In Germany a zoo has been forced to feed animals to animals, airlines are retiring planes and laying off employees and brewers pivot their business model by making hand sanitizer in an attempt to stay afloat during the crisis.
All around us we see examples of business models being affected by the Coronavirus and in this article, I present a framework you can use to assess the impact of Coronavirus on your business model.
What is a business model?
Your business model describes what value (the value perspective) your company delivers to whom (the customer perspective), How (the resource perspective) value is created and how much (the finance perspective) your company is earning in exchange for delivering the product or service. (See model)
Understanding Coronavirus’s impact on your business model
Understanding the impact of the crisis on your business model from each of the 4 perspectives require that you map out the impact on each of the building blocks that fall under each perspective. You do this by asking the questions listed under each building block.
The customer perspective
#Customers
Has the crisis affected the composition of your current customer base? your customers spending habits and behavior? Has it created new needs (jobs-to-be-done) or frustrations that you could address?
Many companies have reported a change of mindset among their customers over the past months from a “growth” to a “survival” mindset. Customers feel out of control and have become risk averse. They primarily spend money on daily necessities and cut back on luxury items and investments and when they do invest, they have a short-term ROI.
But it is not only customers mindsets that have changed. Many customers have been forced to stay home due to the lock-down. This in turn has increased demand for e-commerce and online communication along with home delivery and self-service solutions.
Some customer have been hit hard on their financial situation and are asking their creditors to defer mortgage payments and to extended credit facilities.
#Channels
Has the crisis affected the channels you use to attract, sell and service your customers? Have you started using new channels?
In general, the use of offline channels has decreased dramatically during the Corona crisis. Brick and mortar stores have been forced to shut down and physical meetings, lectures, consultations, trade fairs, conferences have been banned by legislation.
Online channels and e-commerce on the other hand have flourished during the crisis. We have seen a surge in “Smart” working/learning based on various forms of streaming and witnessed a growth in telemedicine, web shops and online communities.
In addition, the growth in home delivery has paved the way for more drones and driverless transport which has some interesting perspectives for the future.
#Customer relationships
Has the crisis affected how you establish, nurture and grow your relationships with your customers? Have new ways of nurturing and growing relationships presented themselves?
As many customers are stuck at home companies have been forced to meet their customers here, implicating among other things: growth in home delivery options, contactless operations and self-service solutions.
Companies also tend to keep their customers close and nurture relationships by finding ways to help them weather the crisis from home. Examples of this is: expending credits, offering free periods of service etc.
The Value perspective
#Value proposition
Has the crisis affected your ability to create value for your customers? Is your value proposition still relevant?
In general customer needs have not fundamentally changed during the Corona crisis. People still need entertainment; students still need education and companies still need financial advice.
But if you are a university, a bank or a cinema your ability to deliver on your value proposition is probably limited. And if you’re unlucky or not careful your value proposition might become irrelevant during the crisis as customers replace your value proposition for other value propositions like when e.g. customers replace cinema with streaming.
The Resource perspective
# Key resources
Has the crisis affected your key resources? Have existing resources lost influence and new resources become key?
If you’re an airline, a theatre or a Gym you will likely have experienced a decrease in the utilization rate of your core assets. You might have been forces to retire assets like e.g. airlines that retire older planes and zoo’s that put down some of their animals in an attempt to reduce costs.
As a retailer, you might have been forced to substitute in store employees for IT employees to power your new e-commerce business. Or, you might have been forced to reskill your employees to fill new roles like e.g. hospitals where nurses are reskilled to allow them to work in intensive care.
For most companies the average productivity of employees has been more or less affected by the crisis. Either because employees are down with Corona or because the are forced to work from home.
#Key activities
Has the crisis affected your key activities? Have some activities decreased in importance and others become key?
If you are a factory owner you might have experienced a decrease in productivity of your factory. Maybe the decrease was related to supply chain issues when Chinese suppliers shut down production for several weeks and the transportation of goods was restricted.
You might also have experienced that recruiting new employees has become more time consuming and more difficult as job interviews have moved to streaming platforms.
You probably also have experienced how health and safety activities have taken priority almost anywhere to ensure the well- being of both employees, students and customers.
#Key partners
Have your key partners been affected by the crises? Have new potential partnerships surfaces?
Maybe you have suppliers that struggle to deliver on contracts or whose deliveries are delayed. Maybe you have suppliers that have filed for bankruptcy? Maybe you have partners that attempt to challenge, invoke or seek to renegotiate contracts as they come under pressure?
The finance perspective
#Revenue streams
Has the crisis affected your revenue streams? Which revenue streams are up and which are down? Have new revenue streams surfaced?
Four general trends apply for most businesses: Orders and revenue is down, sales have moved from offline to online channels and from in store to home delivery. In addition, more business rely on government aid and compensation schemes to survive.
But while there is lots of government support available for businesses during the outbreak, some companies are actively attempting to “pivot” their business and come up with new revenue streams: Example of this is brewers making hand sanitizer or Gyms that rent out fitness equipment.
Finally, companies that rely on subscription models have proven more resilience to the crisis and display better cash-flow.
#Costs
Has the crisis affected your costs? Which costs are up and which are down? Have your started to incur new costs?
As a general trend wages are down as are marketing costs and travel expenses. HSEQ costs are up and the same goes for IT and communication costs.
Are you holding a considerable inventory? In the short run this might not be a problem but as the crisis drags on you will have to find a way to bring this inventory down to free cash and to avoid having to dispose of the goods when they expire or go out of fashion.
Maybe you rely on external financing which is weighing you down as interest rates go op following the crisis.
