Leadership in the COVID-19 Crisis

Source: Various Bain & Co. publications

Disclaimer – Village Bank is consolidating and sharing this information in order to help our

community successfully navigate this crisis together. Village is not affiliated with Bain or a

client of Bain, but their work was simply the best work we have come across to date.

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Our overall view – a wait and see approach is a non-starter The process of containment and slowing the spread will create major disruption in itself, irrespective of the

seriousness of the virus spread itself

Prepare for the worst, and be thankful if it doesn’t eventuate; wait and see approach is a non-starter

There’s a high likelihood of a substantial revenue disruption, leading to a potential liquidity crisis for many

The recovery may not be a quick bounce-back; plan for multiple quarters of lower revenue

Employees and customers are probably experiencing fear/panic

You need to appoint a senior, fully dedicated COVID-19 war room team, focused on this all day, every day

As a business owner, it’s critical for you to be out in front with a planned cascade of possible actions based

on which scenarios unfold, likely more aggressive than your team can imagine right now

Customers will change behaviors permanently, accelerating prior trends; bold action now can set you up for

success through the downturn and beyond

2Source: Bain & Co

Protect your

employees &

customers

• Implement the best

known guidelines

available for both

employees and

customers - overinvest

• Monitor global health

guidelines, other

companies - and

continue to fine tune

• Over-communicate

with full transparency

• Provide assistance to

epidemic-limiting

initiatives in any way

possible (CSR)

Stress test P&L and

liquidity

• Outline macro

scenarios by market,

translate to revenue

decline and P&L

scenarios

‐ Units, revenue, costs

‐ Cap Ex, working

capital, cash/liquidity

‐ 13 week, 4Q outlook

• Build extreme

downside scenarios

• this has the

potential to be a

“100 year” event

• Outline major

operational actions

triggered

‐ Do now ‘handbrake’

actions vs. do-later

‘break glass’ initiatives

Defend against

revenue declines

• Take a customer

centric view to this

situation – how will

you build trust, loyalty

and market share

through and beyond

this crisis?

• Build specific revenue

mitigation actions for

core revenue stream

declines

• Pivot resources to

pockets of current and

future growth, online

and beyond

Stabilize operations

to “new normal”

• Stabilize supply chain

of physical goods from

likely geographic and

labor disruptions

– Manufacturing,

distribution, suppliers,

suppliers to suppliers

• Build contingency

operational plans for

all aspects of business

– Front line facilities,

costs, variable labor

staffing

– Cross regional

variations in utilization

– HQ, IT

Plan urgent cost

take-out to

conserve cash

• Spend handbrakes

– Immediate actions (e.g.

hiring freeze, op ex, cap

ex, working capital)

• Set aggressive ‘break

glass’ cost actions

triggered by more

extreme revenue

scenarios

– This is (may be) about

saving the company –

no ideas are too

extreme

• Mid-term, outline a

plan to lean out the

cost structure for the

future – more

automated, more

variable, more shock

resistant

Play Offense, not

just defense

• Define how you will

outperform

competitors and take

share through and

beyond the crisis

– M&A roadmap

– Product/service/

customer intimacy

investments

• Prepare for ‘bounce-

back’ and recovery

– E.g. Marketing

investment, leveraging

macro trends for “if,

then” moves

• Plan for and leverage

a ‘leap-frog’ change in

customer behaviors

– Especially digital

Organize efforts around six urgent priorities

3Source: Bain & Co

Steps to Protect Employees and CustomersEmployee Safety Customer safety

• Follow the most conservative CDC protocols

• Follow official advice on deep cleaning and sanitization of most used

areas/facilities in offices

• Implement requirements for frequent hand-washing

• Equip employees with any needed sanitary or personal protection

equipment (disinfecting wipes, masks, gloves, etc.)

• Re-iterate the importance of staying home if you are feeling ill

– Consider screening employees for symptoms (temperature, etc.) and sending home

staff that display signs of illness

– Policies around sick and personal time may need to be relaxed during this time in

order to ensure employee and customer safety

• Consider shifts to alternative working arrangements (e.g. working remotely)

and leverage best practices and infrastructure to engage employees (e.g.

videoconferences)

• Eliminate all non-essential travel

• Cancel non operationally-critical gatherings of 10 people or more

• Regulate/minimize visits from third-parties to offices; implement visit

declaration forms and visitor screening protocol

• Follow CDC guidance on customer facing

operations and frequently communicate

potential impacts to customers; shift online

where possible (sales and servicing)

• Reach out to key customers and maintain

open lines of communication; implement voice

of customer monitoring / social listening to

understand consumer and customer experience

and sentiment

• Prepare communications plan to re-assure

customers on product and operational safety

concerns and communicate measures to

monitor

Ensure you are over-communicating with full transparency to employees and customers

Community

• Mobilize impactful

donations / supplies

to provide assistance to

epidemic-ridden

geographies

• Support epidemic

limiting efforts in

any way possible

4Source: Bain & Co

• Shift marketing spend to

optimize demand

• Ensure security of supply

• Implement spend handbrakes

and no-regrets cost reduction

Consensus expectation

before coronavirus

3.3% 0%

P R O J E C T E

D W O R L D

G D P

G R O W T H

E X A M P L E

A C T I O N S

Y O U

S H O U L D

TA K E

Source: IMF World Economic Outlook, January 2020; Bain Macro Trends Group analysis, March 9, 2020

-X%

• Employ aggressive promo

strategies (but avoid slashing

prices indiscriminately)

• Temporarily close locations or

suspend operations

• Implement aggressive “break

glass” cost reductions

• Consider permanent shut

down of underperforming units

/ geographies / sales channels

• Right size operations to a

smaller core and rebuild

from there

• Conserve cash levels for

controlled default

L E V E L O F

I M PA C T

F O R Y O U R

B U S I N E S S

G R O W T H

• Flat to mild decline in revenue

• Manageable disruption in

operations and business

continuity

• Certain BU’s, geos, channels

no longer operating with

positive contribution margin

• Uncontrollable operational

disruptions

• Future viability of parts of

business in question

Stress test P&L and liquidity: Prepare for Level 3 Liquidity Crisis and Hope

It Does Not Come To Pass

Level 1 - “Missing Plan”

• Noticeable changes in

customer behavior

Level 2 – “Severe Downturn”

• Dramatic impact to P&Lwith

likelihood of multi-year affect

Level 3 “Liquidity Crisis”

• Severe drop in revenue and

negative cash risking near

term liquidity

Defend against

revenue declines

Stabilizeoperations

to “new normal”

Plan urgent cost

takeout to conserve

cash

5

Defend against revenue declines

Take a customer centric view –

build trust, loyalty, market share

Pivot resources to current and

future growth

• Proactively contact all customers

to let them know about ‘business

continuity’ and ‘extraordinary

actions’ being taken

– E.g., Waive cancellation fees

• Issue targeted account

management / marketing

campaigns directed at highest risk

segments to proactively double

down on potential segment /

customer specific concerns

• In the short- and medium-term,

identify new / accelerated revenue

opportunities

– E.g., pushing e-commerce as opposed

to in-person purchases, capitalizing on

‘in-demand’ products or services

• For the longer-term opportunities –

see “Play Offense, not just defense”

Build specific mitigation actions

for core revenue stream declines

• Develop and execute on actions to

mitigate downside risks,

identifying the best way to

approach the most affected

customer segments,

geographies, channels

• Review current sales pipeline and

orchestrate executives to reach out

on all late stage opportunities

• Develop clear pricing strategy to

maximize revenue for the short and

long term

– E.g., segmented value-based pricing,

dynamic pricing as market conditions

fluctuate

– Avoid slashing prices indiscriminately,

our findings show that this can take2+

years to recover

6Source: Bain & Co

Potential war room plan

Protect your employees and customers

-Assess safety across all people: employees,

customers, suppliers, etc.

- Implement the most conservative CDC protocols

Model your exposure; stress test P&L

- Conduct initial assessment on external and internal

scenarios across revenue, cost, cash and operations

Defend against revenue declines

- Develop immediate actions, and medium-to-long

term actions

- Assess both downside and upside opportunities

Stabilize operations to “new normal”

- Prepare critical operations: sourcing, manufacturing,

supply chain

- Build contingency plan for otheroperations

Plan urgent cost take-out to conserve cash

- Plan for rolling 4 quarter and 90 day, and

immediate liquidity actions

- Improve cost position for mid-to-long-term

Focus on immediate priorities / no regret actions

- Take swift needed decisions (e.g., cost, ops, rev.)

Play offense, not

just defense

- Assess methods to

outperforming

competitors

- Prepare for

‘bounce-back’and

recovery

- Plan for and

leverage a

permanent

change in

customer

behaviors

Align your senior team

with a wake up call

- Host workshop with

senior leaders

- Maintain an ongoing program management office (start building 2-wave list of ‘handbrake’ vs. ‘break glass’ initiatives)

- Build and execute on a communications and engagement plan

Establish a dedicated

senior team in a “war

room” setting

- Stand-up the team

- Specify work stream

owners

- Est. decision rights

- Put in place complete

tracking tool

- If needed, call in

external experts to

help manage situation

Launch (Day/Week 0) Week 1 Week 2 Week 3 Week 4 Week 5 Week 6

Focus on critical action plans

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Lay the ground work and fix

immediate priorities

Get set-up and

manage the processFocus on medium-

to-long-term

Source: Bain & Co

Helpful Tips On Working With Your Banker and Landlord

• Communicate early and often. No surprises. Bring your banker and landlord along with you. Trust that your landlord does not want to kick

a good tenant out and have to release the property (unless your rent is well below market). Trust that your banker does not want to

foreclose on you or force you into bankruptcy. They want to see you up and running when this is over. Engage them. Do the best you can.

Understand their needs and do what you can to address those. Look for win-win-win solutions.

• However long you think it will be before things return to normal, be prepared for it to take 2x as long and make decisions accordingly. Plan for

the Level 3 Liquidity crisis Bain refers to. If we all take the pandemic seriously and stop the spread quickly, the pain will be shorter and more

moderate, but you want to be standing at the end either way.

• Do a 90-day or 13 week running cash flow or cash sources and uses. Template available. Use it to make the tough decisions. Extend it to 6

months and then do four quarters. It is likely to take time for the economy to ramp back up after this.

• Identify every possible source of cash that you can raise and keep a list of that. If you will rely heavily on a line of credit to be the source of

cash unless it has abundant and strong collateral, it is particularly important that you work very closely with your lender.

• Be very careful not to dig your hole too deep to get out of by deferring hard decisions and borrowing or burning all of your cash to fund losses.

If you are expecting to increase your debt to get through this, check yourself to be sure you could have handled that debt burden before the

crisis started.

• Consider the Beach Ice Cream Shop Strategy – close for the season and open back up when the tourists/customers return. Caution: Be

mindful of the reputational damage if closing would harm your clients.

• A really good cash flow forecast, maximizing sources of cash, credible and transparent communication with your banker, landlord, employees

and clients are critical tools right now.

8Source: Village Bank

Cybersecurity Risks Are Heightened Right Now – Redouble Your Efforts• Bad actors exploit times like these and there has been a dramatic uptick in very sophisticated phishing attempts since the outbreak.

• Do not let your guard down now even if your are temporarily shutting down operations.

• If you implement remote working procedures, pause and thoroughly test the new arrangements for vulnerabilities. Consider updating

procedures and policies to strengthen defenses and increase resiliency.

• Keep all software patches up to date.

• Replace all hardware/software before end of life.

• Revisit your back up and data recovery process. Where is the data stored in the new remote working environment? Back up regularly so

you can isolate the problem and recover if you have a cyber event.

• Implement multi factor authentication if you have not already done so. Verify that it is in place across your enterprise if you have moved to

remote work.

• Secure your VPN access – you rely on it a lot more in a remote work environment and bad actors are targeting VPN access for hacks.

• Weakest link will always be people/employees

• Recommunicate best practices to your employees

• Use a vendor like KnowBe4 to test and educate and test your employees

• Warn your clients about the heightened cyber risks and share best practices

• Revisit and, if necessary, tighten limits and approvals for money transfers. Communicate new instructions to your banker including

call back contact information.

• Most importantly, contact a local IT advisor or consultant. We have a number of excellent firms in our community.

9Source: Village Bank

Clients • This is your brand and reputation at stake. Communicate with authenticity, sensitivity and transparency. Be clear on whether this is

permanent or temporary. Provide an estimated return date or the criteria you will use to make the decision to reopen.

• If you provide an important service to your customers, consider identifying one or more alternate providers. Balance the loyalty and faith

you have with your customers verses the possibility of losing that customer to the recommended alternate supplier.

• Provide clear and complete instructions on how to handle payments. Make sure to keep up with collection of Accounts Receivable

• Keep in contact with them if you plan to reopen - Weekly? Monthly? Do not just disappear for the duration.

Employees • Be transparent and authentic. See Bain presentation.

• Will you continue to pay all employees? If you can’t afford to pay all, will you keep some of your long-term, valued and loyal employees

on some level of pay, even if it isn’t full time.

Vendors • Use your cash forecast to develop a plan for dealing with all vendors, landlords and lenders.

• Credibility and communication are critical.

• Engage your lender and landlord. See separate slide on that.

• Work with your CPA to come up with a plan on how to prioritize your payments to vendors.

• Clearly communicate your payment plan and stay in touch with the vendors throughout the shutdown.

Insurance • How will this affect your medical and all other employer provided benefits?

• Contact all your insurance providers to confirm what your options are.

• Notification – notify all your brokers / agents of your plans; this includes those who provide commercial and workers comp insurance;

Stay in touch with your agents and brokers.

• Inquire if you can get some financial relief for the time you are temporarily shut down.

Tax Filings • Make required tax filings – quarterly employer taxes, sales taxes, quarterly income tax estimates, excise taxes, etc.

• Contact your CPA and inform them as well – inquire if you can reduce quarterly income tax estimates (if applicable).

Other • Notify your lawyer.

• Properly post on websites, social media.

• Update phone messages, emails, etc.

• Monitor bank accounts daily. Stop automatic payments that you may have set up. Utilize mobile/remote banking capabilities.

Other Considerations If You Decide To Temporarily Close Your Business

10Source: Village Bank

Helpful Tips From Various Sources On Managing Through a Crisis

• Find something to be grateful for every day. Plenty of it out there still.

• Confront the brutal truth, but never give up hope (Good to Great).

• Pray, meditate – when you pray and meditate on something, you will be surprised how many times an idea or answer

appears when you allow your mind to enter that sort of state.

• Journal – write down the things your are carrying around in your mind and on your heart. Capture the ideas that appear

when you pray and meditate. It eases the burden of what you are carrying on the inside.

• Exercise, even a simple walk does wonders.

• Invest in your relationships, even if it is only virtually.

• When things feel like they are out of control, focus on the things you can control.

• It is what it is. Now what are we going to do about it. Focus on the next step, the plan, the end game. Do not dwell on

yesterday.

• Focus on others and on the bigger cause. Gives purpose to your work and keeps your mind off your own situation.

11Source: Village Bank

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