Over the past few weeks, we’ve seen publications and communications across many well-respected venture capital firms and tech-focused publications designed to help entrepreneurs in the tech space prepare for the worst while hoping for the best.

Local businesses and communities will face similar challenges. With the proper preparation, however, entrepreneurs can set themselves up for success, regardless the climate.

“Companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1-2020 plans as the effects of the virus ripple wider” ~ Coronavirus: The Black Swan of 2020, Sequoia Capital, 3/5/20

On a global scale, businesses are already starting to see the impact of market speculation stemming from COVID-19. A recent open letter penned by Sequoia Capital, a long-tenured and top-tier venture firm in Silicon Valley, highlighted some of the markers already being seen across markets. The current strategy for prevention has centered around containment and there are many key measures local community businesses can put into place to lower the risk of spread and contagion. Beyond that, it is important for small business owners to plan for a situation where revenue and profit may decrease meaningfully for multiple quarters (i.e. half a year or more).

Remember that the number one job of an entrepreneur during a recession is keeping the company alive. With the goal of building resilience in our local economies, MainVest has prepared some guidance to help local entrepreneurs mitigate the spread of COVID-19 and stay ahead of a potential economic downturn.

Prevention (What you can do at the brick and mortar level)

1. Hand-washing: The Occam’s Razor of disease/virus prevention. Wash regularly and consistently. As silly as it sounds, we’ve added recurring calendar reminders daily to our entire team’s calendar to help keep cleanliness top of mind. Here’s a WHO diagram for best practices.

2. Flu vaccination: Flu shots are available (and free) at most pharmacies. Ensuring your employees and staff have flu shots won’t prevent them from getting COVID-19, but will prevent them from getting the Flu and thinking it might be COVID-19 (Massive shoutout to Elad Gil for this salient point)

3. Cleanliness of Workplace: Wipe down public areas, early and often.

4. Self-care and Employee Care: If possible, work with staff to plan fluid staffing plans, in case scheduled employees get sick.

Cash Flow Management

When anticipating a down-turn in the economy, it's a really great time to start thinking about your cash flow. There are two ways to think about cash flow - cash in (sales) and cash out (expenses).

Some ways that you can reduce your manage your cash flow include:

1. Renegotiate rent: Start talking with your landlord about how you guys can work together to weather an economic recession. It's in their best interest to lower your rent and allow your business to survive through a down time so that you can thrive during more positive economic conditions

2. Reduce utility costs: Research how you can secure the lowest prices for utilities like water, power, internet and phone bills. Let the different vendors know that you would be willing to switch if they can provide discounts.

3. Cut wasteful spending: Look through all of your costs. What can you do without? Figure out where you can save money without reducing the productivity of employees, employee morale or reducing revenue generating initiatives. Separate fixed costs (rent, utilities, payroll) from variable costs (marketing and advertising spend, new product development, etc). Have a good sense of what you can scale your monthly operational costs down to while maintaining business operations.

4. Lease or buy used equipment: During or before a recession is not the best time to invest in shiny new equipment. By leasing equipment, you are reducing risk and increasing cash reserves in the short run. A recession can be as little as 6 months and last longer in dire situations. The goal is to maintain business operations in situations where revenue softens. Keep calm and weather the storm.

5. Reduce Inventory Costs: It's time to get creative about how you can save on costs. You can cut down on inventory that does not sell as quickly or as well as other inventory. Additionally, don’t be afraid to negotiate with your suppliers and explore your different options. Perhaps there is a vendor out there who can supply you at better rates, without sacrificing product quality.

6. Don’t stop investing in marketing and differentiation: Just because you're being frugal, does not mean stop investing in marketing your business. Now is the time to stick out among the competition. Focus on your loyal customer base and give them reasons to keep coming back. Use the down time as a way to rally your employees together and have them provide an even better experience than they were providing before. Be extra appreciative to your customers by saying thank you and wishing them a good day. Give them coupons to bring them back in.

Ask your employees for feedback on how you can provide a better experience, your front of the line employees who deal with customers everyday will know best. Often times constraints can lead to creativity.

Capitalization

The first question to ask yourself as a business owner with a potential recession is: How long can my business survive with 20-30% less revenue. If your answer is less than 3 months, it’s probably a good idea to secure some preemptive capital. It’s also a good idea to find capital terms that make sense for the ebbs and flows of a potential economic downturn.

Businesses that take investment on the MainVest platform utilize a type of security called a revenue sharing, or revenue participation note. The revenue sharing note was built specifically to create aligned incentives between businesses and investors, and provide flexibility during unforeseen events (like economic downturns), while rewarding investors when businesses are growing.

Beyond the structuring of the security, taking community investment further aligns incentives between communities and businesses, driving further resilience while giving entrepreneurs a support network through literal community buy-in.

Community investment isn’t a fit for every business, however, so always consider other options and resources available:

• SBA

• Local SBDC's and Economic Development groups

• The Runway Project, Accion, and other lenders

• Community Banks

If you have any questions, the MainVest team will be holding open office hours at their Salem, MA Headquarters as well as virtually to help small business owners prepare for the worst while hoping for the best. For more information, contact info@mainvest.com.