4 Major Actions Every Business Leader Must Take Before it's Too Late
The storm of the coming months is going to be hard for business leaders, perhaps more difficult than any other we have encountered in our lifetime. We cannot control the world, our government's response, or our clients. We can only control our response.
The storm of the coming months is going to be hard for business leaders, perhaps more difficult than any other we have encountered in our lifetime. To put this COVID-19 global pandemic and economic crisis in perspective, if you are younger than 43, then you probably have no memory of being in the workforce following the 9/11 aftermath. Likewise, for the 2008 housing crisis, if you're a leader under 35 this may be the first large scale crisis you are facing. For many business leaders today, there is no personal experience to fall back on for wisdom. Even if you were around for these events, never in our history have we effectively turned our economy off like a light switch. A friend of mine owns a 400-staff corporate catering company that dropped in revenue by 90% in a matter of days.
"Unprecedented," a word I hear many times a day, doesn't even describe our situation. The economic and psychological effects will be felt for years to come. Friends that have worked years building thriving businesses are seeing the fruits of their labor evaporate before their eyes. Many are scared, depressed, and overwhelmed.
We cannot control the world, our government's response, or our clients. We can only control our response. Recently, I wrote a playbook on why we, as leaders, must MOVE TO OFFENSE. The best defense is a strong offense.
General Douglas MacArthur said, "The history of failure in war can almost be summed up into two words: Too late."
The clock is ticking, and it will soon be too late to weather this storm and position yourself to emerge stronger. This crisis will play out in three phases:
Phase 1 — Absorbing the initial shock. This includes shutting down your business temporarily, moving staff to remote, and rapidly adjusting to an unknown "new normal."
Phase 2 — Adjusting to a temporary (with an unknown end date) normal. This is where we stop adjusting and start doing what we are good at — adapting. Restaurants are re-opening with new business models, corporations are shifting manufacturing lines to critical supplies, and ordinary citizens are creating food networks. We are already getting used to socializing and conducting business over Zoom.
Phase 3 — Weathering the Recovery. No one knows how long the recovery will take, but I believe it could take years. The 2008 Housing Crisis took 10 years to get back to full employment. This isn't about the stock market, this is about jobs.
We are coming out of Phase 1 and moving into Phase 2. We don't know timelines for Phases 2 and 3, thus we need to take short-term action and create a long-term strategy. I realize that thinking about how to rebuild (while your house is on fire) is extremely difficult, but successful leaders will, and they are already doing this.
- PLAY OFFENSE now
Below is a list of actions my team is taking during all three phases. Critical to our plan is knowing when to take steps, thus defining our business TRIGGERS. Your entire senior leadership team and financial staff need to collaborate and model a worst-case scenario and the different paths to that worst-case scenario First, we forecasted 2020 and modeled what would happen if all of our contracts did not renew, then identified all the cuts I outline below. Next, we looked at a reduction of revenues in 10% increments to that worst-case scenario. Those are our triggers. When we believe we are approaching a 10% reduction, we will implement actions. When we forecast a 20% reduction, we will perform yet more actions. And so on until we hit the worst-case scenario. Creating triggers allows you to do the mental math (and emotional processing) now and make quick, decisive decisions later. Don't Be “Too Late.”
2. Communicate often and honestly
Many times a crisis creates a vacuum of reliable, honest communication. When people don’t have clear direction or information, they fill the void by making things up. I see this constantly on Facebook, as people post “I heard from a reliable source …” statements all day long. None of these statements are helpful because they are not rooted in any authority or accuracy. As the leader, you need to be the authoritative source for all information to your employees, clients, and partners.
You need to communicate often. I hold a daily “open office hours” Zoom meeting Monday through Friday where anyone can jump on and discuss any topic they want. I hold a Thursday evening COVID-19 State of the Company broadcast every week. And I send out ad-hoc videos every few days. Your staff are adults, and you need to treat them that way. Be calm, decisive, honestly, and empathetic. Check in with your staff and make sure your managers are doing the same with their staff. Ask how they are, understand what is going on at home, and see how they are doing.
3. Make the hard decisions now
In the short-term, one thought needs to go through your head — CASH IS KING. Without cash, you will not survive, and right now, the primary goal is to survive. Let me be frank here, the survival of the company at the expense of your personal financial or health situation is not the answer. Just as the flight attendants tell you, put on your oxygen mask first. You're of no assistance if you are out of the game. For each of my companies, we are doing the following:
a. Finding or becoming an EXPERT on the CARES Act and SBA programs. The COVID-19 support programs recently signed into law are going to be pivotal to your survival and should be intertwined into every decision you make if you plan on taking advantage of them. I highly recommend that you apply now for every benefit you can, even if your business is currently stable. Don’t be "Too Late."
b. Eliminating all non-essential expenses. We literally printed out our detailed income statement and are going through line by line what to cut. If the expense is not essential to maintain revenue, it's gone. All travel and entertainment are gone. IT systems that are not essential are gone. As are marketing events (more on that later). We may even decut our 401K contributions after a long debate. Everything is on the table and needs to be justified. Anything that doesn't directly affect revenue is eliminated. Cut to the bone as much as possible, because later might be too late. You can always add back in, as I'll discuss later.
c. Exploring all government programs NOW. In parallel, you need to be exploring all programs that can assist you like the SBA Economic Injury Disaster Loan (EIDL) which has been updated to support COVID-19 in all states and the new Paycheck Protection Plan (PPP) loan. These are amazing programs to help you maintain staff and stave off unemployment. Both loans offer loan forgiveness, so you might not even have to pay them back! Check with your accountant or other experts now. Here is a list of documents that I have been compiling to support the effort.
d. Renegotiating long-term contract or prepaid expenses. Look at your rent or other long-term contracts (such as SaaS software) and see if you can defer the monthly payments by extending your contractual term. Ask about cost forgiveness. You might be surprised by how accommodating your vendors might be. Many of these vendors want long-term loyalty and appreciate your proactive desire to work together to ensure you both survive.
e. Stack ranking your employees. This part is hard because these are the people you work with day in and day out. But, in a worst-case scenario you have to assume there will be staff changes. Some of you have made this decision in the past and know how emotionally draining it can be. Do the work now, so you can make the decisions quickly later. Not everyone is an A player. Rank them according to attributes, adaptability, and skills. If you don't have a core set of ATTRIBUTES, use ours here. Rank from A to C. When you get into Phase 3, you'll be happy that the team you have left are all A players. Harken back to middle school when you were the captain and got to pick your team. Be careful to also focus on chemistry, because your team could be in for very stressful times and need to work well together.
f. Cutting or deferring compensation plans now. This is always a heavily debated topic in my companies, especially since we have been very stable through Phase 1 and feel we will be through Phase 2. Employee welfare is paramount to our culture. However, Phase 3 scares me as my clients start to process lower revenue and earnings and depressed stock prices, and pull back on their own expenses. Areas to be discussed include: 1) deferring or eliminating all bonuses, with the hope of paying back later but also with no commitment since we don't know what the future holds, 2) senior leadership higher pay cuts, 3) asking all staff to take a modest reduction. From an accounting perspective, you will want to continue "expensing" the cuts so that you can track what can be forgiven through a possible PPP or possibly reimbursed to employees sometime in the future (be explicit that there is no guarantee what the future holds). Check with your PPP loan provider, as cutting more than 25% may impact your loan forgiveness. Do this now to conserve cash. Do it fairly. I believe you will be surprised at the support you will get from your staff.
g) Developing plans now for managing employees. Essentially you have three choices to make as you hit your triggers: keep staff, lay them off, or furlough them. When this time comes, use your Stack Rank so you can make a decision quickly. If you lay off staff, they will have to go on COBRA on their dime if they want to continue their health insurance. If you furlough them, you don't have to pay them, but you have to cover their health insurance. Laying off and furloughing is further complicated if you take out a PPP loan. Both options should be eligible for unemployment and other benefits under the CARES Act. If a particular employee is not an A player and you would not hire them back, then you should lay them off. If you need to cut A players, then furloughing might be a good option if you can afford their health care coverage. There are more benefits with the CARES Act and individual states regarding Workshare, so consult your expert on this as well as your HR expert. Help your employees know what their rights are in all cases.
All these actions above are mentally draining. I understand that 2020 was looking to be a promising year, and we all had grand plans for growth. To literally have the switch flipped and move into survival mode is emotionally draining. But we are leaders, optimists, and risk-takers. We were made for this.
4. Take some time out for the LONG VIEW.
Create a new environment and spend 1-2 hours a day getting back into creative mode. Go for a walk, go sit at a park, but create a space where you can think quietly. You're the leader, and everyone is relying on you to lead. Time to step up.
a. Shift to Servant Leadership. Doing the hard sell to customers right now is going to backfire. Like you, they are dealing with all kinds of new work priorities and personal adjustments. Reach out and offer assistance with no expected return. Make your customers feel like you are there for them in an empathetic way. Relationships are strengthened by how you respond to adversity and challenge.
b. Talk to your customers and listen to their needs. Most likely, you will survive Phase 1 and 2 based on the relationships and loyalty of your existing customers. Double down on your customers. Engage in conversation and listen to what they need and create innovative ways of how you can support them.
c. Change your pricing models. Explore ways to engage with your customers in more flexible pricing models. Can you charge a fee based on them obtaining a return? Can you shift some idle employees to providing more onboarding or value-driving services that don't require complex contracts and agreements now? We are launching a new program for one of my software companies where we onboard for free, and the client agrees to purchase a subscription once we identify $1MM in annual savings.
d. Pivot your expertise and skills to this new market. Put everything you have done aside for a moment. If you could start any business right now, what would it be? Look at the "crisis market" through your experience lens, look for short- and long-term gaps in the market, and apply your skills and the skills of your company to adjust.
e. Elevate products or services you've been brainstorming. Many times we are so busy with our core business we don't get a chance to explore all these other ideas that have been piling up. Go back to your list and see if there are ideas that you can implement now.
f. Combine with other complementary businesses to share capital expenditures. Perhaps there are competitors or similar companies that you can share expenses with, like a studio and office space, kitchens, conference and training centers, or video broadcasting equipment. Perhaps you can team with other competitors in a new partnership.
There are so many adjectives to describe this period in history. What I am 100% confident about is that we will get through this, there will be a recovery, and there will be winners and losers. Quick planning, deliberate decision making, and creativity are going to be the key to getting through this. In the short-term, the key is focusing on cash conservation, taking advantage of government programs, and comprehensive cost-cutting. In the long-term, you need to double down on your existing and loyal customers, pivot your business to the changing landscape, and engage in your creativity to open up new possibilities.
Good luck out there. We're all in this together.
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