Missed Opportunity Cost

I see many companies rushing to take action and react to the pandemic. Given the current global economic changes, it makes complete sense to revisit your company’s strategy and recalibrate. However, what seems to be the knee jerk reaction here is not the right strategy for everyone.

Entire industries have furloughed many employees, and others have announced salary cuts. For startup companies, this is not necessarily the right path, at least not right now. I know many VCs are imploring their portfolio companies to cut down aggressively on burn rate massively, but this is not a one-size-fits-all strategy.

If your company’s business relies on one of the heavily affected industries, such as travel, or that you were unlucky enough to have planned to raise more capital in the next few months, then cutbacks might be your only choice. This is a matter of immediate run rate.

Consider the full scale of options in the diagram above. Companies that have enough money in the bank to survive the next year or so shouldn’t automatically assume they have to hunker down and turn the dial all the way down. You have to account for the missed opportunity cost when you take such steps.

For example, you cannot assume that cutting down on employees’ salaries by 15% is the safest step to take. Employees on salary cuts are not likely to work at their regular productivity, at least not long term. 15% cut for a whole year will not add even two months of run rate, and will likely harm your team’s productivity severely. Top employees might jump ship to a company that is not operating in war mode.

Instead of reaching 12 months from now with a significant advancement that will position your business for success and provide the ability to raise another round (should you need it), you might be facing stagnation and deterioration of your work culture. If you can allow it, consider postponing the decision to start cutting and investing in another six months of real “war mode.”

Your team will keep working full time and full capacity, but on a readjusted strategy. During those six months, you will have the opportunity to set yourself up to lead the market as the world’s economy kicks back into motion. Hopefully, by then, the picture will be clearer, and you will be able to revisit the decision with more information.

Worst case scenario, you can cut salaries by 30% then. Best case scenario? No cuts are needed, and you have leapfrogged over the competition that has gone into a standstill. I’m hearing of coaches, advisers, and thought leaders right now that are automatically pushing everyone to this ostrich position. Put your head up!

Now is the time to weigh your options and lead. Leadership boils down to these scenarios. This is when courage is needed. Revisit your strategy. Instead of giving up, make the best you can out of the circumstances. There won’t be a second chance.