For businesses, there are three stages to this crisis

03 Aug 2020

For businesses, there are three stages to this crisis

Arjun Chopra

Head of Private Capital

The Covid-19 crisis has brought with it unexpected and - dare I use the term - unprecedented disruption. While some businesses, of course, have felt the blow more than others, it is fair to say that few will emerge unscathed. Even sectors well-positioned to meet some of the immediate needs generated by the pandemic have been forced to adapt their operations at breakneck speed; the unsurprising boom in e-commerce, for example, has seen retailers scramble to source additional warehouse space and restructure supply chains. 

Today, although the outbreak is far from over and global cases continue to climb, we hope that the worst of the immediate crisis is behind us.

 

Lockdown restrictions continue to ease, albeit gradually, and businesses are able to begin cautiously plotting a roadmap for the coming months - a level of strategy and planning that would have felt nigh on impossible a short time ago. 

 

As we do so, we are afforded the chance to reflect on the time that has passed since the beginning of the outbreak (which to many probably feels a lifetime ago), the steps that we as businesses have had to take and, in doing so, begin to set ourselves somewhat longer-term strategic goals.

 

In reflecting on this myself - and based on the many conversations I’ve had with our clients as we together navigate our way through the pandemic - I have begun thinking about the crisis as falling into three distinct stages for businesses and entrepreneurs.

 

Although it goes without saying that every business has distinct needs and challenges and, thus, no business’ route through the crisis is identical to another’s, these are the three stages through which I have observed many business leaders move so far:

Stage one: war mentality

 

Behaviour insights consultancy Canvas8, describes the first stage in response to any pandemic as denial, in which “people will downplay the impact of an epidemic, especially if the first signs are geographically distant.” By necessity, this was a short-term mentality: “it will be over by summer, we just need to hunker down and do what we need to do until then.” And at the very outbreak of Covid-19 we saw this ring true.

 

As the true scale of the pandemic unfolded, with our key workers fighting on the front lines, in the background our businesses had no choice but to enter survival mode. Whatever your business sector, whatever the size and scale of your operations, we were collectively working in ‘react mode.’

 

For some - most notably within the retail, hospitality and leisure sectors - this meant the instant loss of custom and a requirement to close the doors to the business practically overnight. Others were required to migrate entire teams to a remote workforce, while others faced radical disruption to supply chains.

 

But it was certainly a case of fight, not flight, which is where the war mentality kicked in.

 

Many businesses - including, I’m proud to say, many Investec clients - also sought to identify where their business could better meet the needs of society in the short-term. From re-fitting production lines in order to manufacture PPE, to supporting community initiatives such as local food banks, we have seen a great many businesses take an entrepreneurial approach to tackling social problems that the Government and the healthcare sector alone were unable to meet.

 

Stage two: liquidity preservation

 

After the immediate shock of the crisis, companies began to take stock and address their needs for financing.

 

The significant disruption caused across-the-board by Covid-19 has meant that normally profitable companies have faced unanticipated pressures, and as such an urgent need for cash. For some, this was to replace revenues lost during the lockdown period; for others, this was to fund the operational restructuring required to drastically alter business models.

 

We observed companies owned by private equity firms drawing down on liquidity to meet these needs - and in many cases, this was the sensible thing to do.

 

Alongside the introduction of a range of government financial measures aimed to assist businesses in the short-term, and bespoke, expert financial advice, we have observed a number of companies develop effective liquidity solutions.

Stage three: opportunity

 

Finally, we arrive - with cautious optimism - to talk about opportunity.

 

To say that every crisis brings with it opportunity risks sounding glib, and yet it is undoubtedly true that with the right mindset (and a certain degree of luck), such challenging circumstances offer a unique chance to accelerate transformation - both within a business and within wider society. Perhaps that means pivoting your business to become part of the longer-term social or economic solution to the crisis. Perhaps that means capitalising on opportunities for acquisition and collaboration.

 

We are now beginning to see best-in-class clients take the chance to really build and grow in their sector through acquisitions, consolidation and diversification. We work with one client who for years has been unable to grow due to warehouse values skyrocketing who, since Covid-19, has now been able to access spaces that have become vacant, and thus grow the business. Other clients who had excess liquidity going into the crisis have been able to acquire assets which prior to the pandemic would have been otherwise unobtainable.

 

Staying close to our clients has enabled us to work with them to restructure things quickly and effectively. For businesses with the right mindset, and the resilience required to step outside of the comfort zone, now is the time to move beyond simply survival and, instead, to think about balancing stability with fresh growth.

 

The road ahead

 

This crisis is, sadly, not over yet; solutions being implemented now may still require overhauling as the full extent of the financial damage inflicted by this pandemic makes itself known.

 

At Investec, our role is not to offer ‘off the shelf’ guidance or financial solutions. We are here to work alongside our clients as they move through every stage of this crisis: from survival, right through to reinvention for the future, and whatever comes in between.