Friday Mach 6, 2020
To: Gorilla Capital portfolio companies
From: Risto Rautakorpi
The Corona issue – what to think about it
Note – I focus entirely on the business implications, personal health & safety is of course #1 priority and I leave those matters for the Healthcare professionals to advise on.
I rather cry wolf than regret later, and as “only the Paranoid survives”, I’m OK to be the paranoid.
No-one knows yet what the end outcome of the Corona issue will be. But already now it has caused a visible disturbance on businesses and economies worldwide and the ripple effects are yet to be seen. Some businesses are affected more than others, but very few will be completely immune. For some (like face mask producers or remote working solutions) this can create a massive windfall.
Your business will be affected as well. In what way, when and how severely, depends. That’s what you should now form a view on, and do mitigation accordingly.
A likely scenario for anyone selling to corporations: In the 1st wave, they focus on their people risks: they cancel attending events, making business trips, they ask people to work from home etc. In the 2nd wave they do the immediate adjustments to their own business (such as airline industry), in the 3rd wave they start calculating the cost of all that, and how to balance the effect. They will try to assess what their customers do and how that will affect their own business. The 1st thing they’ll do is step on the brakes and will do only the mandatory until the dust has settled – which means anything non-mandatory will be postponed. They will try to manage costs, in anticipation of their revenues declining. This may mean layoffs, freezing any new costs (such as development projects) etc. They will have to add new issues on their agenda, changing the priorities. At this point you will start feeling the heat.
These “never seen before” crisis are part of the business cycles. I’m older than any of you so I have experienced a few (and their direct consequences) myself: oil crisis 1973, Chernobyl 1986 (this was particularly scary in Finland, due to the typical wind directions), Iraqi war and 2nd oil crisis 1990, dot com crash 2000, Financial crisis 2008. Not to mention the next tier – SARS, Thailand Tsunami etc.
It’s not a bug, it’s a feature. If you sail across the Atlantic you’re likely to get into at least one big storm. You know that from the start so you prepare accordingly. And when the weather map turns dark, you get ready: you take down sails, close all holes, tie everything down, eat and rest while you still can, make raingear readily available. When the storm hits you, you are prepared. Then you do what you must to stay afloat, and just wait. Even the worst storms end one day, the sun is shining again and smooth sailing can continue.
But while sailing after is no different from sailing before, business after a crisis is never quite the same as before. Oil crisis triggered the need to reduce dependency on oil, Financial Crisis tightened regulation of financial markets etc. The mankind is trying take measures that “this could never happen again” (rather successfully, as the next major crisis is always a “never seen before” kind). Those changes create a ton of new business opportunities.
The Corona situation – once over and back to normal - will trigger such changes as well. What exactly, we all can make educated guesses about. They too will create opportunities.
Profits are made during the high season. Strategic moves are made during the low season.
My call to action to all of you:
- The eventual consequences of Corona will affect all of you (and us, as a result). Meaning you all need to take it on your agenda.
- You should analyse your situation (and that of your key customers), play with some scenarios and form a view on what you assume the implications to your business to be
- What is it you can and should do to mitigate the negative effects. Create an action plan on what to do if the storm hits you, and what is the indicator telling you the storm is on
- What new opportunities will this create, once the storm is over. How could you best benefit of it?
I sincerely hope none of this is ultimately needed and the world goes back to normal soon. But it would be irresponsible to just count on being lucky. Hope for the best, prepare for the worst!
Risto