MNP Business Insights

Business Sentiment: Pivoting to Optimism

June 15, 2021
Presented by:

An interview with Yohann Thommy, MNP, Partner, National Leader Performance Improvement

Initial Reactions to COVID-19

Initially, we were just talking about a 12-week wage subsidy from the government, but a lot of businesses have really been able to take that money and change their business models, capitalize their business, invest in innovation, and change their products, services and the way they go to market through digital. On the other hand, a lot of businesses took the money and invested it to keep people employed, which kept our economy moving ahead. I think people are worried about a third wave, and is the government going to support them in the same way. I think the recovery is going to be long and at some point the government funding will stop and businesses will have to operate under business models that are not subsidized – this will be difficult.

The Advantanges of Long-Term Thinking

What I was advising clients to do was to spend a proportional amount of time thinking about the long term, but also to try to get a good cash flow going in the short term. It was important to ensure a good 13-week cash flow, understand exactly what the issues you were going to have to meet, then go to your lenders – your financial partners – and make sure you have enough capital to survive the short term. Also, I told clients to build in a certain amount of reinvestment capital. If you’re going to go ask people for another million dollars to make sure that you get through the pandemic, can you spend $200,000 of that million to retool and help propel your company out of that tidal wave that’s approaching? Some companies did that, but most spent time deciding which government program to apply to, and that’s where their mental space was focused on. They didn’t spend enough time looking at capital investment, strategic renewal and digital investment.

Turning a Negative into a Positive

I think there are a handful of companies that used this disruption as an opportunity to change. Some business leaders said to themselves: “Here’s an opportunity to do some of the things that we’ve always wanted to do.” A great example is Pepsi. They took the opportunity to launch and change their distribution model. Some companies value these opportunities, and they make quick decisions to pivot. Unfortunately, most small to medium-sized companies weren’t thinking about this disruption as a positive. Now, one very practical thing companies can do is think through the next five years and consider what opportunities are going to come out of all this. How do these companies create solutions for their customers in the marketplace?

Case Study: What Worked During COVID

I have one client that is a furniture business. When COVID first happened, they recognized that people will likely not be selling their homes, but instead more likely be spending more money in making their homes a little more livable because they’re going to be spending more time there. This company actually went to their logistics partners and suppliers, and they locked in greater volumes for delivery of products at reduced rates. It’s really interesting because today, if you want to order furniture, you click on the furniture piece you want and in most cases it is sold out – it’s hard to buy furniture. This company has tripled sales since COVID because it has stock. Profitability has gone through the roof because it negotiated rates that were really low at the start of the pandemic.

Surviving and Thriving

If you’re a business that imports anything into Canada as part of your cost of goods sold, there’s going to be some amount of imported inflation. We’re already seeing it in that we are paying a lot more for our groceries today than we were eight months ago. We’re already seeing a little bit of a liquidity crisis. In some industries, sales have dropped, and it’s harder to go back to the bank and ask for more money. When your sales have dropped, your profitability has dropped. So, the one piece of advice I would give any company is to engage in a products and services rationalization conversation. What I mean by that is: make your bets, make them strategically and don’t look only at profitability.

Optimism Rages On

COVID has shown that many companies are very nimble. We look at opportunities and we can fix them. I think that I’d like to see some of these government grants and loans encourage some of that behaviour. I think we will come out of this stronger and more innovative. You can already see technology companies in our country grow through this pandemic and become market leaders because they have embraced some of these disruption points. If you’re a business leader, you will start thinking about how to disrupt your industry on a global scale. I’m very hopeful and I believe we’re totally capable of recovering. We’ve shown that we can be great.

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