Businesses are seeing changes they never imagined would come soon. Workers are being told to work from home, shopping and travel are also taking a hit. In places like Europe and the US where there is partial lock-down of normal economic activities, lay-off is imminent. Although this is yet to fully impact activities in Africa, it is better to use scenario planning to prepare for similar experience across cities.
Serial entrepreneur and developer of the famous customer development methodology, Steve Blank, advised startups or small businesses to be wary of the new realities. His opinion is, while large corporations may be able to survive a possible contraction due to their deep pockets, startups daily burn rate mean they could be pushed out of business.
From Steve’s perspective, lay-off and economic depression mean consumers have little money to spend. Whereas startups survive on daily turnover, a little drop in, or absence of, that will impact investors sentiment and cash available to keep operation running. In other words, investors will try to protect themselves by not plowing further cash into the business; consumers will recoil from spending excessively and work to manage the little they have.
The experienced the Silicon Valley entrepreneur explained that the new reality will transform the way people shop, travel and work for a long time except there is an urgent intervention to stop the growing economic contraction.
He warned, ” If you’re running a startup, your first priority (after your family) is keeping your employees and customers safe. But next the question is, ‘What happens to my business?”
He added,
“The questions every startup CEO needs to ask now are:
- What’s my burn rate and runway?
- What does your new business model look like?
- Is this a three-month, one-year, or three-year problem?
- What will my investors do?”
He advised businesses to look at how much they spend monthly on salaries, equipment and logistics, subtract that from how much they are expected to make within the same time frame to arrive at their burn rate. If the burn rate is zero or minus, or a bit above negative, ask if the lock-down continues for 2-6 months you will still be able to cope. For startups, this is very tough.
Steve emphasized further, that every business model is already being transformed by the new reality. According to him, “Unfortunately, it’s no longer a normal market.All your assumptions about customers, sales cycles, and, most important, revenue, burn rate, and runway are no longer true”.
He asked business to take an honest introspection and ask: what does my business model look like right now?
It is possible to find new discoveries such as online disruption, channel disruption and new transformation in how money is moved.
But, of course, taking time out to measure the impact of the changes will help businesses to note where to stop, improve or speed up. This may determine which business survives the consequences of COVID-19.
[…] The impact of the corona virus could change how we work, shop and travel forever – Steve Blank… […]