Sequoia Capital, a prominent venture firm, recently shared a letter with entrepreneurs about how to weather the challenges of the coronoavirus. In it they encourage founders to decrease headcount to increase efficiency:
“Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.”
Investors want the companies they bet on to stay alive. They care little about the people that compose them. When a person helps your company grow, your duty as a founder is to help them flourish in kind.
But this is not a call for founders to do the morally right thing by keeping their employees on during this pandemic; morality has little room in economics.
I think in this instance Sequoia also provides bad business advice.
Simply cutting expenses and waiting might work in an economic downturn where afterwards the social norms of how we learn, shop, and entertain ourselves remain largely the same. But the ripple effects of this pandemic are likely to change people’s behaviors for months, if not years. Resilient companies that do not lessen operations and wait but rapidly adapt themselves for new business models are the ones positioned to succeed in this new world. Having smart, flexible employees that can rapidly test and iterate on these new business models is an asset, not a burden.
This article provides four different strategies for how companies can leverage existing headcount to rapidly adapt their businesses.
The Coronavirus has shut down many manufacturing plants in China and East Asia. For companies specifically that face supply chain interruptions in their packaging, this moment might see a move towards generalized production of packages that can fit a broad array of items, from headphones and batteries, to granola and soap.
Or, companies can move towards bio-packaging from pulp or leaves, or do away with packaging all together to decrease their reliance on overseas supply chains. Even before the pandemic, CleanCult’s services where people keep the same company’s dispensers and get subscriptions to refills of their soap and shampoo products shows this model can be profitable. This is a moment where companies will need to rethink how to deliver great products in the wake of unreliable packaging supply chains, but can choose to do so in a way that reduces resource extraction in the long term and provides packaging designers a whole new set of problems to explore.
The coronavirus will also likely disrupt supply chains that are reliant on singular sources, as one person in a manufacturing plant can affect dozens in close proximity, sending whole plants offline. Businesses can make themselves more resilient by utilizing wider sourcing methods, or having many different suppliers for each product.
Restaurants can make themselves less reliant on their vendors by producing food onsite through vertical agriculture. They might even be able to work out short-term leases of office space that is not being currently used. Instead of laying off waiters, these people can be retrained as urban farmers and utilized to deliver food.
Grocery stores might also face supply shortages, as one person who gets sick on a factory farm can quickly infect a whole plant. Grocery stores can sell seeds and supplies to people in their community, teach digital workshops on how to farm at home, and source some of their produce in turn from the community. This model of community-sourced agriculture helps those with backyards and are house-bound have something to do, grocery stores can continue to have a reliable supply of food for everyone in the community, and those who work in grocery stores still have shelves to stock.
New Modes of Interaction
While sports events and concerts are cancelled, people still have the desire to meet others and share experiences. This moment in time where people cannot be physically close, smart sports leagues can use this time to flip the dynamics between spectators and entertainers in ways that keep their leagues solvent.
At sporting events, traditionally thousands of people go with their own group of friends and sit amongst thousands of others watching the event, but generally do not develop long-term connections with those around them. If sports leagues develop online portals where people can comment on threads and start polls with thousands of others watching, they can still feel a kind of togetherness with the crowd as they enjoy their show. Stadium staff in this model can be retrained as digital moderators.
Film studios who cannot have film crews working in close proximity might turn to questions of how to create incredible moments without shared proximity on stage. Studio companies might develop software that allows people to add their own music or art to a film, creating crowd-sourced “story-chains” of different small movies all related to a central theme. Movie studios that adapt rather than shut down in this moment will have rapt and appreciative audiences.
Dating websites grounded in fostering initial meet-ups might see a drop in users. To counteract this, they can build for the new needs of their audiences. As it is harder for people to connect online and quickly meet in person, all of a sudden there is a need for people to not just meet, but develop relationships digitally.
People could now join channels based around shared interests and grow friendships that are not immediately romantic. They will likely want to do video chats, but do so in a way that does not hearken back to Chat Roulette. Those working at Tinder and Hinge who have brought us a world where people can hook up quickly can turn their attention to the question of: how can people build deep relationships slowly?
Where clothing rental companies might flounder as people have fewer events to go to, they can pivot to “Coronavirus Care Package” boxes since people will want to show their friends they care, even if they cannot show up in person. Music stores that might find fewer people walking past their stores can create new services where people can loans their instruments and provide digital tutorials as people have an increased time to practice. Board game companies will likely see sales fall as game nights are off the table, but now there is the potential for game designers to shift towards digital methods of game-play that can stretch over days or weeks. The needs have stayed the same, the modes of interaction have simply changed. Smart companies will recognize this and find ways to adapt.
Sometimes a company might truly not be able to maintain its function during a pandemic. This is most likely to be seen in areas where people are support staff for events (caterers, wait staff, cleaners) and people where physical interaction is at the core of their job (actors, masseuses, hair dressers).
Instead of immediately cutting staff, an alternative is a Cut-and-Pivot strategy. Cut the salaries of your workforce to 60–70% of the norm and give your workforce a six-month runway to understand whether there is a part of the existing business that can be pivoted to take advantage of the new economic climate.
For example, clothing retailers will likely find that they have far less demand for people shopping for sun dresses, sportswear, and special occasion outfits as events are canceled. This means potentially fewer designers and marketers are needed. However, people still want the ability to get groceries and go to work if needed, and to do so suddenly they need antimicrobial clothes. Clothing companies that effectively spin out a start-up within their company to tackle the customer needs in a pandemic will be well positioned to capture a large percentage of this emerging market.
Resilient Businesses Will Become the Norm
Climate change and the increased connectedness of the world is likely to make business interruptions ever more constant in the years ahead. Cities have come to understand that they need resilient infrastructure that can absorb and recover from environmental and economic shocks. In the coming years, so too will it become a built-in part of businesses that they will need to continue to deliver value but might have to quickly change their product offerings and sales channels.
Constant adaptation is likely to become the norm. Businesses that hire people with broad skills, quick thinking and initiative that can adapt their businesses rapidly that will be best positioned for long term success in this new landscape.