How Coronavirus Has Infected Digital Assets in a Soaring Market
On a day like any other, someone coughed, sneezed, or shook someone’s hand.
And it changed everything.
The coronavirus has spread globally after starting in the epicentre of Wuhan, China. Just today, the World Health Organization (WHO) has labelled this new virus a pandemic. The virus will hop from town to town, city to city, country to country, until it has traveled across the whole world.
Now, the virus is wiggling its way into more ephemeral territory – digital assets.
While it can’t infect websites, SaaS or physical products directly, it does infect the whole goal of all these things – the customers they were built to serve.
The virus has caused ripples throughout the e-commerce world already, with Alibaba announcing delays in a Facebook post and Wayfair reporting a 24% drop in their stock on February 28th, with over half of their manufacturing relying on China as their supplier. Amazon has begun to instruct its employees to limit non-essential travel. A strange cottage industry of mobile apps is developing in Korea, where people are seeking apps that can show them where the infected have traveled.
The shadow of the coronavirus lurks around the corner, haunting every industry as it wanders the world.
But is this phantom just a bunch of hot air?
Maybe. Maybe not.
We can’t really say, but we do know that we’ve bounced back from epidemics over the last twenty years alone. While the coronavirus reminds the WHO and countries around the world of important lessons once the danger has passed, there are also lessons to be learned for you as an entrepreneur that are valuable right now and into the future.
Key Business Takeaways from the Coronavirus
Let’s look at the lessons can be gleaned from this concerning crisis. These are lessons that, if taken to heart, will not only help you circumvent the next crisis but will also ultimately give you a much stronger, more valuable business in the long run – one that you could also sell for a considerably higher sum on our marketplace.
Critical Points of Failure
When it comes to finding the value a business has, one thing we look at is what would be considered the critical points of failure. These are points whose failure would lead to the failure of the business as a whole.
For instance, if you’re an Amazon FBA entrepreneur and Amazon changes its policy disbanding the entire program, well… You don’t have a business anymore.
If you’re in e-commerce and 100% of your products are supplied from China, and a virus comes in like a wrecking ball making it impossible for you to get products to market, then you may not have a business anymore (depending on how long it lasts).
However, let’s say you were that Amazon FBA entrepreneur.
You expanded off of the Amazon FBA program. Maybe you expanded into other marketplaces like Walmart, Houzz, Jet, etc. Or maybe you created your own branded store using Shopify, where you can really start building your own audience. In this situation, while it will hurt if Amazon disbands the FBA program, it won’t be the end of your business.
Likewise, if you had been savvy in looking for other places to source your products besides China, then the coronavirus would likely not be as large a business concern for you as it will be for others. There are plenty of developing countries coming online that are hungry for your business, from Thailand to Vietnam among other emerging markets. Even factories in the USA can make competitive offers on some products, or at the very least serve as a backup to your main supplier in order to meet demand.
Developing these kinds of supplier relationships and setting up a diverse supply chain puts you at a huge advantage. While your competitor is out of stock because they can’t get any of their product through, your network of relationships will keep your shelves stocked (until people buy them in droves, perhaps at higher prices since they can’t get them anywhere else).
Should E-Commerce Entrepreneurs Say “No” to Chinese Suppliers?
The short answer is no.
China has massive amounts of infrastructure in place that makes the entire process far easier than most other options existing today. The more nuanced answer is that China shouldn’t be your only source of supplier relationships. If you’re interested in long-term stability, then building supplier relationships in other areas of the world makes sense. As mentioned, there are plenty of options coming online and becoming competitive with China for you to explore.
For many e-commerce entrepreneurs, having a non-Chinese supplier as a supplemental supplier might be all you need. If you’re looking to truly scale though, then perhaps it will be worth your while to go the route of looking up suppliers in several different countries.
It’s not much different when considering multiple traffic sources.
Many e-commerce store owners rely on a single traffic channel, such as Facebook ads. While these ads can make for a very profitable business, they can also put you in a dangerous situation if prices of Facebook ads rise too much, if Facebook makes significant changes to their algorithm, or even worse, if they shut down your account without allowing you any avenue to get the account back.
It remains to be seen what will happen with this virus long-term, but there’s no question it’s causing problems for many e-commerce companies in the short-term. The issue will likely lead to huge losses of profit, a slowdown in company growth, and overall frustration and stress for all who are not prepared.
Those short-term obstacles are hard to overcome if you didn’t do the legwork before a crisis appears. And that brings us to our next key lesson.
Recession Preparation is a Must for Entrepreneurs
We’ve been experiencing the longest running bull market in history.
It is easy to think everything will just continue to increase in value, but we’ve seen what kind of folly that thinking can become. The coronavirus is a reminder that markets are not in a persistent state. It’s easy to forget that when times are good, but hopefully this is a lesson that will stick once we get through the storm.
A recession could come from anywhere, at any time, and in any form of severity.
If the coronavirus triggers a recession, then it would be a “black swan” event—that is, something that just couldn’t have been predicted. And to be fair, most studies that claim a recession is coming with any particular timeframe tend to be wrong because… well, macroeconomics is hard.
If you prepare in the good times for the bad times, then when those days roll around you’re going to be in a far better position than the investor or entrepreneur who believes that charts can only go up.
Look at your current runway. How long could you go if everything went bad? What is typically recommended for personal finance is around six months’ worth of savings. Would your business last six months at zero revenue?
If the answer is no, then you may want to reconsider your budget allocation.
While growth is the sexy thing everyone wants, it is often the conservative investor that wins at the end of the day. Growth in and of itself can often kill a company even in the good times, much less the bad times. It is all about a balancing act. Entrepreneurs could take a lesson from investors. A solid runway allows you to play that balancing game better, and preparing for hard times will allow you to stay lean while your competitors become lazy and inefficient.
Build your runway, play the balancing game, create growth, but also have a safety net.
And when the recession does come?
If you did everything right, you’ll be able to out-maneuver your competitors, grow faster, likely make more money than your competitors thanks to your preparations, and deploy more capital into either building digital assets to sell or buying lucrative digital assets at a discount from entrepreneurs who weren’t as prepared as you.
If you do the above it may be like any other day.
Probably a very good day.
If you’re looking to sell your business and have any concerns about this crisis (or just in general), give us a call. We’ll help you create a profitable exit plan to make sure you get the exit you deserve.
If you’re looking to invest into digital assets and build a portfolio of profit-producing businesses, set up a time for a criteria discovery call, where we’ll help you find the perfect match based on your skills, goals, budget, and lifestyle.