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What Can MSME Owners Do To Manage COVID-19 crisis?

This crisis has also raised red flags about the current business models. MSME owners can prepare a list of learnings from this crisis situation and also explore alternative business models.

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Micro, Small and Medium Enterprises (MSMEs) are the worst hit by Covid19. It is going to be a difficult year for most of the MSMEs. Many MSME owners are at a loss on what they should be doing next. Most of them are anxious about decreased revenue and their inability to reduce expenses. On the top of it, nobody knows when the clouds of uncertainty would disappear which has made future planning difficult too. Here are a few suggestions that MSME owners could consider to manage the crisis.

1) Assessment of the current scenario: The objective of this assessment is to understand how vulnerable the organization is.

To assess it, the management can first prepare a list of all the key resources that they deploy in the business and rank them in the order of potential risk.

Management can look at key resources like employees at various level (are they safe and will they stay with the company?), raw materials (how the supply of raw material is affected? What is the potential of this risk?), capital (How much cash-in-hand the organization has, how much money is stuck in credit cycle and chances of getting it back), land (will there be issues related to the lease, rent payment?) etc. It’s important to take a stock of owners’ personal wealth also. In MSMEs, family and businesses are inter-twined; so it is important to make an assessment of what can be liquidated and what can’t be. This might give some owners comfort and confidence to come out of the crisis.

2) Management Intervention: The objective of this step is to understand if the management/owner could overcome the crisis or not.

After the above assessment, make a list of what all needs management’s intervention and what kind of intervention would be required? To understand this, management is required to assess what can be controlled and what can’t be controlled? for example: If the organization has debt burden and interest payment is due then this needs management intervention. What is it that the management wants to do with this? —want to postpone the payment and send a request to the lender OR pay it. Management can keep a track of employees’ safety by staying in touch with them and assuring them that their jobs will stay intact. While large companies are considering lay-offs, it may not be a viable option for MSMEs because MSMEs struggle to find good employees. The current situation demands to look at all the aspects of business. For example, balance sheet items can also help the management in making a list of some interventions. Again, it is crucial to think of the possible interventions that the owners might have to make in their personal wealth or projects related to that.

3) Digitization: Not many MSMEs have ridden the digitization wave; this might have made them more vulnerable. Management can think if some steps in this direction can be taken to facilitate work from home or if the lockdown period can be used to take a step forward in this direction.

4) Collective ownership by Stakeholders: The objective of this step is to involve key stakeholders in decision making. Management can talk to suppliers and discuss with them how everyone can collectively revive the businesses. If the organization is into B2B business, then the conversations with customers will also help in making a plan that is in sync with the organization’s supply chain. This is an important step; otherwise, if the organization is ready to revive the business but its channel partners/suppliers and buyers are not ready then the entire revival plan could fail. This is the time, when the top management of the organization needs to mobilize all the stakeholders and align goals.

5) Co-opetition with Competitors: The objective of this step is to co-opt with organization’s competitors.

Co-opetition means cooperating as well as competing. Covid19 crisis has affected one and all. All the competitors of any industry are in the same boat; therefore, competitors could come together and brainstorm ideas on how to revive the industry. Some industry leaders could take lead in having informal/formal webinars around it and share ideas. This way, a vast knowledge base can be tapped.

6) Preparing the Plan: The objective of this step is to have a ‘to-do-list’. Prepare short term goals which is the list of initiatives that the management would take immediately (in next 10-20 days) and medium term goals which are initiatives that the management will take in the quarter after the lockdown is over. It is difficult to plan for long term in such an uncertain environment.

7) Communicate with the Stakeholders: The objective of this step is to inculcate the idea of co-ownership among stakeholders.

Communicate organization’s plan of revival and renewal to all the stakeholders (employees, suppliers, buyers, intermediaries etc.) because they are worried too. Some kind of positive communication from the management to stakeholders on regular basis (say fortnightly) would help in reducing everyone’s anxiety and also inculcating co-ownership related to the plan.

8) Roll out the plan: The objective of this step is execution of the plan.

Roll out the short term plan and keep a watch on its progress and outcomes. Don’t lose heart if things are not working out because some of it will be beyond anyone’s control. Therefore, it is important to understand what is controllable and what is not controllable. Also, start preparing the organization for rolling out the medium-term plan so that all the stakeholders are ready once the lockdown is over.

9) Contingent Plan: The objective of this step is to plan for bankruptcy if it looks unavoidable. Though it is difficult for anyone to imagine and accept that the organization could go bankrupt but one needs to be strong and assess this scenario as well. What if a situation of this sort is unavoidable, then what all the owners would do or need to do? (again one can follow steps 1 to 8 and rework on them accordingly). It seems like a pessimistic scenario but business owners, with no deep pockets and with no cushion to bear a loss of one year, needs to think about a contingent plan too.

Hopefully, the above steps will provide some direction on what could the management of MSMEs do to manage the crisis. This crisis has also raised red flags about the current business models. MSME owners can prepare a list of learnings from this crisis situation and also explore alternative business models or ways of generating revenue and cost efficiencies

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Prof. Chitra Singla iim ahmedabad COVID-19 msme

Prof. Chitra Singla

Associate Professor in Business Policy Area at IIM Ahmedabad

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