Please hold your “golden lifeline” for 18 months.
Editor’s note: This article is from the WeChat public account “i dark horse” (ID: iheima) , author : Yang Ge.
From January 30th, the Black Horse University APP will launch a live broadcast of “War Epidemics”. I hope to help entrepreneurs determine strategies, reduce losses, and build up their strengths to meet this round of challenges by sharing actual combat business experience in response to the epidemic. On the evening of February 16, we invited Yang Ge, founding partner of Xinghan Capital, to share “industry analysis and corporate management adjustment in a special period.” The following is a selection of live content.
01 Effects of the epidemic on enterprises in the short, medium and long term
Every entrepreneur is now facing a very special stage. Everyone must make themselves stronger at this time, see the situation more clearly, and spend time on business management.
We believe that the impact of this epidemic on enterprises can be divided into three stages-the epidemic quarantine period, the operation recovery period, and the operation recovery period. The epidemic is still in the quarantine period, but this stage is coming to an end. After about March 1, a lot of formal resumption of work will begin, that is to say, it is about to enter the recovery period of operations. At this stage, the company’s cash flow and daily business will gradually return to normal levels.
The business recovery period is the third stage. After the enterprise reaches this stage, it will enter a state of rapid running, but we expect that the third stage may not arrive until the third quarter or even the fourth quarter.
The impact of this epidemic on enterprises and the economy can be analyzed in the short, medium and long term:
In the short term, many companies will have to deal with a certain blow and test this time. Most companies will face considerable challenges in cash flow and corporate management. We must respond and adjust to survive this period.
In the medium term, uncertainty is a big issue. Your customers, your investors, and your collaborators in all aspects will have higher expected costs and performance costs due to the epidemic, which will cause a lot of uncertainty. Therefore, we must work hard to ensure liquidity up and down the industry chain, so that uncertainty is relatively reduced.
In the long run, there must be opportunities in the crisis. Everyone knows that SARS in 2003 made indirect online platforms like JD.com and Taobao. Although the epidemic brought many difficulties to the market, it also gave birth to some new opportunities that would promote the adjustment and adjustment of the ecological structure. Of course, this requires us to go through this difficult period first, and learn to grasp the opportunities keenly in the crisis.
I will briefly talk about the issue of industry cycle and business cycle. As we all know, China has shifted from a planned economy to a market economy. And the past few yearsHere, we have begun to enter a period of industrial adjustment and are about to usher in a new phase.
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It can be seen from this figure that the mobile Internet period has experienced development over the past few years, and is nearing completion, with little traffic dividend remaining. In 2020, we are at the junction of two cycles and are facing the stage of adjusting old capacity and developing new capacity. The development of the Industrial Internet, the sinking of the market, the rise of intelligent manufacturing and biomedicine mean that the industry is being updated and rotated.
I recommend a book, The Innovator. This is a very good book I read recently, which mainly describes the development process and future exploration of the Internet industry. We can learn from this that the rotation process of each industry requires some time to build the system. In this process, companies need to think about the future of the company from a product, technology, and market perspective from a longer-term perspective.
We believe that the economy will continue to adjust in the next ten years. Enterprises must reduce energy consumption and costs at this stage, and pass this adjustment period through various innovative means.
02 The “eighteen-month rule” of an enterprise
In the face of this epidemic, we need to remember a very important rule-the “18-month rule”, which is the golden lifeline for the survival of enterprises. The 18-month rule originally came from Silicon Valley, and there are three points theorems:
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1. The cash on the corporate account must support an 18-month survival time. For example, if the monthly cost of the company is 1 million yuan, the income is 800,000 yuan, and the net loss is 200,000 yuan, then you should have at least 3.6 million cash on your account to support 18-month survival. With healthy cash flow, companies are relatively healthy.
2. Enterprises with insufficient cash on their books to survive for 12 months should put financing first. If the company’s cash flow is not enough to support 12 months, then the founder of the company must clearly place financing in the most important position and use various types of financing methods, such as financial leasing and short-term borrowing, to obtain sufficient Cash.
3.CashIf it can’t last for 6 months, companies must consider scaling down while financing. Downsizing includes not only the company’s operating scale and team size, but also the business size. At this time, we must not “step on a few accelerators and step on them together”, but cut costs as much as possible, control the scale and development pace of the enterprise, and return cash flow to a relatively stable situation.
How will the epidemic affect the 18-month rule?
First, companies with high fixed costs will face very big problems at this time. What is fixed cost? Divided into two aspects, one is called fixed operating costs, including manpower, office, hospitality costs, company water, electricity, property costs, and so on. The other part of the cost, we call it the fixed cost of stream transformation business.
What is a stream transformation business? If you buy something from me, I have to pay first, and then buy it, whether it is value-added or directly resold to you, it is considered a stream transformation business. There will be procurement costs, financial costs, inventory costs, production costs and so on. If the periodic fixed costs cannot be handled well in this epidemic, and the revenue will decrease sharply due to the decrease in business frequency, companies will face relatively large problems.
Second, the business sector of contact high-frequency delivery will be greatly affected. Regardless of the supply chain, terminal, sub-terminal consumption and procurement, the high-frequency delivery industry is greatly affected at this stage, because the epidemic is spread mainly through contact. This type of company is bound to face a sharp decline in revenue.
According to our statistics, some offline direct service industries suffer an average loss ranging from 75% to 95%. At this time, companies must find ways to turn high-frequency transactions into low-frequency transactions, and then expand the proportion of single transactions as much as possible. Secondly, the business should go online as much as possible.
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Third, the physical industry is subject to production and logistics restrictions, which will lead to insufficient capacity supply. After the supply chain and logistics are restricted, in fact, a large number of goods and materials cannot flow. In addition to the impact of 2 C, it will also have a relatively large impact on 2B. Many companies, such as aquaculture feed factories, have reduced their inventory and supply when the entire logistics / production is limited, resulting in insufficient raw ingredients for production, leading to a sudden drop in production capacity.
We judge through statistics that the primary industry is more affected than the secondary and tertiary industries. If you are engaged in industries related to the agriculture, food, and catering supply chain, you must pay attention to it, even if the middle and lower reaches now seem to have little effect, you must also find ways to engage with the upstream.Have a good relationship and help them unblock the logistics chain so that long-term supply can be maintained. Otherwise, after the epidemic has passed, the upstream production capacity will decrease and it will not be able to recover in a short time, which will cause a relatively large problem.
In addition, in the downstream of the industrial chain, due to the blocking of procurement by the terminals and sub-terminals, a collective looting situation has occurred, and prices in many places are rising. We must pay attention to this problem.
Fourthly, the double pressure brought by the upstream out of stock and the decline in downstream consumption has led to a tight accounting period.
At this stage, you are short of cash flow, and I am short of cash flow. The two-way tight schedule is very common. We judge that in such a market environment, if the business is affected by 80-90%, the company can only survive for 1 to 3 months. At this time, the government actually introduced a lot of subsidies and support policies. Enterprises must find ways to make good use of internal and external conditions, apply for subsidies, collect cash receivables, reduce the period of accounts, stabilize cash flow and extend their lifeline.
Aiming at these problems, we divided the existing industries into four levels of influence-S, A, B, and C. The S file industry has these keywords: offline stores, offline leasing, and offline services. According to our statistics, a large number of offline industries have an average impact ratio of about 80% -90%. This type of enterprise has reached the period of operation recovery, which is probably from late March to early April; it may reach the third quarter or even the fourth quarter when it reaches the operation recovery period. Therefore, these enterprises should be prepared for a protracted war, cut costs as much as possible, and protect cash flow.
The second grade A is mainly concentrated in production and supply enterprises, with an average impact of about 50%. Many companies in this category are in an operational state. At this time, we must pay attention to medium-term issues, control uncertainty, and make timely adjustments, such as reducing the frequency, increasing the proportion of single transactions, and transitioning lines.
The third and fourth industries are relatively less affected. For example, some technical service companies have strong demand, quantification capabilities, and work division capabilities, and the losses during the epidemic will not be too great. Big. There is also the online service industry. Although these industries will have more or less efficiency problems, such as office problems, logistics problems, etc., their business will be much less affected than offline industries.
Looking back to sum up, at this stage, most companies have no strength to dry up for a long time. We must think about the issue of sustainable development, open source and reduce expenditure as much as possible, adjust the scale, reduce costs, and consider allowing Enterprises undergo transformation and upgrading. Entrepreneurs don’t have to be too panic, as long as there are appropriate countermeasures and sufficient perseverance, we will definitely get through this difficult time.
03 9 management suggestions in the epidemic situation
I have 9 suggestions for corporate management in the epidemic situation:
Article 1: Upstream is determined by sales, downstream is determined by salesProduction, strive for accountability, and secure cash. We often mentioned the negative cash flow model before. In this special period of the epidemic, if you are a negative cash flow model, the impact is very unfavorable, so we must find a way to fight for the account period and keep cash.
Article 2: Clarify the division of headquarters and economic units, and decentralize / outsource management. Regarding the division of headquarters and economic units, you have to find ways to decentralize and outsource, and throw out tasks. Entrepreneurs have too much to think about at this stage. If they manage everything, it will be very difficult.
Article 3: Reduce the proportion of fixed costs in each unit and delay delivery of fixed costs. During the epidemic, we must find ways to reduce the proportion of fixed costs in each unit, including labor costs, office costs, and business costs. At the same time, delivery of fixed costs should be delayed as much as possible.
Article 4: Reduce offline contact delivery business and increase online business. This epidemic may make China’s business format iterate again. We must follow the trend to further increase online business and reduce offline contact delivery business.
Article 5: Strive for overall transaction settlement of business and avoid offline high-frequency business. At the moment when various supply links such as logistics and warehousing are affected, it is very important to package the business as a whole, and try to avoid offline high-frequency services.
Article 6: Increase credit and improve risk control level, predict and strictly control payment breach of contract. The delivery delay was mentioned earlier. Similarly, when you in turn act as a creditor, you must find ways to raise the level of risk control, increase the industry credit of yourself and partners, and prevent, estimate, and strictly control the risk of default.
Article 7: Increase stocks and increase liquidity with sufficient funds. At present, the industrial liquidity is relatively weak, and capital flow, information flow, and logistics are all blocked. If capable companies can increase their inventory on the premise of sufficient funds, this will help improve liquidity.
Article 8: Flexible structural adjustment, letting go of the whole industry and whole industry chain mentality. At this time, companies must make flexible structural adjustments. First of all, don’t think about the whole industry chain, I will do it all, but think of ways to do one thing fine, and then other things can be subcontracted or outsourced, or even completely handed over to the upstream and downstream of the industry chain. Secondly, in extreme cases, we can Mergers and acquisitions, reorganizations, and interactions with others overlap, allowing companies to continue to activate.
Article 9: Enhance financing awareness. Under the epidemic situation, enterprises must respect the 18-month rule and enhance their awareness of financing. Cash flow will always be the lifeline of the enterprise.
When an excellent entrepreneur manages a company, even if an emergency occurs, the enterprise can run smoothly or transform. The emergence of the epidemic is actually forcing all entrepreneurs to improve their ability to respond to emergencies. I believe that as long as we have sufficient consciousness and high-efficiency measures matched with it, we will definitely put the company into a better state of management.
< / p>In the face of this epidemic, we need to remember a very important rule-the “18-month rule”, which is the golden lifeline for the survival of enterprises. The 18-month rule originally came from Silicon Valley, and there are three points theorems:
1. The cash on the corporate account must support an 18-month survival time. For example, if the monthly cost of the company is 1 million yuan, the income is 800,000 yuan, and the net loss is 200,000 yuan, then you should have at least 3.6 million cash on your account to support 18-month survival. With healthy cash flow, companies are relatively healthy.
2. Enterprises with insufficient cash on their books to survive for 12 months should put financing first. If the company’s cash flow is not enough to support 12 months, then the founder of the company must clearly place financing in the most important position and use various types of financing methods, such as financial leasing and short-term borrowing, to obtain sufficient Cash.
3.CashIf it can’t last for 6 months, companies must consider scaling down while financing. Downsizing includes not only the company’s operating scale and team size, but also the business size. At this time, we must not “step on a few accelerators and step on them together”, but cut costs as much as possible, control the scale and development pace of the enterprise, and return cash flow to a relatively stable situation.
How will the epidemic affect the 18-month rule?
First, companies with high fixed costs will face very big problems at this time. What is fixed cost? Divided into two aspects, one is called fixed operating costs, including manpower, office, hospitality costs, company water, electricity, property costs, and so on. The other part of the cost, we call it the fixed cost of stream transformation business.
What is a stream transformation business? If you buy something from me, I have to pay first, and then buy it, whether it is value-added or directly resold to you, it is considered a stream transformation business. There will be procurement costs, financial costs, inventory costs, production costs and so on. If the periodic fixed costs cannot be handled well in this epidemic, and the revenue will decrease sharply due to the decrease in business frequency, companies will face relatively large problems.
Second, the business sector of contact high-frequency delivery will be greatly affected. Regardless of the supply chain, terminal, sub-terminal consumption and procurement, the high-frequency delivery industry is greatly affected at this stage, because the epidemic is spread mainly through contact. This type of company is bound to face a sharp decline in revenue.
According to our statistics, some offline direct service industries suffer an average loss ranging from 75% to 95%. At this time, companies must find ways to turn high-frequency transactions into low-frequency transactions, and then expand the proportion of single transactions as much as possible. Secondly, the business should go online as much as possible.
Third, the physical industry is subject to production and logistics restrictions, which will lead to insufficient capacity supply. After the supply chain and logistics are restricted, in fact, a large number of goods and materials cannot flow. In addition to the impact of 2 C, it will also have a relatively large impact on 2B. Many companies, such as aquaculture feed factories, have reduced their inventory and supply when the entire logistics / production is limited, resulting in insufficient raw ingredients for production, leading to a sudden drop in production capacity.
We judge through statistics that the primary industry is more affected than the secondary and tertiary industries. If you are engaged in industries related to the agriculture, food, and catering supply chain, you must pay attention to it, even if the middle and lower reaches now seem to have little effect, you must also find ways to engage with the upstream.Have a good relationship and help them unblock the logistics chain so that long-term supply can be maintained. Otherwise, after the epidemic has passed, the upstream production capacity will decrease and it will not be able to recover in a short time, which will cause a relatively large problem.
In addition, in the downstream of the industrial chain, due to the blocking of procurement by the terminals and sub-terminals, a collective looting situation has occurred, and prices in many places are rising. We must pay attention to this problem.
Fourthly, the double pressure brought by the upstream out of stock and the decline in downstream consumption has led to a tight accounting period.
At this stage, you are short of cash flow, and I am short of cash flow. The two-way tight schedule is very common. We judge that in such a market environment, if the business is affected by 80-90%, the company can only survive for 1 to 3 months. At this time, the government actually introduced a lot of subsidies and support policies. Enterprises must find ways to make good use of internal and external conditions, apply for subsidies, collect cash receivables, reduce the period of accounts, stabilize cash flow and extend their lifeline.
Aiming at these problems, we divided the existing industries into four levels of influence-S, A, B, and C. The S file industry has these keywords: offline stores, offline leasing, and offline services. According to our statistics, a large number of offline industries have an average impact ratio of about 80% -90%. This type of enterprise has reached the period of operation recovery, which is probably from late March to early April; it may reach the third quarter or even the fourth quarter when it reaches the operation recovery period. Therefore, these enterprises should be prepared for a protracted war, cut costs as much as possible, and protect cash flow.
The second grade A is mainly concentrated in production and supply enterprises, with an average impact of about 50%. Many companies in this category are in an operational state. At this time, we must pay attention to medium-term issues, control uncertainty, and make timely adjustments, such as reducing the frequency, increasing the proportion of single transactions, and transitioning lines.
The third and fourth industries are relatively less affected. For example, some technical service companies have strong demand, quantification capabilities, and work division capabilities, and the losses during the epidemic will not be too great. Big. There is also the online service industry. Although these industries will have more or less efficiency problems, such as office problems, logistics problems, etc., their business will be much less affected than offline industries.
Looking back to sum up, at this stage, most companies have no strength to dry up for a long time. We must think about the issue of sustainable development, open source and reduce expenditure as much as possible, adjust the scale, reduce costs, and consider allowing Enterprises undergo transformation and upgrading. Entrepreneurs don’t have to be too panic, as long as there are appropriate countermeasures and sufficient perseverance, we will definitely get through this difficult time.