial theory that having too much cash is inefficient, and when companies need cash they can always access the financial markets (which include banks for small businesses.) But what happens if the capital market freezes as well when the cash demand is the most intense, as happened in the early stages of the pandemic (and that which caused many companies, especially retailers, to fail)? Thankfully, the Feds pumped capital into the economy to unfreeze the market, but if it stayed frozen as long as it did in the 2008 financial crisis then the toll from the pandemic would be significantly worse.
To the extent your business is cash generative, consider buying insurance with a cash reserve that will keep your company in business for at least 6 months of duress. By then government and the financial sector may have developed emergency actions to help companies out of any shocks.
4. The Cloud and Redundancy
The pandemic showed that having anywhere anytime access to your most important information (customer list, financial records, plans and so forth) proved to make a major difference to continuing operations. Why not go further and put all your files in the cloud? Digitizing information is now so easy and inexpensive, and there are so many software as a service company that pretty much any tools used in house can be hosted from the cloud. Of course, that may create certain dependencies that may increase its own risk exposure. But with this start, then backup of backups can be considered. And with the resilience and ubiquity of the Cloud, information can be accessed anywhere and on any device.
Prior to the pandemic, top talents were drawn to big coastal cities and cost top dollars. Sometimes convincing recruits to come to middle America was near impossible. However, with remote work the new operating order, the entire world is now literally the labor market. And because cost of living is local, hiring top talent anywhere they are helps to bring down staffing costs.
Develop a plan to hire the best people wherever they are, especially if your company doesn’t need extensive local labor. This isn’t suitable if your business is all physical, for example yoga studios, gyms, restaurants, etc. But wherever there’s a sizeable digital component to your business, set up infrastructure and procedures for remote work.
This may not be easy to do initially, but once done, it will pay dividends for years. You no longer have to be constrained by local labor market supplies. You can now cast your net globally, so to speak.