Do You Have a Natural Disaster Plan?

Business Plan Development Process

Any good strategic plan should address how a disaster might affect employees, customers and the bottom line of the business. Now is not the time to lose site of how disasters like the pandemic can affect your business. An acronym to remember the scope of planning for a disaster is…AFECT…Anticipate Financial, Employee, Customer Threats caused by disasters…a play on the word “affect”. Yes, disasters can affect your financial bottom line, your employees, and your customers so you need to plan for it as best you can. Planning is just another word for organized anticipating! How many business owners have: an exit plan for this life…personal will or trust; a strategic plan for the business…manage to that plan; a business end game plan…what happens when you leave? You see a lot of the word “plan” on the previous statement because anticipating the effects of disasters implies planning & implementing that plan. Disaster planning should be included in any yearly strategic plan update utilizing a tool called SWOT Analysis.

Disaster planning involves analyzing both the outside environment threats (SWOT ) and inside environment weaknesses (SWOT). Often “W’s” will show up as human caused disasters…I have several of the more typical examples of W’s I will cover in a future post. However, this post will look at naturally caused disasters that show up as part of the outside environment T’s” (SWOT). How do I define a natural disaster cause…business threats that everyone can see but seldom think about. Think in terms of a forest fire…health related…sewer break…loss of utilities like internet/power/phone…even governmental forced. In other words, the ENVIRONMENTAL THREATS from outside the business…the “T” in SWOT.

Here are some thoughts on how to plan your response to natural disasters by focusing on the five “in’s”: information; inventory; insurance; insolvency; introduction.

  • Information — Be sure to gather all key information and store it in a safe offsite location. Include information about the business and if one happens, about the disaster…is it isolated or regional…estimated correction time…where to get updates? Develop contact information for:
    • Employees
    • Key advisors (CPA; Attorney; Insurance Agent)
    • Loved ones
    • Response agencies…Utility companies; Law enforcement; First Responders – Medical, Red Cross, Fire Department, Repair Contractors, Unemployment agency, SBA, etc.
  • Inventory — Protect physical assets like trucks/computers/raw material/work-in-process/finished goods.
    • Broaden the accounting meaning of inventory to include other valuable resources that are valuable to the business like marketing literature, software, client records, etc.
  • Insurance — Evaluate all the types of coverage for your business. Be sure business interruption is “ALL RISK” to cover for things like communicable disease. Gather and store things like:
    • Physical copies…business interruption?
    • Insurance agent
    • Unemployment
    • Include things like Working capital loans…SBA; Bank; Crowd funding; etc.
  • Insolvency — Ask yourself the following questions due to the natural disaster:
    • What’s your burn rate and runway? Take stock of your current gross burn rate i.e. how much cash are you spending each month. Here are the steps that work in a normal market:
      • How much are fixed expenses (those you can’t change, i.e. rent?) And how much are variable expenses (salaries, consultants, commission, travel, supplies, etc.?).
      • Take a look at your actual revenue each month — not forecast, but real revenue coming in each month. If you’re an early-stage company, that number may be zero.
      • Subtract your monthly gross burn rate from your monthly revenue to get your net burn rate. If you’re making more money than you’re spending, you have positive cash flow. If you’re a startup and have less revenue than your expenses, that number is negative and represents the amount of money your company loses (“burns”) each month.
      • Now take a look at your bank account. See how many months your company can survive burning that amount of cash each month. This is your runway — the amount of time your company has before it runs out of money.
    • What does your business model look like? Is the world turned upside down like during the COVID-19 pandemic. Recheck all your assumptions about customers, sales cycles, and, most important, revenue, burn rate and runway since they may no longer be true. Your business model today may not look the same as it did at the beginning of the month, if you don’t see it, you may be in denial — and possibly going out of business. It’s the nature of owners to be optimistic, but you need to quickly test your assumptions about customers and revenue. If you are selling to businesses (a B-to-B market)…have your customers’ sales dropped? Are your customers closing for the next few weeks? Laying off people? If so, whatever revenue forecast and sales cycle estimates you had are no longer valid. If you’re selling directly to consumers (a B-to-C market) were you in a multi-sided market (consumers use the product, but others pay you for their eyeballs/data?) Are those assumptions about payers still correct? How do you know? What are the new financial metrics? Receivables — get on top of them. Days of cash left? You need to figure out your actual burn rate and runway in this new environment now. Should you change your distribution channels?
      • Is this a three-month, one-year, or three-year disaster problem?
        • If it’s three months, then an immediate freeze on variable spending (hires, marketing, travel, etc.) is in order. But if the effects are going to reverberate in the economy longer, you need to start reconfiguring your business. You need a lifeboat strategy. That’s a fancy phrase for figuring out what minimal things you need to keep your company alive and what to leave behind.
        • A one-year problem means taking a knife to your burn rate (layoffs and elimination of perks and programs to reduce your variable expenses) renegotiating what previously seemed liked fixed expenses (rent, equipment lease payments, etc.), and putting only the essential elements for survival in the lifeboat. If you were selling online versus in person, you may have an advantage (assuming your customers are still there). Or you change sales strategy. Whatever your product/market fit was last month, it’s no longer that and needs to change to meet the new normal. Does this open new value propositions or kill others? Alter the product?
        • And if it’s a three-year problem? Then not only do you need to jettison everything that isn’t essential for survival, but it also probably requires a new business model. In the short term, explore if some part of your business model can be oriented around the new rules like during the COVID-19 pandemic of social isolation…Can your product be sold, delivered, or produced online? Does it have some benefits if delivered that way?  If not, can your product/service be positioned as a lifeboat for others to ride out the disaster?
      • Should you pivot your business? Be sure to plan, communicate and act with compassion — Revise your sales revenue goals and product timelines and create a new business model and operating plan — and communicate changes clearly to your investors and then to your employees. Keep people focused on an achievable plan that they clearly understand. Before you consider layoffs, think about:
        • Should the first option be to cut the salaries of the higher-paid exec/employees to try to keep the people who can least afford it, employed. Good things will come to owners who first try to save everyone on the ship before they jump in the lifeboat.
        • Next, if you offer paid vacation benefits, have those employees take the vacations earned.
        • You may need to contact the Unemployment office and complete the work share application if you are thinking about short-term unemployment support. 
        • If you seeing you’re running out of cash, under no circumstances run it down to zero. Do the right thing and have enough cash on hand to offer everyone at least two weeks or more of pay. Be sure to have all the information on how they are to file for unemployment benefitsWhat will my investors do?
      • Think about your Investors/Bankers — One of the key elements of survival is access to capital. You should realize your investors are also asking themselves how this disaster may affect their business model. The cold hard truth is that in a crash VCs and some banks triage their deals — first worrying about liquidity of their funding/loans, which have the highest valuations. Companies that have very high burn rates and funding could fall off a cliff. You and the company may no longer be their priority and your interests are no longer aligned. (VCs/bankers who tell you otherwise are either naïve, lying through their teeth, or not serving the interests of their investors.). Investors/bankers with gray hair can offer some historical patterns of crashes and recovery to CEOs — some who weren’t born when the crash of 1987 hit, were 10 years old during the crash of 2000, and 18 in the last crash of 2008. Keep in mind, that today’s circumstances are different. Is the stock market bear market or is an economic shutdown causing a stock market bear market.
      • As an owner, you need to know if your board is going to be screaming at you for not radically cutting burn rate and coming up with a new business model, or yelling at you to stop being distracted and stay the course?  If it’s the latter, be sure to know what skin in the game they have, if they’re wrong. It’s pretty easy for bankers to tell you that they’re right behind you. Unless your investors/bankers/board members are matching their orders for “full speed ahead” with a deposit into your bank, now is not the time to be railroaded into a burn rate that is unrecoverable. Caution: if you prepare for a long cold winter, remember no winter lasts forever!
  • Introduction — This is the fifth of the Natural Disaster Response Focus “in’s”. When you restart, will it be a re-introduction or pivot model introduction. What will your “We’re Back!” marketing message be and who should be involved in the introduction…employees, clients. Do you need to change your distribution channels? How can you make yourselves less dependent on things that were affected by the disaster (think remote working)?
    • Think of your re-introduction or pivot pitch as a service, not just a way to get business…Companies are selling “jobs” to be done. Rather than thinking of customers buying products and services, it is more helpful strategically to consider the outcomes customers want; in effect, they are “hiring” products and services to achieve those outcomes. What becomes clear when looking through this lens is that outcomes can be achieved in many ways and do not always conform to traditional industry boundaries…inflection points require changes to your business model…a pivot.
    • Consider what your potential clients are going through right now. They’re scrambling, they’re concerned about their business, and yet they’re trying to step up and serve their own audiences as best they can. They could use some help—and that’s your opening.
    • Do a deep dive on their business before making contact getting to know what they do what they could use help on, and how you can create a customized solution.
    • Right now, the idea of a stranger reaching out and saying, ‘I thought you could use this’, is one of the kindest things that you could do for your client.”

Every business should have pre-planned responses (organized anticipation) for the threats. Now, with the pandemic still on our minds, is a great time to build that disaster response plan. Be sure to think in terms written procedures addressing the physical disasters identified by SWOT like:

  • Power/phone/internet failure…a mechanical credit card machine for processing credit card sales(do employees know how to use it?).
  • Sewer failure…effect on employees AND customers?
  • Unruly clients…be sure to include how to respond to the other clients present.
  • Forced governmental closure like due to a pandemic…work from home; work share; employment reduction; etc.

Don’t forget to identify & train key employees to be activated to different jobs to handle the identified disaster cause like the mechanical credit card machine or traveling to notify other employees. Anticipate what the reassignment response will be from the employee like curb pickup during restaurant pandemic closure. Don’t just think in terms of “local disasters” but think about “global disasters” and things such as forced governmental closure like the COVID-19 pandemic.

For more thoughts on SWOT analysis, view the free video entitled Business Plan Development Session 1 and read a free sample of the new book “Small Business Thoughts Real-Time Strategic Planning“.

Copyright ©John Trenary 2022

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