COVID-19 entrepreneurship: the crisis plan
To say that we are facing an unusual situation would undermine the magnitude of the phenomenon that conquered every corner of the planet.
Economic crises have happened before and will happen again, but it is for the first time in the last hundred years that the enemy is invisible and affects the global economy as a whole – without discriminating between business sectors, levels of economic-social development, or geographical positioning.
We are facing fear, anxiety, panic, and, like in any extreme situation, the very essence of our being is put to the test: fight or flight? We can relate to this axiom on a personal level, where each of us manages their stress responses as good as they can, and also on a business level, where the actions of the companies are modeled by the spirit of the entrepreneur behind them.
I’m fully confident that survival and well-being are reserved not only for the most prepared but also for the most adaptable individual.
Current state of affairs
In just three weeks, no less than 16 million Americans have filed for unemployment, according to the New York Times. The signal is clear for entrepreneurs around the world, even if not all countries provide the necessary statistics: the economic crisis is here for sure, with decline estimates varying from a few percentage points to as much as 15-20%, according to expert estimates.
Based on reports of newly registered unemployment claims in the US, some pundits have been anxiously stating that the $2 trillion (thousands of billions) state aid measures announced by Donald Trump will not have the expected effect. History will show us who’s right and who’s wrong.But, as a starting point, this incentive package has provided a period of relative stability for the stock exchanges, and in some cases, even a slight recovery for indices.
The bailout package devised by the FED (and most governments/central banks of the world) will not help the economy stay afloat forever. Fortunately, this is not the intended response. Its purpose is to encourage individuals, entrepreneurs, businesses to wake up from their slumber and fight for survival. Without any supportive reactions from the private sector, it won’t matter how much money the central banks print; the economy will still collapse eventually.
That is why it is absolutely essential that the economy – which is not an entity with a volatile form, but structured on businesses of all levels – will realize that the only desired direction is upwards.
Ever since I took my first steps in entrepreneurship, I focused on building a healthy, sustainable, anabolic type of business that can be developed and scaled, regardless of how the wind of change blows – nationally, regionally, and globally.
A critical factor in this philosophy was the “work-from-home concept”, which, until a few weeks ago, was only seen as a “treat” reserved for the select few. Well, for the companies in my group, the employee activity carries on as usual, I’m even noticing an increase in productivity – with 99% of my staff working from home for over a month!
As for any top-performance analysis, the structure behind is much more important than the conclusion: I’m here now because I emphasized from the start significant investments in what I believe is the backbone of a fintech business: the IT department. Only thanks to an IT department that works flawlessly we’re able to talk about digitalization, digital transformation, cloud-businesses, increased autonomy, and increased immune response to any economic storm that may come our way.
What I did
It is not my intention to deliver a crisis-response manual or to make an exhaustive list; I just want to detail some of the decisions I already took or will be taking in the following period:
1. Specific budgeting
No containing measure or reaction in this world, no matter how revolutionary and daring, will succeed unless it’s supported by money. Cash flow is king! Analyzing, sorting, and transforming the fixed and floating cash-flows are essential processes in times of crisis.
I mentioned earlier that the IT department is the backbone of my business. I’ve set this mindset since 2018, a build-up year, and I enforced everything in 2019, not in anticipation of a crisis (which actually happened), but because this is the ideal flow for my business.
Internal communication, advanced reporting services, tracking specific KPIs, analyzing business data, building a complete ecosystem that includes the entire business, cloud services, business intelligence, and the list can go on. All of these are just cogwheels which work in sync only when well-oiled by a cohesive and sound IT department. Infrastructure is key during this period of crisis. 😊
Key people now have the chance to benefit from all this and gain even more power and influence in my organization, when face-to-face communication is no longer an option. I’ve always been humble enough to surround myself with people who challenge me, people with a strong personality, and decision-making power – now is their time to shine and prove to me, once again, that the power of my business is in their hands.
4. Flows and procedures
Setting goals and pursuing them is no longer a novelty for any business of high standards. I have implemented a fixed schedule for evaluation, preparation, and goal-setting meetings that can be easily tracked. Every Monday, I surround myself (virtually, for now) with my top management to prepare and start-off the week, and each Friday finds us in a video session to conclude and evaluate the past five days of activity.
Thanks to the IT systems mentioned before, it’s elementary for me to track the group’s reporting activity, starting from macro to micro objectives – where the situation requires it.
6. Financial motivation
I have built a meritocratic culture around me; with one hand, I reward those who perform well, and with the other, I track, identify, and analyze the environments and the people who aren’t at their best yet. I believe in the people around me, which is why I invest the time and resources needed to listen and help those who need a boost – experience has shown me that some diamonds need to be polished more before they start shining.
7. Preparing the return to the office
In small but firm steps, our activity will be returning to normal. I have invested, and I’ll still be investing in the safety of my colleagues: I’ve acquired medical and protective equipment (masks, gloves, sanitizers…), we’re prepared to install a disinfection tunnel, all in order to be able to gradually start resuming our activity. I forecast that in a few months – although nothing will be the same in the post-Coronavirus era – the activity of my group will be resumed.
A crisis is an opportunity for reflection, development, and adaptation. There are still many things to improve; there are threats that have not yet made their presence felt, but, based on the above organizational structure, I am fully confident that the Coronavirus crisis era will be a huge opportunity for Key Way Group and myself. We have the right tools and attitude to take this chance and use it to evolve and progress!
Wall Street was preparing itself for a terrible earnings season.
It’s not all bad news
The negative influence of the Covid-19 pandemic has been deemed to be anything between dire and desperate. And, for most, this already is, and will surely be, the case.
The exceptions are, by proper definition, exceptional. I'm talking by bigger-than-Earth companies, enterprises with revenues more massive than most countries' GDPs, behemoths in their own right: most, if not all, from the tech sector: Microsoft, Alphabet, Amazon, Facebook, Apple.
For them, the lockdown, the social distancing, the increased online presence, the overall feeling of insecurity, fear, anxiety, and maybe even boredom is yet another reason for people to use their services and, all in all, for them to generate more revenues from their core, and secondary, and tertiary businesses.
Tech sector breaking records
It might be Wall Street's worst-kept secret that the tech sector is, and has been for at least the last decade, on everybody's lips, in everybody's mind and, sooner rather than later, in everybody's investment portfolio. And by everybody, I mean all social classes, all levels of interest towards capital markets: from your hairdresser to Warren Buffett's humongous investment conglomerate.
The reason for this is simple: if you'd have invested $1,000 in Google stock ten years ago, you would've yielded a hefty 475% return, 590% for Microsoft, 1,700% for Amazon, 1,000% for Apple, and 550% for Facebook.
image source: cnbc.com
They're all rocket ships on their way to trillion-dollar market capitalizations (the Trillion Dollar club already includes Apple, Microsoft, Amazon, and Alphabet). And there's not much that can stop them. At least not yet. Not in the first quarter, not by the Coronavirus, not even the containment measures.
Their earnings for the first quarter looked better than expected, and, for sure, better than those from any other market sector, be it retail, banking, automotive, travel & tourism, or commerce.
*special mention for Tesla
Its stock price marked an astounding 3,500% return on the last decade. Although it’s seen a slight decline in the past months, it’s still reaching for higher highs and will, according to most market analysts, reach and top the historical max value of $917/stock.
Long term forecasts for TSLA stock price are close to $1,100, according to CNNMoney, which means an additional 35% ROI from current stock prices.
I’ve included Tesla here because the behavior of the company, and implicitly, of the stock, mimics those of tech companies, not of automakers. They’re constantly innovating in terms of business, budgeting, marketing and financial positioning and I see them being one of the top performers of this decade, as well.
image source: cnbc.com
*special mention for Zoom
What else is there to say about Zoom apart from the fact that, taking full advantage of the unconventional ways of doing business brought up by the pandemic, it exceeded 300 million daily meeting participants, up from last December's total of 10 million. That’s a remarkable 3000% jump.
Analysts at seekingalpha recommend Zoom as being a “buy and hold” stock for the long run. CNNMoney see Zoom’s stock reaching $200 – a potential increase of 20% from present day prices.
EARTH 2.0 – the mandatory condition to digitalize businesses and embrace and prepare for the future. Today. All companies below are prime exponents for this business model, and it paid beautifully until now. Just as the Industrial Revolution rearranged the balance of powers almost 2 centuries ago, we are witnessing history in the making with the current the Technological Revolution:
- Alphabet (mother company of Google): revenue of $41.2 Billion (13% higher than the previous year)
- Facebook: revenue of $17.7 Billion (18% higher than the past year)
- Amazon: almost $76 Billion in revenue deriving from an 18% increase in international sales
- Microsoft: revenue of over $35 Billion, extremely positive outlook on the medium and long term
*Tesla: not much in terms of revenue, but a substantial ascending stock trend (it rose more than 200% in 2019)
*Zoom: 12% share increase after revenue more than doubled in the quarter
A stubborn, poorly adapted, conventional business model is, and has always been a recipe for disaster. On all accounts, Microsoft should have been on the losing side of things, if it weren’t for Satya Nadella, the CEO who brought openness and collaboration to what is once was a sinking ship.
Comparing well-established enterprises with the tech cousins from above:
- JP Morgan – profits dove 69%
- Bank of America – profits plummeted 45%
- McDonald's – earnings fell 17%
- Exxon – 7% stock decrease on account of weak earnings
- Boeing - $649 million loss, 10% workforce dismissed, revenue down 26%
- Ford - $632 million loss, 15% slid in revenue, shares dropped 42% this year
- General Motors – 87% decrease in income compared to Q1 2019, 6.2% decline in revenue
The gap between winners and losers grows more profound for now.
It's my undivided opinion that all four major tech players that right now are laughing all the way to the bank will have to turn their smiles into frowns once Q2 earnings are released. They took advantage until now from the increase in the cloud business and the work-from-home movement.
But the economy forgives and forgets no one – in the USA alone, more than 30 million people filed for unemployment benefits in the last seven weeks, and the future does not look too rosy for the job sector.
No matter how much money the Fed might helicopter-throw unto the economy, the consumers are scared, cautious with their finances, and, in some cases, even hungry.
In these circumstances I see the Q1 earnings success for the tech giants is a temporary victory. I firmly believe they will be caught from behind by the huge wave that already smashed retail, banking, services, commerce, oil, entertainment, or travel.
The future is grim
Q2 earnings will be an eye-opener for all market optimists across the board.
Goldman Sachs expects a US GDP contraction of 34%, unemployment soaring to 15% - no happy-end is in sight.
US retailers are stopping payment to hundreds of thousands of workers in a desperate struggle to cope with the slump in demand, the four rounds of economic stimulus from the Fed seem to make little to no difference until now.
On the long run, in an inter-connected global economy, everybody's in the same boat: decrease in consumption and demand from commerce and retail brings lower ad revenue for Google, which in turn brings down the cloud business revenues, which in turn influences the hardware demand, which in turn affects producers…and so on. The cycle cannot be broken without every integral part being affected.
Turn coal into diamonds
Provided the virus is ephemeral, maybe even more or less contained in Q2, the global economy might start to pick-up and rise from its ashes in the second half of 2020.
As always, being in close touch with the state of affairs, being up to date with the news, keeping your head clear and thinking straight on how to turn this fallout into an opportunity is the best advice I can give you.
The harder the containment measures strike, the bigger the economic shock, the larger the recession that will entail, and the more considerable the investing opportunity!
It's challenging to keep your cool now, but I'm confident that those who adapt, those who look for alternative investment means (be it art or safe-haven assets such as gold or platinum or even fintech companies) will enjoy one hell of a ride.
I’ve split the final chapter into two categories: my personal vision and my professional endeavor.
I’m an investor myself and I see this crisis as an opportunity to short the market on businesses that have not yet adapted to the new world and, in order to practice what I preach, buy Tech Companies (F.A.N.G.) for the long run.
Protect my businesses and my employees; the measures I already took (work-from-home for 99% of my workforce, consolidation measures for capital flow, redirecting of investment flows, budget reframing, alternative investment areas, enforcing my business' technology core) will continue to prove successful and inspired.
Even though we’re constantly expanding, having more than 250 employees all over the world, I want to continue behaving and acting just as a start-up; I see in this the right way to consolidate our position, and conquer new markets and alternate areas of investments.
“The beginning is always today,” said Mary Shelley two centuries ago
She was quite optimistic, which comes as a surprise from a leading Romantic era exponent. Of course, she was talking about the excitement of an interesting adventure, a fresh day, a brand-new start.
In the trying times of Coronavirus, I keep my right to be realistic. There’s growing talk about the post-corona era, about how everything will come back to what it once was, how society will restart and pick-up from where it was left a few months ago, how economies will put all crisis behind and rise from the ashes. I’m confident that what we’re going through right now is just the beginning of a new epoch, the epoch in which nothing will be the same anymore.
The new normal
I’ve come to this conclusion by observing behaviors around me. From the muted cry of small entrepreneurs who try to find comfort in insufficient government stimulus programs to central banks that gave their all and then some, printing money out of nothing and throwing it in the face of the virus in the hope that this, the last weapon in their arsenal, will start making things right, economies rejoice, and people enthusiastically consume once again.
The underlining note in all of this is one thing: FEAR. Manifested in different forms and with various influences and vectors, but all in all, the same feeling: pure, unadulterated fear.
Business-wise, fear makes or breaks actions and thoughts, dismisses investment plans, smashes development budgets, fires employees, cuts innovation, research, development, affects investor sentiments, turns economic tigers into tame pussycats. Mind you; this is not a presumptuous forecast; this is the reality we’re living in now. This is the new world.
The Wuhan precedent
Let’s not kid ourselves; this is not an exercise of imagination; this is what some already tried. The best example is the lockdown relaxation and economic restart measures in what was, not long ago, the epicenter of this new world: Wuhan, China.
For them, after a 76-day total lockdown, with draconic measures taken to keep them inside at all times, the April 8 announcement of travel bans being lifted came as a literal breath of fresh air.
One month later, and shops are still closed, restaurants are turned into takeaway booths, businesses generate close to zero profits, production is still in shambles, bankruptcy is the new status quo. Already, the local economy contracted by at least 40% and prospects are grim.
Regardless of state-backed stimulus programs, zero-rent programs, employee cost covers, and many more, the economy does not seem to pick up.
The once-thriving 11 million people city is still in mental lockdown. Anxiety is the name of the new game.
Employees that had the luxury of being able to work from home don’t want to return to the office. People no longer frequent gyms, restaurants, cinemas, spas, salons, arcades, shopping malls, travel agencies, beauty parlors, neither the personal nor the professional life of most Wuhanese is now what it was a few months ago.
Authorities, even despotic, autocratic ones as the Chinese are, have no idea what’s going to happen, how to prepare for it, how to tackle it, and what to do if all else fails. It’s a trial and error process for Wuhan, for China, and pretty soon, for the rest of the world.
A mixed bag of information
So far, the pros and cons list contains most, if not all, measures and steps you hear about all day long, every time you turn on your TV or web browser:
- It surely works!
- It might not, it’s too soon to tell, look at the USA, see the protestors!
- Essential for life support during these trying times!
- Actually, studies are showing they don’t make much of a difference!
- The magic drug that’s going to cure us all!
- Trial test after trial test showed that it has no positive effects and might, in some cases, even make matters worse!
- Some guy says it cured him!
- Intensive medical studies find no relevant connection between it and Corona evolution!
Smokers are better protected
- Their lungs are more accustomed to harsh breathing conditions!
- How could that be, smoking kills, it says so on the pack!
Flattening the curve is the way to go
- Sounds smart and might work!
- There’s no proof yet this is the way to go for acquiring mass immunization!
For each contradictory affirmation, there are hundreds, if not thousands, of articles, pseudo-studies, reports, analysis… And with each of those, the general uncertainty about the future grows a little bit stronger.
For the average Joe and for Billion and Trillion-Dollar businesses:
- revenues and incomes plummet
- earnings are reaching new lows
- tens, if not hundreds of millions have already or are very close to losing their jobs
- productivity is sinking
- motivation becomes a scarce commodity
- people invent reasons for staying inside, in the comfort and safety of their homes
- entire market sectors close up
- the business world is transforming and all of us together with it
Until the Holy Grail, the vaccine, will be on the market, I see the anxiety described above as an ever-growing sentiment for all of us.
What does the future look like?
Covid-19 is here to stay, even the most optimistic medical scenarios don’t approximate a delivery data for the vaccine closer than 18 months.
Bracing for the second wave is easier said than done, because, in the end, in this new world, nobody knows what the future holds.
Caution is the word of the year, and it should be displayed both in a personal and a professional sense.
Not all people react the same way, and not everybody can work from home, cultures differ, lockdown measures affect each of us differently, central banks intervene in various ways in the markets, government policies that work in Wuhan might not be appropriate for Milan. We’re different, all of us, and now we find each other united by a common enemy and a common goal: survive, adapt, thrive.
Stay safe; stay healthy!