Category: Liderazgo, Mercadeo y Gerencia

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We’re in uncharted territory with the Covid-19 pandemic.

Companies that outlast this crisis will have CEOs who can rapidly assess these new circumstances, recognize new patterns and opportunities, and act with urgency to take immediate action to pivot and restructure their companies. Those that don’t may not survive.

So here’s a five-day playbook to help CEOs of cash-flow negative companies, or ones about to go negative, assess the new normal and respond with speed and urgency.

Your company’s survival in this downturn can be captured in a simple formula.

Survival = (speed of your understanding of the situation) x (the magnitude of the pivots/cuts/lifeboat choices you make) x (the speed of your time to make those changes)

Notice that the word speed appears twice. This is not the time for committees, study groups, or widespread consensus building. Even with imperfect information, the future of your company depends on your ability to make rapid decisions and start acting.

If you’re a CEO who can’t quickly bias yourself for action, and if you wait around for someone to tell you what to do, then your investors, or more likely the market, will make those decisions for you.

Huge segments of the economy have shut down: travel, hospitality, restaurants. Any business with a fixed cost that relies on foot traffic will come under pressure. With millions of people out of work in the next few weeks, discretionary purchases like furniture, fashion, and lifestyle will take a hit. But other businesses like law firms, contracting firms, and real estate firms, will take hits, too. The ripple effects won’t be obvious at first. Your customers will no longer be your customers. Your revenue plans are no longer valid. To understand the state of things, you need to rapidly assess your internal and external environments going forward.

External Assessment

1. State of the economy…

Unemployment %?

Shelter in place?

2. Health of your current target market(s)…

Actively buying?

Not returning calls?

Out of business?

3. Emergence of new market(s)…

Are there new opportunities?

4. Forecasted recovery date…

Workers can return.

Customers start buying.

Internal Assessment

1. Operating numbers…

Liquidity and likely cash-zero date under your worst-case scenario.

Accounts receivable, accounts payable.

Sales pipeline/forecast.

Marketing programs spending.

Payroll costs/other variable costs.

2. Sources of additional capital…

For existing companies: Debt commitments and new lenders.

For startups: Source of VC money?

Day 1: Prepare an assessment of the internal and external environment.

What did the external and internal environment look like for your company today?  What do you believe the world will look like for each of the next five quarters? For companies burning cash, such as startups, how much cash do you have? What’s your monthly cash burn at your new low revenue level? How many months of cash do you have?  Cut costs to stay alive for 24 months.

Don’t overthink this. And most importantly, do not outsource this to your staff.  Set up a war room and work with your CFO and C-level staff together until it’s done. That will start to get your team aligned about the size of the problem. The CEO should contact the largest existing customers to get firsthand understanding of the magnitude of the revenue shortfall. The CFO should connect with sources of additional capital. There is no market research that’s going to get it “right.” All we know is that it’s going to be very different than it was a few weeks ago.

Day 2: Iterate the assessment with your investors/board.

Whatever assessment you develop, you need to get feedback from your board. While you’re seeing just your own company, hopefully they’re getting data from multiple companies across a wider set of industries. If you’re a startup, you’ll also get a sense of how much of a nuclear winter the funding scene is for your market/company.

Boards need to insist on an immediate assessment and be actively engaged.

I listened in on a board call with an enterprise software company this week. When the CEO said, “Our VP of sales assured me our pipeline won’t be affected,” board members gave him a wake-up call: There was either going to be a much more realistic assessment tomorrow, or a new CEO. Some CEOs can and will rise to the occasion by themselves, but having a unified board can accelerate the process.

But what if you think the situation is more dire and you disagree with your board’s assessment? CEOs in this position are going to face a major career decision — go along with advice you think will damage/destroy the company, or put your job on the line. Remember, a year from now no one wants to be the CEO of a company out of business whose lament is, “I did what the board told me to do.”

Once you’ve agreed on what the world will look like, it’s time to build the plan for your new company.  This plan has three parts: Pivots to your business model, changes to your operating plan, and saving initiatives for the recovery. The plan must also take into account that this crisis has exposed how vulnerable companies are to a single source of supply. CEOs of companies that manufacture goods in the U.S. are about to face a moral dilemma. China and South Korea are starting their factories up again. Going forward, do you move your supply chain from China or at least create a second source from other countries? Do you source/build things there while laying off people here? What does your board suggest? What do you think is the right thing to do?

Days 3 and 4: Prepare new business model and operating plan.

First, think about potential pivots. Ask yourself: Are there now new customers, new services, and new channels to pursue? Which parts of your business model can now serve the new normal – remote work, social cohesion over distance, telemedicine, home delivery, etc.?

 For example:

• If you had brick and mortar locations, how much can you pivot to e-commerce (for basics), so customers can acquire goods without having to leave the house? Can you also offer specialized services?
• Automated delivery services — the more people you can take out of the equation, the safer the product. Are there parts of your supply chain that can be repurposed? What about parts of your manufacturing lines?
• B2B — cloud services, online meetings, virtual workforce management, collaboration tools. With more work from home happening, all of these services will see increased demand from companies
• Remote health care – Can you do initial triaging/diagnosis online before having a patient come in?
• Personalized Video Entertainment – VOD, AVOD, short-form social sites, Twitch, etc. …

Next, plot out the changes to your operation plan. What cuts will you make to spending programs — marketing, service, manufacturing, R&D? What are your “lifeboat choices”— which layoffs to make; whether to renegotiate payables, rents, or leases; how to trade off cash management versus revenue growth? How can you shift to focus on customer retention versus acquisition?

As part of these operating changes, make sure your heads of HR and finance recognize that they have entirely new jobs.

• Your head of HR is now head of layoffs. He or she has 48 hours to grow into it, or you need to find someone else from the ranks to do it. Before layoffs, cut all salaries by 20%. Cut C-level salaries by 30%. Award equity to employees equal to the value of their reduced salaries. Try to protect the most vulnerable employees. Letting people go needs to be done with compassion and adequate compensation. And if you do it correctly, it will hopefully be done just once. For those remaining employees, offer remote therapy to deal with the stress of working from home and pay for any equipment/network upgrades.
• Your CFO now becomes the head of cash management. Draw down all debt commitments. Ask existing and new lenders for additional funding. Call all large vendors and ask for lower prices. If appropriate, offer to sign a longer agreement in exchange for lower cash payments in 2020 and 2021. Nothing is more important than assuring the company can continue to pay its employees.

As you make these plans, remember: There will be a morning after. What changes in your industry will be permanent? If you have sufficient cash reserves, what initiatives do you want to keep in the lifeboat that may give you the ability to take advantage of these changes, to recover and grow quickly, or to launch new products? Or if you have sufficient cash, now is the time to hire great people who were never available.

You prepared the internal and external assessment with just your C-level staff, now you want to rapidly engage the collective intelligence/wisdom of the company. Ask everyone in the company to suggest changes to the business model, operating plan, and recovery plan. Your employees likely have ideas and see opportunities not visible in the C-suite. This will signal to every employee that now is the time for all-hands-on-deck and that you will be making decisions to quickly separate the crucial from the irrelevant.

You need to communicate, communicate, and communicate some more to your employees about why you’re asking for their ideas. This is the perfect time to start a daily update from the C-suite. This is critical if your employees are working remotely. Let them know what you’re learning and then when you begin implementing changes, tell them why.

Day 5: Iterate with investors/board

Whatever business model, operating plan, and recovery plan you come up with, you need to get feedback from your board. Keep in mind that they’re likely dealing with multiple companies rapidly replanning, so remind them about the assessments you mutually agreed on. Then walk them through why the changes you’re suggesting match that plan. They may have seen new ideas from other companies in their portfolio so be open to additional suggestions.

Beyond the five-day plan, I want to specifically address two of the most challenging parts of the new operating plan you need to address: Layoffs and culture.

Carpenters use the aphorism “Measure twice, cut once.” The same applies to layoffs. In every downturn I’ve lived through, there were CEOs who handled layoffs as “a death by a thousand cuts.” For example, in a company with 1,000 employees, they’d lay off 100 people the first month, another 100 the next month, then 100 the third month to downsize to 700 people over several months. Rather than being productive, the constant layoffs were demoralizing and paralyzed the remaining workforce. Employees saw that the direction was a downward spiral with no end in sight. And everyone worried: ”Am I next?”

In contrast, I’ve watched other CEOs immediately layoff 400 people and have 600 left. If/when they overshot, they could rehire 100 people (including some of the same people who had been laid off). While the mass layoffs created an immediate shock, people adjusted. They worried but began to feel more secure. When hiring began again, everyone was relieved:  ”The worst is over. Things are getting better.”

To begin adjusting the culture to this new reality, communicate these business model and operating plan changes to your employees. Offer relentless optimism for survival, but ruthless cost-cutting (starting with the CXO salaries). Let them know that as CEO you are going to be micromanaging for survival and expect each of them to do the same. You’re going to be relentless, direct, and clear that once decisions are made, there are no disagreements. And remind them that together you are all working to save the company and their own jobs.

At some point this crisis will run its course. Running this five-day playbook will help your business survive so when the recovery does come, you’ll emerge stronger and ready to hire and grow again.

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As policymakers around the world struggle to combat the rapidly escalating Covid-19 pandemic, they find themselves in uncharted territory. Much has been written about the practices and policies used in countries such as China, South Korea, Singapore, and Taiwan to stifle the pandemic. Unfortunately, throughout much of Europe and the United States, it is already too late to contain Covid-19 in its infancy, and policymakers are struggling to keep up with the spreading pandemic. In doing so, however, they are repeating many of the errors made early on in Italy, where the pandemic has turned into a disaster. The purpose of this article is to help U.S. and European policymakers at all levels learn from Italy’s mistakes so they can  recognize and address the unprecedented challenges presented by the rapidly expanding crisis.

In a matter of weeks (from February 21 to March 22), Italy went from the discovery of the first official Covid-19 case to a government decree that essentially prohibited all movements of people within the whole territory, and the closure of all non-essential business activities. Within this very short time period, the country has been hit by nothing short of a tsunami of unprecedented force, punctuated by an incessant stream of deaths. It is unquestionably Italy’s biggest crisis since World War II.

Some aspects of this crisis — starting with its timing — can undoubtedly be attributed to plain and simple sfortuna (“bad luck” in Italian) that were clearly not under the full control of policymakers. Other aspects, however, are emblematic of the profound obstacles that leaders in Italy faced in recognizing the magnitude of the threat posed by Covid-19, organizing a systematic response to it, and learning from early implementation successes — and, most importantly, failures.

It is worth emphasizing that these obstacles emerged even after Covid-19 had already fully impacted in China and some alternative models for the containment of the virus (in China and elsewhere) had already been successfully implemented. What this suggests is a systematic failure to absorb and act upon existing information rapidly and effectively rather than a complete lack of knowledge of what ought to be done.

Here are explanations for that failure — which relate to the difficulties of making decisions in real time, when a crisis is unfolding — and ways to overcome them.

Recognize your cognitive biases. In its early stages, the Covid-19 crisis in Italy looked nothing like a crisis. The initial state-of-emergency declarations were met by skepticism by both the public and many in policy circles — even though several scientists had been warning of the potential for a catastrophe for weeks. Indeed, in late February some notable Italian politicians engaged in public handshaking in Milan to make the point that the economy should not panic and stop because of the virus. (A week later, one of these politicians was diagnosed with Covid-19.)

Similar reactions were repeated across many other countries besides Italy and exemplify what behavioral scientists call confirmation bias — a tendency to seize upon information that confirms our preferred position or initial hypothesis. Threats such as pandemics that evolve in a nonlinear fashion (i.e., they start small but exponentially intensify) are especially tricky to confront because of the challenges of rapidly interpreting what is happening in real time. The most effective time to take strong action is extremely early, when the threat appears to be small — or even before there are any cases. But if the intervention actually works, it will appear in retrospect as if the strong actions were an overreaction. This is a game many politicians don’t want to play.

The systematic inability to listen to experts highlights the trouble that leaders — and people in general — have figuring out how to act in dire, highly complex situations where there’s no easy solution. The desire to act causes leaders to rely on their gut feeling or the opinions of their inner circle. But in a time of uncertainty, it is essential to resist that temptation, and instead take the time to discover, organize, and absorb the partial knowledge that is dispersed across different pockets of expertise.

Avoid partial solutions. A second lesson that can be drawn from the Italian experience is the importance of systematic approaches and the perils of partial solutions. The Italian government dealt with the Covid-19 pandemic by issuing a series of decrees that gradually increased restrictions within lockdown areas (“red zones”), which were then expanded until they ultimately applied to the entire country.

In normal times, this approach would probably be considered prudent and perhaps even wise. In this situation, it backfired for two reasons. First, it was inconsistent with the rapid exponential spread of the virus. The “facts on the ground” at any point in time were simply not predictive of what the situation would be just a few days later. As a result, Italy followed the spread of the virus rather than prevented it. Second, the selective approach might have inadvertently facilitated the spread of the virus. Consider the decision to initially lock down some regions but not others. When the decree announcing the closing of northern Italy became public, it touched off a massive exodus to southern Italy, undoubtedly spreading the virus to regions where it had not been present.

This illustrates is what is now clear to many observers: An effective response to the virus needs to be orchestrated as a coherent system of actions taken simultaneously. The results of the approaches taken in China and South Korea underscore this point. While the public discussion of the policies followed in these countries often focuses on single elements of their models (such as extensive testing), what truly characterizes their effective responses is the multitude of actions that were taken at once. Testing is effective when it’s combined with rigorously contact tracing, and tracing is effective as long as it is combined with an effective communication system that collects and disseminates information on the movements of potentially infected people, and so forth.

These rules also apply to the organization of the health care system itself. Wholesale reorganizations are needed within hospitals (for example, the creation of Covid-19 and non Covid-19 streams of care). In addition, a shift is urgently needed from patient-centered models of care to a community-system approach that offers pandemic solutions for the entire population (with a specific emphasis on home care). The need for coordinated actions is especially acute right now in the United States.

Learning is critical. Finding the right implementation approach requires the ability to quickly learn from both successes and failures and the willingness to change actions accordingly. Certainly, there are valuable lessons to be learned from the approaches of China, South Korea, Taiwan, and Singapore, which were able to contain the contagion fairly early. But sometimes the best practices can be found just next door. Because the Italian health care system is highly decentralized, different regions tried different policy responses. The most notable example is the contrast between the approaches taken by Lombardy and Veneto, two neighboring regions with similar socioeconomic profiles.

Lombardy, one Europe’s wealthiest and most productive areas, has been disproportionately hit by Covid-19. As of March 26, it held the grim record of nearly 35,000 novel coronavirus cases and 5,000 deaths in a population of 10 million. Veneto, by contrast, fared significantly better, with 7,000 cases and 287 deaths in a population of 5 million, despite experiencing sustained community spread early on.

The trajectories of these two regions have been shaped by a multitude of factors outside the control of policymakers, including Lombardy’s greater population density and higher number of cases when the crisis erupted. But it’s becoming increasingly apparent that different public health choices made early in the cycle of the pandemic also had an impact.

Specifically, while Lombardy and Veneto applied similar approaches to social distancing and retail closures, Veneto took a much more proactive tack towards the containment of the virus. Veneto’s strategy was multi-pronged:

• Extensive testing of symptomatic and asymptomatic cases early on.
• Proactive tracing of potential positives. If someone tested positive, everyone in that patient’s home as well as their neighbors were tested. If testing kits were unavailable, they were self-quarantined.
• A strong emphasis on home diagnosis and care. Whenever possible, samples were collected directly from a patient’s home and then processed in regional and local university labs.
• Specific efforts to monitor and protect health care and other essential workers. They included medical professionals, those in contact with at-risk populations (e.g., caregivers in nursing homes), and workers exposed to the public (e.g., supermarket cashiers, pharmacists, and protective services staff).

Following the guidance from public health authorities in the central government, Lombardy opted instead for a more conservative approach to testing. On a per capita basis, it has so far conducted half of the tests conducted in Veneto and had a much stronger focus only on symptomatic cases — and has so far made limited investments in proactive tracing, home care and monitoring, and protection of health care workers.

The set of policies enacted in Veneto are thought to have considerably reduced the burden on hospitals and minimized the risk of Covid-19 spreading in medical facilities, a problem that has greatly impacted hospitals in Lombardy. The fact that different policies resulted in different outcomes across otherwise similar regions should have been recognized as a powerful learning opportunity from the start. The findings emerging from Veneto could have been used to revisit regional and central policies early on. Yet, it is only in recent days, a full month after the outbreak in Italy, that Lombardy and other regions are taking steps to emulate some of the aspects of the “Veneto approach,” which include pressuring the central government to help them boost their diagnostic capacity.

The difficulty in diffusing newly acquired knowledge is a well-known phenomenon in both private- and the public-sector organizations. But, in our view, accelerating the diffusion of knowledge that is emerging from different policy choices (in Italy and elsewhere) should be considered a top priority at a time when “every country is reinventing the wheel,” as several scientists told us. For that to happen, especially at this time of heightened uncertainty, it is essential to consider different policies as if they were “experiments,” rather than personal or political battles, and to adopt a mindset (as well as systems and processes) that facilitates learning from past and current experiences in dealing with Covid-19 as effectively and rapidly as possible.

It is especially important to understand what does not work. While successes easily surface thanks to leaders eager to publicize progress, problems often are hidden due to fear of retribution, or, when they do emerge, they are interpreted as individual — rather than systemic — failures. For example, it emerged that at the very early onset of the pandemic in Italy (February 25), the contagion in a specific area in Lombardy could have been accelerated through a local hospital, where a Covid-19 patient was not been properly diagnosed and isolated. In talking to the media, the Italian prime minister referred to this incident as evidence of managerial inadequacy at the specific hospital. However, a month later it became clearer that the episode might have been emblematic of a much deeper issue: that hospitals traditionally organized to deliver patient-centric care are ill-equipped to deliver the type of community-focused care needed during a pandemic.

Collecting and disseminating data is important. Italy seems to have suffered from two data-related problems. In the early onset of the pandemic, the problem was data paucity. More specifically, it has been suggested that the widespread and unnoticed diffusion of the virus in the early months of 2020 may have been facilitated by the lack of epidemiological capabilities and the inability to systematically record anomalous infection peaks in some hospitals.

More recently, the problem appears to be one of data precision. In particular, in spite of the remarkable effort that the Italian government has shown in regularly updating statistics relative to the pandemic on a publicly available website, some commentators have advanced the hypothesis that the striking discrepancy in mortality rates between Italy and other countries and within Italian regions may (at least in part) be driven by different testing approaches. These discrepancies complicate the management of the pandemic in significant ways, because in absence of truly comparable data (within and across countries) it is harder to allocate resources and understand what’s working where (for example, what’s inhibiting the effective tracing of the population).

In an ideal scenario, data documenting the spread and effects of the virus should be as standardized as possible across regions and countries and follow the progression of the virus and its containment at both a macro (state) and micro (hospital) level. The need for micro-level data cannot be underestimated. While the discussion of health care quality is often made in terms of macro entities (countries or states), it is well known that health care facilities vary dramatically in terms of the quality and quantity of the services they provide and their managerial capabilities, even within the same states and regions. Rather than hiding these underlying differences, we should be fully aware of them and plan the allocation of our limited resources accordingly. Only by having good data at the right level of analysis can policymakers and health care practitioners draw proper inferences about which approaches are working and which are not.

A Different Decision-Making Approach

There is still tremendous uncertainty on what exactly needs to be done to stop the virus. Several key aspects of the virus are still unknown and hotly debated, and are likely to remain so for a considerable amount of time. Furthermore, significant lags occur between the time of action (or, in many cases, inaction) and outcomes (both infections and mortality). We need to accept that an unequivocal understanding of what solutions work is likely to take several months, if not years.

However, two aspects of this crisis appear to be clear from the Italian experience. First, there is no time to waste, given the exponential progression of the virus. As the head of the Italian Protezione Civile (the Italian equivalent of FEMA) put it, “The virus is faster than our bureaucracy.” Second, an effective approach towards Covid-19 will require a war-like mobilization — both in terms of the entity of human and economic resources that will need to be deployed as well as the extreme coordination that will be required across different parts of the health care system (testing facilities, hospitals, primary care physicians, etc.), between different entities in both the public and the private sector, and society at large.

Together, the need for immediate action and for massive mobilization imply that an effective response to this crisis will require a decision-making approach that is far from business as usual. If policymakers want to win the war against Covid-19, it is essential to adopt one that is systemic, prioritizes learning, and is able to quickly scale successful experiments and identify and shut down the ineffective ones. Yes, this a tall order — especially in the midst of such an enormous crisis. But given the stakes, it has to be done.