By Peter Cohan

This is a time for radical honesty. Leaders must set aside their fears of appearing vulnerable, take a deep breath, and stare directly into the reality of their companies’ short- and longer-term prospects.

Once you, your executive team and your board share a realistic view of those prospects, you must take painful and difficult actions to increase the odds that your business will survive the Covid-19 crunch.

On April 6, I interviewed Michael Greeley, the General Partner of Flare Capital Partners, a Boston-based venture capital firm who shared with me some steps he is advising CEOs in his firm’s portfolio to take now. Here’s my take on how to apply these ideas.

1. Build a clear-minded consensus about future quarters

Before taking action you must build consensus about how bad things will get in the next few quarters and the timing and amount of the eventual rebound. Greeley suggested. I think the biggest risk in pursuit of such a consensus is that your desire for a quick return to normal clouds your thinking. More specifically, unless you fight it, you are likely to fall victim to confirmation bias. You’ll know you suffer confirmation bias if your team is waiting for you to tell them the result you want them to come up with so they can compete to give you the “facts” that best reinforce your desired view.

To get at the truth, leaders must set the right ground rules — and if these are a break from the way you’ve done things in the past, the ground rules will be difficult to follow.

Nevertheless, ask each member of your team to do independent research on the direction of the economy and your industry and company. Suggest the team gathers data from credible sources — including conversations with customers and industry experts.

Frame their presentations in the form of the shape of the curve — what Harvard Business Review framed as a “V” or “U” or “L” recovery.

• V-shaped: This is the best case scenario in which output drops but growth eventually rebounds. Given that previous epidemics followed this pattern, HBR thinks this is the base case scenario for Covid-19.
• U-shaped: This is a less optimistic scenario in which growth resumes but does not return to the same level as before Covid-19.
• L-shaped: In this worst-case scenario, Covid-19 “breaks something on the economy’s supply side — the labor market, capital formation, or the productivity function,” according to HBR. The result is that output drops sharply and does not recover.  .

You should encourage each member of your leadership team to do their own presentation and assign a probability estimate to each of these scenarios. You should ask your team members to present these scenarios to your board, engage in a vigorous debate, and reach a conclusion on which is your company’s most likely scenario.

2. Take cost reduction steps immediately

It’s vitally important that you identify cost cuts that lower your company’s cash burn rate while keeping people and resources that are essential to generating revenue now and in the near future. Once you identify costs to cut — take this difficult action immediately to preserve your dwindling cash, he suggested (and I completely agree).

3. Imagine starting your company from scratch

You should next consider even more radical operating efficiency improvements. To that end, Greeley suggests imagining starting your company from scratch during this Covid-19 crunch. Would you spend as much on marketing? Would you own a building or rent office space? I think asking these questions could form the basis of a second round of cost cuts — if they become necessary.

4. Have a frank conversation with existing customers and investors

Now is the time to meet with your current customers and investors for brutally honest conversations. I think you should ask your existing customers whether they would be willing to renew their contracts and if so, how much they would be willing to buy and when.

In addition, ask your current investors whether they would be willing to provide your company with more capital, and if so, how much and under what terms (possibly at a lower valuation given the heightened level of perceived risk, noted Greeley).

5. Suspend new business development

Greeley tells his CEOs to “suspend new business activity for next 90 to 120 days.” I agree with this — only if your team agrees that new customers are so unlikely to purchase from your company that new business development now is waste of money.

Read full article here..