UPDATE 2nd April 2020: our portfolio is collectively laying off 20% of full-time workforce and much more of part-timers. Actions being taken are here.
The CDC suggests that America needs to prepare for a global pandemic. There is no guidance for India yet, but there is no reason to believe India will be better off than the USA in the face of a global pandemic. The Harvard professor of epidemiology Marc Lipsitch predicts that some 40 to 70 percent of all people around the entire world will be infected with the virus that causes COVID-19 (also known as Coronavirus). But, he clarifies emphatically, this does not mean that all will have severe illnesses.
“It’s likely that many will have mild disease, or may be asymptomatic.” Although the contagion will not have a notable impact on most individuals, the severity of impact on businesses and the global economy is increasingly clear.
Recently we spoke to two leading VC investors in China and colleagues who import products and components from China. The resounding concern we heard was that the impact on business in China was under-reported, and that global supply chains are being affected. Apple’s announcement of “Supply Shock” helped send the NASDAQ into its late-February tail spin. And we started realizing that even our highly diversified portfolio is going to be impacted. There are still a lot of unknowns corresponding with the long term, global health consequences, but COVID has already affected the way people are doing business. Again, it’s a matter of when, not if. It’s vital to know and dissect the ramifications to your business and portfolio, soon, if not yesterday.
A Pandemic is on the Way, Including in Our Backyard
Why are CDC and epidemiologists sounding the alarm? This simple chart shows the comparative transmission rates of COVID-19 vs. other virulent viruses. The number of red dots is the number of people one sick yellow-dot person will infect.
Regardless of where you are in the world, you need to be prepared, and you need to prepare well. Even what may be viewed by some as overreacting alarms have business consequences. Hopefully you are internalizing that it’s not if, but when, how fast, and how bad?
The Capria and Unitus Seattle office is about 10 miles from America’s hotspot of COVID-19 outbreaks (as of March 2 2020). Not surprisingly, we are paying a lot of attention to this issue on a personal basis, as well as from a global business risk perspective.
Our simple advice to all of our global partners is two-fold:
- Get members of your team and your investees’ teams focused on preventative measures against *any* virus, especially an ultra-contagious one like COVID-19. There are plenty of websites offering specifics. Here’s one that we liked. Send this or any similar article to your team and ensure everyone reads it.
- Build a COVID Readiness Plan for your business, and ensure that your business partners have the same. The rest of this message is devoted to what should be in that plan.
Avoid the Hysteria but Develop a COVID Readiness Plan
We recommend you have a COVID Readiness Plan for every company you are involved with that addresses how you will care for your employees as well as your business. Some will be more affected than others which is why we’ve broken things down further below. We also recommend reading this thoughtful article in Harvard Business Review that covers many of the same topics and also highlights the business value of resilience and reminds us that “Covid-19 is not a one-off challenge. We should expect additional phases to the current epidemic and additional epidemics in the future.”
First and foremost, we must be concerned with the health and safety of our employees. A number of large American companies like Amazon have at least temporarily cancelled all but the most essential business travel. You will need to make your own decisions on travel.
At Capria and Unitus, we are continuing with travel plans for now, but with due precautions. In the office, we are supplying hand sanitizer, and requiring that anyone with any remote symptoms of a cold work from home. Thankfully we are a global digital company, so there is very little productivity impact for people to work from home when needed.
For those who do travel, we require them to have a plan in place before they depart if they come down with cold/fever symptoms while on the road, which could result in being quarantined somewhere inconvenient for up to two weeks.
Checklist of 5 must-do’s for YOUR TEAM:
- Use hand sanitizer and have bottles within reach, everywhere. Buy it now, before it’s out of stock.
- Where possible, avoid being in close proximity to anyone with flu-like symptoms, and be pragmatic about germ avoidance
- Plan before embarking on any travel (see below for details)
- Enforce work-from-home mandate as required by local authorities, and proactively if not required locally yet, and even after the mandate is lifted, ensure anyone showing any symptoms is clear that they must work from home
- Reconfirm employees have proper health insurance, including solutions for travelling out-of-state or overseas
Our friends in China say their digital B2C and ad-based businesses are thriving, as consumers are home and online. No surprise. But their B2B businesses have already been hit hard as of mid-February and they expect it to get worse. We see the likelihood of similar impacts globally. To that end, we are asking our business partners to build response plans in the case of a 30/60/90% reduction in revenue. Yes, that’s extreme, and a severe downturn may be terminal, but thinking it through could save you.
First and foremost, one needs to be meticulous in looking for leading indicators of trouble. What signals could show a downturn? As an example, a colleague sells phone systems to global hotel chains. He is getting messages from those in China and other heavily affected areas that hotel vacancy rates are skyrocketing. And those customers are saying that they will be suspending payments to him for at least the next 90 days. He can watch the viral spread heat maps and predict which customers will stop paying next.
Checklist of 9 elements of your readiness plan for your business:
- Analyze your business for threats (and maybe opportunities) due to consumers staying home.
- What components of your (or your customers’ or suppliers’) supply chain are in Asia?
- Which of your customers could be especially affected by either a supply shock or demand shock?
- Search for novel leading indicators of risks or business loss.
- What will you do quickly if you see a path to a 30/60/90% reduction in revenues, or large increases in receivables outstanding?
- Is there any way to raise more cash now, before you need it, in the form of debt or equity from existing investors?
- What actions can you take NOW to reduce impacts (reducing or eliminating granting of trade credit, freezing or slowing hiring, etc.)? If not now, what indicators will trigger you to take these actions?
- After a near term reduction is in place, how can you reduce burn further in the next 3-6 months?
- Plan to replan – to regularly review, reframe and adapt your plan as you gain new information and see patterns arise in this rapidly changing situation.
Good planning will pay off. The strongest will do well; the weak and unprepared will suffer. We spoke to an old hand at investing in China who said “One of my portfolio companies is a leader in leisure travel. Their biz is severely impacted already. But they are not particularly worried about it. Their CEO managed a similar business through the SARS outbreak – he’s been there and knows what to do.”
Addendum – Thoughts on International Travel
With companies like Amazon and Google cancelling events and curtailing all but essential travel, one has to think hard about what’s the right thing to do. Our current view is to delay optional travel (such as intra-company visits or training-related or similar travel that has no immediate impact on the business) but to continue with already-booked business critical travel.
Your travel checklist – top 7:
- Plan for how to get medical help promptly if severe symptoms develop while on the road.
- Bring a digital thermometer with you so you can easily take your temperature.
- Bring standard cold/flu medicine with you so you don’t have to go shopping if you come down with something
- Ensure you have enough credit available on your card to stay in a hotel for 1-2 weeks extra.
- Plan for what would happen to obligations at home if you didn’t come back for two weeks longer than expected.
- Know who would cover any business obligations/deliverables for you in the event you were out sick for two weeks.
- Don’t buy and wear masks unless YOU are sick. Save them for health workers.