Covid-19 business impact and what to do about it

COVID-19 is upon us. We are now over three months into the outbreak. Between protecting the population and trying to minimize disruption, governments and companies are reacting differently. Some, like Italy, who have shut down for three weeks or companies requesting employees to work from home, are taking extreme measures. Others are trying to manage the disease spread while maintaining some level of activity as much as possible. Either way, COVID-19 has begun to put pressure on the global economy and has affected normal business operations in many industries.

The industries most impacted are the direct consequences of the outbreak. As examples, we have seen the event and the travel industry taking a considerable toll. The impact of cancellations is devastating for all parties involved in the event. For example, SXSW laid off 1/3 of its employees after the SXSW cancellation in Austin. It also has a local economic impact affecting retail, hospitalities, and local businesses as the SXSW brings $300+ million in revenue to Austin, about 0.3% of its GDP. In Barcelona, Mobile World Congress was welcoming more than 100,000 visitors. It was creating more than 13,900 temporary jobs, and its cancellation resulted in an economic impact of at least 0.3% of Barcelona’s GDP.

Furthermore, many countries have introduced travel restrictions to try to contain the additional spread. For instance, the UK issued specialized travel advice for Italy. The travel industry is also impacted as airlines cuts flights, companies restricting travel policies, and travelers canceling both business and personal trips. It is reflected in the price of the plane tickets. For instance, booking a ticket from SFO to Austin now costs $115 round trip against an average of $600 to $700 when SXSW is on.

There are many additional side effects:
1) Factories are slowing down or are pausing their operations creating an issue for supply chains, which needs to find alternative supply sources;
2) Business is slowing down as executives are not traveling anymore to avoid being quarantined in remote locations;
3) Collateral damage is happening in many industries, including the US oil industry, which suffers from the fall of oil prices resulting from the fall of demand linked to the overall slowdown.

McKinsey has explored 3 scenarios moving forward:
1) Quick recovery if countries can control the outbreak in the same way that China is currently doing. People with preexisting conditions or older retire to avoid being put in contact with the disease. In this case, the US economy recovers quickly, supply-chain is restored, and consumer confidence comes back over time;
2) Global slowdown: the outbreak is lingering. Industries such as the event, travel, hospitalities, restaurants and local businesses are deeply affected for at least three months;
3) Global recession: with global growth falling below -1.5% to 0.5%. At this point, this is the scenario favored by Venture Capitalists such as Sequoia Capital and further expressed by Mark Suster’s deck in his presentation he prepared for SaaStr, a now-canceled event.

Here, at Topio Networks, we see a few trends:
1) Marketing spend seems to be at a low since the beginning of the year. Businesses are struggling with what to do moving forward, including revisiting their 2020 marketing and event initiatives. Marketing departments are hesitant to invest now in generating demand if their organization is not able to follow through and close business;
2) Marketing budgets are migrating slowly to online lead generation and thought leadership, such as webinars, online events, white papers, etc. Smaller companies tend to be a bit more cautious than the larger ones;
3) Some industries are holding expenditures and won’t spend until they have a good view of what is going on.

Based on this analysis, we don’t see the MacKinsey’s first scenario (quick recovery) as a likely one due to previous and cycles we have seen. We favor a middle ground between the second and third scenarios as presented with companies slowly getting back to business until consumer confidence starts picking up again and uncertainties disappear.

During a time of uncertainty, the best mindset is to be prepared for things to slow down, spend less, trim expenses where available, focus on current customers, and be prepared for quick adjustments. Business is harder to close, risks increase, assumptions need to be evaluated in the lights of developing events, and your companies will need to adjust in real-time to the new game. A lot of successful companies have either been started or gone through tough times. The critical lesson learned is to manage cash to get through the downtime.

In particular, you may be focused on a specific set of industries and use cases that are impacted negatively by the current downturn. The use cases may also change as customers move from trying to grow the business to cut costs. The good news, though, is more business is going to be driven online, pushing further the digitalization of the economy and therefore the 4th industrial revolution.

We are monitoring the situation at many levels throughout industries, of which you can keep on top off at topionetworks.com. If you want help or further insights on reconfiguring your business, do not hesitate to reach out (philippe.cases@topionetworks.com). We are tracking thousands of use cases and can work with you to let you know which one is best to focus on and help reach out.

Philippe Cases

PS: if you want to track what is happening with a few metrics, please consider the following:

  • Reproduction Number: until this number falls below 1.0, right now it is at 2.2, the outbreak will continue to spread;
  • Fatality rates: the actual number seems to be between 1% and 3%. It may be lower than that and close to pandemic influenza as many cases are going undiagnosed;
  • The resolution of the oil dispute between Russia and Saudi Arabia affects the US Oil and gas industry (about 8% of GDP) and could bring down the cost of gas significantly;
  • Airline travel: if and when the outbreak is contained, airline travel will be an early indicator of the industry coming back up.