The Restart: 3 Scenarios To Guide Post-Lockdown Planning

Back in the first week of April, we set out how we thought the Covid-19 (C-19) crisis could play out.

A month on from that article and following Boris Johnson’s announcement on Sunday, the UK will now begin its uncertain path towards a return to normal life. Although there are still a fair amount of unknowns, the guidance from the Government provides us with a wireframe for how to navigate the next phase of the crisis.

From Lockdown to Phase-in

We are now entering into the second phase of the crisis - from lockdown to a staged return to normal life (“the phase-in”).

Chart 1.jpg

Source: FP analysis, Mckinsey, Bank of England

The government’s three-step plan can be characterised as a cautious re-opening of the economy, as they try to avoid a resurgence in new infections (as experienced in other countries).

The Phase-in

Chart 2.jpg

Source: UK Government

There are still a lot of unanswered questions, but it is clear that the speed at which the Government turns on specific sectors of the economy will involve a delicate balancing of the risk of future outbreaks against the impact on the economy and people’s livelihoods.

Understanding the Priority Framework

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Unfortunately, this staged return means that certain industries will be more impacted than others. Understanding where your business and your customers sit within this framework will help you assess the impact C-19 will have on your operating environment over the next six months (more details here).

Understanding R0

The critical metric that the UK Government is managing against is the “rate of infection” (R0). A lot is still unknown about C-19 but focussing on the R0 is an intuitive way to understand how the virus is progressing in near real-time.

The peak of infection varies based on the R0 (see table below).

Peak: R vs. Population infected

Chart 4.jpg

Because of the lack of reliable information on how far C19 has spread (estimates vary from 0.3%-20%), This means that at the moment the only pathway to normalcy is by suppressing and maintaining the rate of infection below 1.

Plan with three scenarios in mind

With so much uncertainty, it is impossible to predict what the path to recovery will be. To manage this, companies need to be adaptable in how they plan for the future.

The new guidance by the UK government provides us with a wireframe to design scenarios for business planning around three interdependent levers:

  1. Rate of infection: the development of R over the coming months
  2. The pace of phase-in: pace and order at which businesses and people can get back to work
  3. Business impact: what is the behavioural response from consumers and businesses

We have constructed three potential scenarios for the phase-in, they are:

  1. Managed and orderly (Probable): this is our original base case, we expect to see the successful control of C-19 and the return of most sectors of the economy by the end of Q3 2020. We expect close to pre-crisis activity by Q1 2021.
  2. Delayed (Possible): In this scenario, the easing of restrictions is delayed towards mid Q3 2020. The impact would result in a meaningful pullback in consumer spending and lower levels of business activity. We expect close to pre-crisis GDP activity in late Q2 2021.
  3. Second peak (Unlikely): this is our original bear case, in this scenario, there is a second lockdown of the economy. The disruption causes serious damage to consumer and business confidence resulting in a broad economic depression where the 'rebound' of job losses/reinstatement does not reach close to pre-crisis levels. We would expect a return to pre-crisis levels in late 2021.

Screenshot 2020-05-12 at 17.54.01.png

Back to business?

The outstanding question is, when is the right time to return to the office? Our stance is that unless it's impossible for your business to run virtually, no companies should be rushing to get back to the office until further guidance is released in early June.

When the time is right, it is important that workplaces are ready for a “new normal” that respects social distancing measures while balancing work norms. Three things to consider are:

  1. Rethinking the 9-to-5: companies should consider staggering work hours of employees and, if possible, encourage working-from-home once or twice a week to facilitate social distancing in the office.
  2. Getting to work: if employees cannot get to work safely, then it should not be encouraged. As a signal of when the time is right to go back to the office, companies should look at frequency levels of public transport.
  3. Readying the workplace: the Government is set to release the “Covid-19 Secure” workplace guidelines later this week. Use these guidelines to prepare your office for a safe return to the office.

To understand more about how Forward Partners as a fund will be working during this period read How We'll Be Working And Why.

Brendon is an Investor Associate with Forward Partners. He joins us from Nauta Capital, a pan-European VC focussed on Series A investments in B2B software. Prior to his career in venture, he completed his MBA at the University of Oxford and started his career working across banking at Credit Suisse and the National Australia Bank.

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