Coronavirus : How bad will this outbreak get?

Where do we stand today?

The outbreak continues to spread — As of Feb 1st, the WHO has confirmed around 12,000 cases, and more than 2,000 alone was confirmed on Saturday (That’s roughly 18% of the total reported cases). A total of 48 provinces across 28 countries have been affected. However, only a little more than 2% of these cases were found outside China. Although this number might seem small, Wuhan, the city at the center of the outbreak, is a major transportation hub of the country. Inter-city travels increasing because of the Lunar New year has aided the outbreak to some extent. During Oct-Nov last year, close to 2 million people flew out of Wuhan and roughly 120 thousand people flew outside the country as well. Hence the outbreak of Coronavirus remains a major concern across the globe.

How Contagious is the Virus?

The pace and ease at which any outbreak spreads, determine its scale. The Report published by the Imperial College of London suggests that a person suffering from Coronavirus can affect 1.5 to 3.5 healthy people. According to the New York Times, if 5 people with new coronavirus can impact 2.6 others, then 5 people could be sick after 1 Cycle, 18 people after 2 Cycles, 52 people after 3 Cycles and so on.

A look into the future — Number of Confirmed Cases will rise to over 38,000 by the end of next week!

It is difficult to predict the outbreak using a time series model, given we don’t have enough data points. Let’s take a look at the growth rate in confirmed cases over time. Three key parameters need to be considered when looking into a time-dependent variable.

• Trend — Is there a linear increase in the magnitude of the variable over time? e.g. Does growth in confirmed cases increase with time?
• Level — What is the average value of the variable over a period of time? e.g. What is the average growth figure in the last 6 days?
• Seasonality — Do we see a similar pattern in values across specific intervals? — Do we observe similar trends on Specific days, higher confirmed cases/growth figures every Monday?

Data Source: WHO Situation Report

Assumptions and Insights

• Assumption — Outbreaks will continue to grow since the initial volume of confirmed cases is low, we can only look at figures after the growth rates have stabled out. Else numbers might get skewed
• Lack of Seasonality in growth figures of confirmed cases. Feasible because of fewer data points; However growth rates have started declining owing to a larger volume of Confirmed Cases
• A combination of previous day value, alpha, and previous growth rate can be used to predict the outcome for the next 7 days; where alpha is the average of the change in growth rates over time

One Note to Companies owners, founders CEO’s reference from Black Swan

Dear Founder/ CEO’s ,

Coronavirus is the black swan of 2020. Some of you (and some of us) have already been personally impacted by the virus. We know the stress you are under and are here to help. With lives at risk, we hope that conditions improve as quickly as possible. In the interim, we should brace ourselves for turbulence and have a prepared mindset for the scenarios that may play out.

All of you have been inundated by suggestions for precautions to take around COVID-19 to protect the health and welfare of you, your employees, and your families. Like many, we have studied the available information and would be happy to share our point of view — please let us know if that is of interest. This note is about something else: ensuring the health of your business while dealing with potential business consequences of the spreading effects of the virus.

Unfortunately, because of our presence in many regions around the world, we are gaining first-hand knowledge of coronavirus’ effects on global business. As with all crises, there are some businesses that stand to benefit. However, many companies in frontline countries are facing challenges as a result of the virus outbreak, including:

• Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.
• Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.
• Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges. While The Fed and other central banks can cut interest rates, monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis.

We suggest you question every assumption about your business, including:

1. Cash runway. Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business? Ask these questions now to avoid potentially painful future consequences.
2. Fundraising. Private financings could soften significantly, as happened in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021? Could you turn a challenging situation into an opportunity to set yourself up for enduring success? Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987. Google and PayPal soldiered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. Constraints focus the mind and provide fertile ground for creativity.
3. Sales forecasts. Even if you don’t see any direct or immediate exposure for your company, anticipate that your customers may revise their spending habits. Deals that seemed certain may not close. The key is to not be caught flat-footed.
4. Marketing. With softening sales, you might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending to maintain consistent returns on marketing spending. With greater economic and fundraising uncertainty, you might even want to consider raising the bar on ROI for marketing spend.
5. Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
6. Capital spending. Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment. Perhaps there is no reason to change plans and, for all you know, changing circumstances may even present opportunities to accelerate. But these are decisions that should be deliberate.

Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”

A distinctive feature of enduring companies is the way their leaders react to moments like these. Your employees are all aware of COVID-19 and are wondering how you will react and what it means for them. False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action. Avoid this trap by being clinically realistic and acting decisively as circumstances change. Demonstrate the leadership your team needs during this stressful time.

Stay healthy, keep your company healthy, and put a dent in the world.