Author: Victor Romero – CEO of Mercury Cash
March 30, 2020, [Tallinn-Estonia], To familiarize ourselves a bit with the sequence of events, consider the following nomenclature.
Day 0 = First reported case
Day 1 = Stopping the supply chain, closing borders.
Day 2 = Withholding of economic income on day 28 after day 1
Day Z = Vaccine / Natural Immunity / Restart of economic activity
D-Day = Rupture of civilization, registration of the first anarchic event
Growth factor = average daily percentage of spread of the virus, example if the growth is 7% daily the growth factor would be 1.07
Runaway = Track time to maintain sales operations with 0 income
In 4 years that we have been undertaking in the cryptocurrency industry, we have always prepared ourselves to lead the company towards success against all odds, COVID-19 tests us once again, as a startup it is well known what the Runaway means, to summarize it means that the first months or years you work hard until achieving the MVP, the company plans to operate without income until it can have the product on the street and thus generate income, however, today the world is testing us in a complete different way, it pushes us into a Pre-MVP era with MVP, for this reason I think startups will be the most likely to survive this recession.
Phase 1 (From day 0 to day 1)
Civilians, Entrepreneurs, Military and Politicians had not taken the pandemic seriously and even today there are countries that take it lightly, however, let us review reality, Italy lived its DAY 0 on January 29, 2020 and lived its DAY 1 on March 9, 2020 only 40 days from day 0 for this to happen, in the case of Spain it took 47 days from DAY 0 to DAY 1 (30JAN – 17MAR), in the case of USA it took 59 days (JAN 20 – MAR 19), very few people realize the cut in the supply chain, since they live with existing inventories, not all countries are sovereign, many depend on foreign products, example: not all countries produce wheat, not all countries produce oil, not all countries produce gas, not all countries live on tourism and thus a chain reaction of things that are not produced, example of supply chain, we can quote:
“Ecosystems like Disney, it is a company which provides work to 223,000 people, flights stops, there are no tourists, Disney closes parks to avoid spreading the virus”
From day 1 to day 0
* In this case I will only take 3 countries as sample population
Phase 2 (From day 1 to day 2)
In the USA, companies usually accumulate one or two Payroll deposits, meaning that employees who stopped working will not feel the impact if not until 28 days later (DAY 2) since each supply chain can still support them because the next payroll (14 days after day 1) will have them covered. At DAY 2 is when things begin to complicate at critical levels.
In the case of airlines / airports, they closed airports (day 1) and with this the same 28-day cycle occurs, since people don’t go to work they don’t get paid, but this is not reflected as a reality if not after 28 days (average), pilots, flight attendants, economic ecosystems inside the airport like restaurants, bars, shops will be closed causing this cycle to occur.
We are seeing something very serious here, because we are not only watching how economic income stops, it’s the world facing a possible total cut in the supply chain, but what does this mean? It means that: if we do not have airlines or ships transporting goods, the food supply chain will last as long as inventories in the countries last, so governments must give priority to food supply because on breaking this point depends on DAY 2 advance to DAY D or DAY Z
According to https://www.worldometers.info/ there are currently 7.7b people in the world and the growth factor of the virus is 1.07 in the graph below
*Source: Healthdata.org shows us the projection of deaths from COVID-19
Blue arrow points to March 30, 2020
This shows us that we have not yet experienced the worst of the virus, just assuming that https://covid19.healthdata.org/ is correct.
Phase 3A (From Day 2 to Day Z)
If, Health Data has an acceptable error margin, we are talking that our DAY Z could be from JUL 01 and AUG 01, which places us in an economic grounding period of 132 to 142 days range in each country + 40 to 59 days range from DAY 1 to DAY 2 to locate ourselves in a total of 172 to 201 days.
* In this case I will only take 3 countries as sample population
How each country-company-family manages its finances in a period of 132-142 days from DAY 2 will be crucial to successfully overcome this unfortunate world situation.
The two scenarios that are evaluated in the transition from DAY 2 to DAY Z are: A) the creation of the vaccine, for obvious reasons, the discovery of the vaccine will not immediately put the world on DAY Z since producing the vaccine to 7 billion people is not an easy task or something that can be accomplished overnight. B) Human immunity, from 2 to 4 quarantines meaning that the virus cyclically finishes infecting and those who are going to be saved are saved and those who are going to die die.
Once the economy is activated again, the process will not be overnight, it will take 60 to 90 days for companies to start billing depending on the industrial sector in which they are located.
Phase 3B (From day 2 to day D)
Depending on how humanity reacts to DAY 2 taking into account that scenarios A and / or B of DAY 2 are met or not, we would be facing the entrance of DAY D, where communities, cities and / or towns note that the supply chain was broken and that food inventories would be exhausted at any time, registering then the first event of anarchy or misgovernment. This would be a very extreme case where control of land, food, weapons and medicines would become the first priority for every living being. I do not want to dwell too much on this part, as I firmly believe that we will migrate to DAY Z instead of DAY D.
According to https://www.un.org/es/events/smallbusinessday/ (United Nations), micro and small businesses represent more than 90 percent of all companies, generate between 60 and 70 percent of employment and are responsible for 50 percent of the Gross Domestic Product (GDP) worldwide.
The economic team at https://www.dinero.com/ found that 90% of these can meet their expenses without having to sell for 52 days. However, if this paralysis scenario goes on for two months, only 75% of the companies in the sample could keep operating and meet their daily expenses. But if the paralysis scenario were to extend to 6 months, only 25% could maintain their operations.
If the range of 172 to 201 days is met, we would be facing an economic recession of more than 75%, that is, 75% of the companies we know today will be without money and broke.
The most seen in the news are the actions managed by the European Central Bank and by the US Federal Reserve, despite the unprecedented impression or injection of monetary mass to stimulate the economy, it will not be enough to cover a range of 6 months on DAY 2.
A Simple Economic Equation
Estimated monthly costs for a family of 4 people: $ 4,573
Estimated monthly costs for a single person: $ 2,628
Assuming a 50% cost cut for emergencies
Estimated monthly costs for a family of 4 people: $ 2,286.50
Estimated monthly costs for a single person: $ 1,314.00
Assuming that the $1,200.00 that the United States plans to send to each person arrives, we will face very difficult times, the rest of the scenarios, you can calculate and imagine for yourself.
If you are the CEO of a Company, get ready immediately, calculate your runaway, make radical decisions, and create a strategy that allows you to maintain the company for the next 12 months, minimum speed – maximum performance, as pilots say.