10 Questions Every Business Owner Should Ask while Social Distancing
With COVID-19 wreaking havoc on global markets and more and more businesses being forced to close their doors indefinitely, many entrepreneurs are starting to ask what this will mean for them. First and foremost, the most important thing you can do right now is ensure your team’s health and safety. At a bare minimum, this means following the Occupational Safety and Health Administration standards for providing a hazard free workplace (their guidelines can be found here). For many, it also means closing down operations and working remotely.
Once you have taken all possible steps to safeguard your team’s wellbeing, it’s time to start thinking about the long-term future. The businesses that make it through this and come out strong on the other side will be those who can be both committed to their vision and flexible in their execution. In an effort to help you begin thinking about your business, Wells Group of New York has prepared 10 questions business owners should ask themselves while social distancing.
- What has driven cash flow the last few months?
For startups, cash burn can be onerous. And at this moment, it can be tempting to make rash decisions in terms of spend cuts. However, before you take an axe to existing expenses, analyze past spending. Sit down with all of your business leaders and understand the nature of their expenses. What expenses are necessary to maintain business operations? What are the terms of vendor relationships (e.g. due upon receipt vs. net 30)? What expenses will naturally decrease in the current environment (e.g. shipping expense for D2C companies)?
2. Which of our expenses are essential?
As businesses grow, so does spending on the “nice to haves.” However, with declining market conditions, it’s likely that demand will decline for both B2B and D2C companies alike as businesses and consumers aim to tighten their belts. Which contracts can be cut? Which can be renegotiated? What software subscriptions are unnecessary? In the next few months,everyone on the team must embrace scrappiness.
3. How will this impact demand?
Businesses and customers are already reevaluating their spending habits. As such, pending contracts that seemed like certainties a month ago might not come to fruition. Marketing campaigns that were once thought to exhibit strong ROI might start showing below average returns. To combat this, forecast worst case scenarios. All business must understand their runway in the event that revenue streams dry up for the foreseeable future (e.g. 1–4 months).
4. How are we evaluating our digital marketing spend?
Before piling your cash reserves into your digital marketing efforts, scale back spending until you’re comfortable with your grasp on your unit economics and key performance indicators (“KPIs”). In the face of weakening demand, it can be tempting to increase digital marketing spend to inflate revenue. Unfortunately, other businesses may have this instinct; with increased competition and decreased demand, customer acquisition cost could potentially increase such that you are not turning a profit on each order. When evaluating whether you are actually profiting on a per order basis, consider the following:
- Gross margin
- Fulfillment cost (i.e. shipping and associated 3PL costs on all orders and orders returned)
- Packaging
- Performance marketing: cost per order
- Credit card fees (usually about 3%)
5. How do we double down on our special sauce?
It’s time to remind yourself of your company’s value proposition. You’re in your market because your company offers something that no one else does. It’s time to pull together the leaders of your organization and ask yourselves: how do we double down on our differentiation? You will not be the only company fighting tooth and nail for your customers, so everyone needs to know exactly why you’re the right choice. Do you offer a user interface that’s head and feet above the competition? Do you offer more product variety than your competition? Is your technology solving a problem that no one else has managed to crack?
6. How can we expand our offering?
Evaluate your current customer base, and understand who you are not serving. Ask yourself how you can expand your potential addressable market. Do you have proprietary technology that can be repurposed for a different industry? Do you have a brand identity that can be moved into adjacent products? In the current environment, entrepreneurs should still speak directly to their customer base, but must be creative and assess other areas of the market they can reach out to.
7. Do I have leadership buy-in from the core players of my team?
Depending on the size of the team, this might be as few as two people or as many as 100. Regardless, you cannot face this alone. You will need buy-in from the entire team. Every single employee you have needs to be completely dedicated to ensuring the company’s success, and that sort of dedication begins with leadership. Every senior-level employee at your company needs to fully commit to new priorities and needs to align these priorities with their team’s goals.
8. Do we have the right structure and the right players?
As you start re-evaluating organizational initiatives, you might find that plans have changed. Hiring plans might be obsolete and unfortunately current positions might become redundant. As payroll and associated costs tend to be one of the biggest costs at a startup, it’s important to make sure you are getting the best returns on your team. Is everyone still working at 100% capacity given remote work and new organizational priorities? Can employee responsibilities be reallocated to make better use of everyone’s time? It’s time to reallocate time from projects that should be paused to high priority tasks. Is everyone on board with these changes? Any unwillingness to revisit these questions will lead to quick organizational decay and needs to be addressed immediately.
9. What are our capex plans and how can they be adjusted?
When the market is booming, it is easy to dream up of new initiatives. In a downturn, though, it’s necessary to evaluate which of those investments will truly drive returns, and what the timetable will be for those returns. Buildout of retail and office space might seem essential for growth, but in times such as these, a few months of runway take priority. Understand where cash can be conserved. Which projects can be scrapped, and which can be done at a fraction of the cost? Also, keep in mind that halting a project doesn’t mean that you halt the project forever. Long-term growth for your company is still within reach, but that growth will likely need to be delayed.
10. What are our fundraising goals?
If you were planning to fundraise in the next 24 to 36 months, you’re likely going to face much harsher conditions in the private capital markets than you might have had in previous rounds. It’s time to evaluate if you can adjust company-wide goals to position your business for success without outside funding. If funding is absolutely necessary, how can you demonstrate flexibility and ability to execute in difficult times? Can you demonstrate to investors that you have a path to profitability? What alternative sources of capital might be available to your business? For example, if you have valuable collateral (e.g. inventory, Accounts Receivable), you could be eligible for an asset backed loan.
The current environment is ripe with opportunity for the well prepared — the most successful entrepreneurs are those who have navigated through rough waters. As entrepreneurs ourselves and as partners to dozens of startups, Wells Group of New York fully understands how daunting answering these questions can be. The best, and only, way to get through this is to create a realistic plan and set a solid foundation for your business so that you can move nimbly and make informed decisions in the face of changing conditions. Do not panic. Breathe. Scale back. Make tough but smart decisions. Set reasonable expectations. And most of all, keep yourself and your team safe.
