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Survival strategies in times of crisis

June 24, 2020

reading time: 8 minutes

by Tilmann Schaal, LGT

Überlebensstrategien für Unternehmen in Krisenzeiten

The first priority was getting through the lockdown, now it’s time to figure out how to get down to business again: in an Alphazirkel Conversation online with Albert M. Geiger, business owner Philipp Haindl (Serafin Unternehmensgruppe) talked about how the businesses in his holding company fought to ensure they didn’t come to a standstill.

It was in January 2020, said Philipp Haindl, when yarn production at a site in China was suddenly shut down on government orders. The company was located in the middle of a COVID-19 hotspot. Only a few weeks later, however, all 11 Serafin Group companies, which have operations around the globe, were also impacted.

During a webcast by Alphazirkel, a network for SMEs, the co-founder of Serafin Unternehmensgruppe explained how they succeeded in safely navigating through the early weeks of the crisis.

Between a full stop and a slowdown

Philipp Haindl (Serafin Unternehmensgruppe)
Philipp Haindl: "Trying to ramp up production again or to try to keep production running" (Photo: Niko Schmid-Burgk).

"Just about zero," said Haindl about the turnover generated between February and March 2020 by two companies in the hotel porcelain and shoe accessories segments. The companies are part of Serafin Holding, which was founded in 2010, and which in 2019 had a turnover of EUR 900 million. The majority of the companies in the Serafin portfolio are European SMEs that operate in the manufacturing industry.

Not all of the companies were hit as hard – for example, a producer of actually benefited from the situation, explained Philipp Haindl. He took these differences as a positive sign, as they showed that “luckily, we are diversified.” Overall, however, losses prevailed.

Back in China, manufacturing resumed just one week later. Yarns were urgently needed to manufacture protective masks. Company management, the authorities and employees worked together in the midst of the pandemic to organize emergency operations.

According to Haindl, although this example could not be applied in Europe, he recognized how important it was "to be quick and try to ramp up production as swiftly as possible again or to try to keep production running using all available means, despite supply bottlenecks."

The Serafin Group took the incident in China as an occasion to roll out crisis measures in Europe. At the end of February, however, not all of the companies showed understanding for this decision.

A simulation game becomes reality

Because their management had already developed emergency plans in mid-2019, the companies were able to implement the initial measures early on. "At that time, no one knew anything about corona, but it was conceivable that a crisis could come," explained Philipp Haindl.

The point of departure for the emergency plans was a scenario with a twenty percent slump in sales. From there, each company then defined liquidity and cost measures. Only a few months later, the simulation game proved to be valuable groundwork for how they reacted to the crisis.

Yarn production (Serafin Holding).
Yarn production in China: Company management, the authorities and employees worked together in the midst of the pandemic to organize emergency operations (Photo: Perlon Gruppe).

Top priority: liquidity

In the beginning, Serafin’s focus was on securing liquidity, "in other words, ensuring that ideally, less money flows out than comes in," said Haindl. Since a 13-week liquidity projection is the norm at the holding company, it was possible to identify any bottlenecks early on.

Short-time work was another key measure in the short-term crisis response. This was either prepared for or announced everywhere. Applications for a deferral of social security contributions and taxes were also made, so that even with little or no turnover, "emergency funds" remained on the company accounts.

What is short-time work?

Short-time work is a reduction in the number of hours worked and a corresponding wage cut, if, for example, a company temporarily has too little work. In many countries, the state supports companies that have implemented short-time work in continuing salary payments and thus helps to keep employees working at the company during a temporary crisis.

Developments in current assets were also monitored very closely. On the one hand, the company had to ensure its supply inventories were appropriate, on the other hand, it was necessary to carefully check whether clients were paying regularly.

Cost measures – everyone needs to do their part

One of the first cost-reduction measures was to eliminate things that were not business-relevant. This was easier, said Haindl, "than downsizing or taking other far-reaching measures."

Knowing how to deal with employees is especially important when it comes to discussing foregoing pay, he said. If a number of executives offer to waive their salaries, it sends an important signal. "You can't expect just one side to take cuts,” said Haindl, “but you also can't force anyone to accept them."

ALPHAZIRKEL International

ALPHAZIRKEL is the largest German-speaking forum for family entrepreneurs. It has a network that spans across borders and cultures, from Silicon Valley, Scandinavia and China through to Israel. For over 15 years, it has focused on helping to preserve SMEs over generations. In addition to traditional topics, it addresses important questions surrounding innovation and collaboration with start-ups, investors and the impact investment community.

www.alphazirkel.de

He and the holding company set an example early on: as the crisis emerged, all payments from shareholder loans and dividends were halted. As the shareholder, the holding company also ensured the companies had liquidity. During the webcast, Philipp Haindl explained that he is not paying himself a salary as a matter of principle.

Collaboration with suppliers and clients in crisis also proved to be a challenge. Some clients wanted to pay their invoices later than normal while still wanting to receive their orders as usual. Haindl said that as a result, they themselves had to be careful not to pay all invoices they received as usual, seeing as their own clients were not doing so. Nevertheless: "I think relatively little of general payment freezes, especially in the context of companies that actually still have liquidity. Because otherwise, at some point nobody will be paying anymore." That’s why, according to the co-founder of Serafin, close coordination with clients and suppliers was important during the first phase of the crisis.

The holding company as a facilitator for the portfolio companies

Challenge Corona - Entrepreneurs in times of crisis.

As COVID-19 emerged, the approximately 30 employees of Serafin Holding built up key competencies for managing the crisis. They helped the portfolio companies apply for state support and the deferral of tax and social security contributions.

They also helped them in their communication with the banks. This was particularly important in Germany, where state aid is applied for and paid out via the banks. For the applications, business plans and business forecasts had to be prepared. Paradoxically, Haindl said, it was more difficult for debt-free companies to obtain corona aid from the state. Banks were more willing to increase their existing exposure with state support than to grant a new loan.

State aid not granted quickly everywhere

The fine-tuning of aid programs was to enable funds to flow more quickly to companies in need, said Haindl. In Germany, the process is quite long, requiring eight to 12 weeks. France, Spain and Belgium were faster in this area. However, Haindl said that the fact that applications are reviewed makes sense: state corona aid should not be abused in order to keep non-viable companies alive artificially.

Looking ahead

Haindl believes that due to its more complex processes, Germany is likely to take longer than China to emerge from the shutdown. His forecast is therefore defensive: "At present, I would not plan on having the same turnover in 2021 as in 2019." But he does not believe this means investments should not be made. Even companies that have been severely affected by the crisis continued to make investments instead of "saving themselves to death."

In many cases, the crisis has proven to be an accelerant: Haindl said that companies are increasingly producing locally again. With its portfolio companies, however, Serafin has always tried to manufacture as close to the client as possible, for example through operations in China and the US.

Outlook: Entrepreneurs after Corona

The new situation also requires companies to take on a new management style. It is now "more important to be present and communicate with people – especially if you don't see them every day." According to Haindl, in a time when many feel that the world around them is collapsing, solidarity, encouragement and motivation are more important than ever.

After all, he explained, during this crisis, digitalization is more than ever resulting in questions about how companies are positioned. Business models are under threat because "in one fell swoop, the clock has skipped ahead several years," said Haindl.

Despite all of this, he remains confident about Europe's SMEs. As a community that shares a common destiny, he said, they are reliant on each other. But they have proven their ability to further evolve time and time again. Haindl does not expect Europe to become a second Silicon Valley, but rather a continent of SMEs which, as in the past, are competitive and innovative.

Entrepreneurs by tradition

The Princely House of Liechtenstein, the owner of LGT, has been successfully pursuing entrepreneurial activities for centuries. Entrepreneurial thinking and actions are deeply rooted in LGT’s DNA. That is why we also support Alphazirkel, the international forum for family entrepreneurs.

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