My last blog post talked about the effects of the coronavirus that appeared on Sunday, before Monday’s fall in the market. Now, I want to look at the impact if the coronavirus comes to the U.S., as the CDC expects.

 

Slowing the Spread

Listening to a virologist today, he said that if the virus comes, the way to slow the spread is:

  • Stay home if you are sick;

  • Keep kids at home if they are sick;

  • Avoid unnecessary travel; and

  • If it gets worse, stop large gatherings of people, i.e., sporting events, conferences, and church congregations.

  • Also, firms should look at ways to allow workers to telecommute.

All of these suggestions are fine in principle but unlikely to be effective immediately due to the nature of the U.S., namely:

  • No social net, so people are unlikely to stay home if sick. Under many changes to SNAP and other programs, people who don’t work are ineligible for benefits, so they will keep working as long as they can.

  • Inadequate health insurance for many due to the current administration’s rollback of the Affordable Care Act regulations and allowance of so-called “junk plans” in the market, with the result that many poor people will not get tested due to the costs;

  • No security net for parents whose kids are sick and cannot afford to stay home and look after them. They will send their kids to school because their children need food and they need to work.

  • No security net for many gig workers, i.e., Uber drivers, who are will see a fall in income as travel decreases. If the virus transferable through surfaces, this will be even worse.

  • No social net for many workers in the travel industry, i.e., hotel employees, wait staff at restaurants, and those at conference venues as travel expenditure falls.

Therefore, sick people will stop working only when companies shut their doors. Many firms are unlikely to institute testing due to cost concerns; thus, I expect many firms to operate until the number of sick people is so high that the firm has to close.

Thus, I see the spread being higher and faster than in China and Italy, which have instituted significant measures to stop human contact. If the government does implement the type of action that China and Italy have, we can expect a fall in incomes, an increase in bankruptcies, and more social unrest.

 

Supply Chain Disruption

A virus in the U.S., for the reasons above, would further disrupt the supply chain as iI discussed in my previous post and by others. Companies would get into issues, due to:

  • No Products due to a lack of raw materials, a lack of workers to build products, or in the travel industry, no customers.

  • No Sales. The end customer may no be purchasing as they cannot use the products as they have too much inventory or just a reduction in demand as workers stay home.

The effect of this would be to slow sales, but more importantly, slow down cash flow and thus cause far more significant damage. Companies don’t go out of business because they lose money; they go out of business because they run out of cash. Several articles have mentioned the precarious financial position of low credit corporate borrowers. If cash flow dries up, we can expect many of these companies to fail, leading to a domino effect on healthier ones, as we saw in 2008. Also, many over-leveraged companies would have to implement drastic measures to survive; thus, we can expect more layoffs and fewer purchases. None of this bodes well for the economy. Given that Goldman has dropped its GDP forecast to 1.2% for the quarter, we could be negative territory as global demand slows, and more disruption of global supply chains continues.

 

The Effect on the Medical Establishment

Overall, from what I have read, I don’t see many people dying given the fatality rate of coronavirus. However, if there is a widespread infection, hospitals would be overwhelmed due to a lack of investment and preparedness in them over the decades. Also, with many insurance policies providing limited coverage, the medical facilities could face significant uncollectable expenses, further damaging them. Leading to a further deterioration in the medical establishment, especially in rural areas.

None of this bodes well for slowing the spread or helping the economy recover quickly. However, if there is underinvestment in medical facilities, cuts to emergency pandemic response teams, and no security nets for the poorest in the economy, as we saw in 2008, the bill always comes due, and we hate paying it.

 

Copyright (c) 2020, Marc A. Borrelli

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.