“Pain is important: how we evade it, how we succumb to it, how we deal with it, how we transcend it.” – Audrey Lord
What I’m Telling My Business Partners
Sitting on the front porch, looking at the many people walking on the beach, it’s hard to imagine that we are on the edge of what could become the greatest economic disaster since the Great Depression.
It doesn’t feel that way when I get in the office. I’m spending half of my day on the phone and emailing colleagues, trying to narrow down plans of action to deal with expected production and delivery bottlenecks and a possible collapse in sales.
I’m not terribly worried about my investments. (I wrote about that on Wednesday.) But I am worried about the dozen businesses I own and/or consult with. And their thousands of employees.
The enormity of the crisis most businesses are facing right now cannot be underestimated. This supply-chain problem the media is talking about is real. Most of my businesses are dependent on internet services, telecommunication services, delivery services, etc. And some are dependent on manufacturers all over the world, including China.
All have either sent their employees home or have given them the choice to work from home. All of the CEOs are drawing up contingency plans for three-, six-, and one-year scenarios. All of them are asking their CFOs for suggestions for cutting costs dramatically. All of them are worried about the unhappy possibility of large-scale layoffs.
Most of these companies are high-margin enterprises, with net revenues of more than 40% and net incomes of 15% to 25%. So you’d think that they wouldn’t be concerned about cash flow. But the nature of good businesses is to reinvest profits in growth. That may not be the best strategy for 2020.
So what does that mean for you and your business? The business you own, supply, consult for, or work at?
It means you must be making plans right now for the obvious contingencies. As a leader, you must demonstrate confidence and calm. But you don’t want to do that by ignoring the elephant. You have to keep the captains and their troops alert but not panicked. And you must ask them to work harder now than ever.
This is not a time for enjoying a quarantined vacation. If you’ve been accustomed to working 50 hours a week, you should plan on working 60 or 70. And you should expect your best people to do the same. If they aren’t willing – no, eager – to do that, you should reconsider whether they are, indeed, your best people.
And although you should plan on a significant drop in sales, you should not relax your expectations of what your sales and marketing teams can do. In crisis, good people become stronger and more creative. Encourage them to find ways to encourage your customers to stick with you as the economy declines.
I had a conversation with Number Two Son tonight about our rental real estate properties. We anticipate that some of our tenants will have trouble keeping up with the rent. We agreed that we should not forgive monthly rental obligations, because doing so could send the wrong message. What we will do is accept percentage payments on an as-needed basis, with the understanding that what is not paid is not forgiven. Renters will sign contracts to that effect. What I’ve learned from living through a half-dozen stock market crashes and recessions is this: Free rent, even on a temporary basis, is like free anything in life. It’s a feel-good, bad-outcome bargain. We will be flexible, but we will not be foolish.
I am very much in favor of not being greedy in business. And that applies as much in bad times as in good. Where my businesses have accumulated profits, I have been arguing that we should prioritize needs. The first priority is not short-changing our customers. We can ask for their patience in certain areas. But we cannot ask them to expect inferior products or services from us just because times are tough.
Next on the priority list are our employees – especially the hardworking and loyal employees that have for so long helped our businesses grow. We should try our best to keep all of them fully employed, and use our spare cash flow to do that. And if we have to make cuts, we should do it as generously and humanely as possible. Of the three actors in business – shareholders, employees, and customers – it is the shareholders that should take the brunt of the hit. Not the customers. Not the employees.
That said, we don’t want to deplete the treasury to the point where these businesses could fail. A bankrupt business, however kindly it has acted towards its customers and employees during a crisis, will do no one any good if it goes belly up.
I’m sure I’ve said nothing here that you haven’t thought of yourself for your business. Smart people faced with the same problems usually arrive at the same solutions. But thinking about solutions and executing them are two different things. If you haven’t acted on any of these obvious but important strategies, waste no time. Time is running short.
There is one more thing I can say that you may not have thought of, especially if you are new to business downturns: Don’t allow yourself to believe that what has worked in the past to build your business isn’t going to work any longer. Changes will be necessary, but the fundamentals of business do not change in a crisis. On the contrary, they become more important than ever.
And one of those fundamentals is the trust that your customers have in you and the products and services you provide them. This is, along with cash, the most important financial resource you have. Don’t make the mistake of going quiet with your customers and hoping to ride out the storm. And don’t market as if things are normal or will be normal soon. They won’t buy it. If you don’t stay honest and in constant contact with them, that trust will be degraded. Now is the time to up your game. Now is the time to show your customers that they have, in you, a trustworthy fellow traveler that is eager to make their problems and worries less severe.