Tech CEOs “not prepared” for Covid-19 recession
06 May 2020 | Melanie Mingas
Governments weren’t the only ones caught off guard when the Covid-19 pandemic took hold earlier this year – new research from Gartner has found that as many as 55% of tech CEOs also failed to begin preparations for the potential economic downturn a modern pandemic brings.
The question, added to Gartner’s annual Tech CEO Survey as initial cases were being reported in Q1, was answered by 285 respondents in North America, Western Europe and Asia/Pacific with the title of CEO or equivalent.
The survey was conducted online between December 2019 and February 2020, as media coverage and global concern started to mount, and engaged organisations from the high-tech industry with an anticipated 2019 annual revenue of up to $250 million.
“While the survey found that 43% of tech CEOs were worried about an economic recession impacting their revenue growth in the next 12 months, many delayed taking action to prepare for this eventuality,” said Patrick Stakenas, senior research director at Gartner.
“As funding and available capital becomes scarcer in the weeks and months ahead, even after the Covid-19 outbreak slows down, tech companies will have to survive off existing customers and cash in the bank while the current market persists.”
Stakenas offered two pieces of advice for CEOs: to use their cash burn rate to calculate the company’s financial runway, and to determine the “critical actions” for survival.
Cash burn rate is calculated by adding all operating expenses – including salaries, rent and overhead – to obtain gross cash burn, and all payments from customers to obtain net cash burn. This measures total companywide cost impacts and cash usage.
Stakenas said: “Cash flow is the key measure of success or failure for companies in these current circumstances. Start-up tech CEOs must measure cash flow on a weekly basis. With a ‘worst case’ forecast in hand, they can determine the crunch points and assess the company’s ability to survive Covid-19.”
On the second point, Stakenas added: “Companies who have less than 18 months of financial runway must eliminate all possible costs. The reality is that start-ups strapped for cash will need to run the business very lean to survive.”
The insight is backed by similar observations from NTT Ltd, which found the global Covid-19 pandemic is influencing business leaders to reprioritise the security of their networks.