I have just sent the following to my Vistage members; however, I think all could benefit from it.

 

Hi all,

The Coronavirus situation is changing by the minute. While I sent out what I would like to do at our meeting, I wanted to give you my thoughts on what is needed now.

 

The Situation

The real situation in the US is unknown due to the lack of testing. At present, we have done about 14k tests, and we have 1,700 cases. What this tells me is that the situation is far worse, and the actual number of cases is far higher. As much as I hate to say it, right now, nothing from the Administration is believable as everything coming out of it is either misleading or evasive. I would listen to Dr. Anthony Fauci of NIH or any other credible public health officials as it pertains to the virus. Concerning the economy, look at the bond market. As a result of the Administration’s behavior, states are taking matters into their own hands as we have seen, and saw with Georgia yesterday.

 

Leadership

This is a time of crisis, and as the leader of the organization, you need to step up and lead. As I said in my newsletter last week, leadership is hard, and it is about those you lead! First, your employees are scared – they don’t know what is happening or how vulnerable they are. I was grocery shopping yesterday, and not only are they out of toilet paper and hand sanitizer, but all the ramen noodles were gone, and so were the beans (all types). So you need to reassure them. That, in my opinion, is being honest – do not lie or minimize the situation, you will lose all credibility but be confident, what the potential impact is on your organization, what steps you take to plan and that you will keep them updated. Also, look for their input for suggestions, you are all in this together. For an excellent example, read Winston Churchill’s speech to the House of Commons, June 4, 1940, after Dunkirk.

 

Have a Plan

Now is the time to plan. You need to determine what you will do at each stage now. At what point do I cut various costs, people, stop operations, etc. It is easier to plan before the full panic hits. Work with your leadership team to think this through. The other members of your Vistage Group and I are always here to help, just reach out!

 

The Impact on You

Given how far behind we are, I expect within two weeks, we could see an Italian solution imposed. If that is the case, I would suggest you read this article to understand what is the implication. Regardless, the economic impact is going to be significant. Things to consider:

  • Work From Home policies, while we may be able to work from home, we need to consider if our clients and suppliers can Work From Home. If they can’t, you won’t be able to work for customers or get what you need from suppliers.

  • Cancellation of events. What impact does this have on you? How does it affect your clients and suppliers? Can you create virtual events for your customers?

  • Cash. How much do you have, how big is your line, and what is your burn rate. What can you do to reduce the burn rate without affecting quality and delivery?

  • Communication. I have talked above about communication with your employees. However, I would communicate with clients and bankers as both hate surprises. With clients, look to see how you can work with them through this and be proactive. Everyone is going to be reducing costs as the economic toll hits. If your customer doesn’t know you or understand the value you bring, you are out.

  • Private Equity (PEGs). Since the 2008 crash private equity has acquired an enormous number of companies in the US, many of these are now your customers. However, as we know and I have written about, PEGs have leveraged all these companies to increase their returns. With a substantial downturn, many of these will not be able to meet their bank covenants, and many may file for bankruptcy. Many of the larger PEG owned companies and public companies have taken on large amounts of junk bond debt and may not survive. Look at your client base and see what vulnerabilities you have.

  • Oil States. The current oil price of WTI Crude is $31.80 which is way below what is required for the fracking industry to be profitable. Given the high capital needs of the fracking industry, I think this is over. For regular oil companies, the price is too low to be profitable for many wells and they will be capped. Thus, oil companies are suffering, so economic pain is coming to all oil field support companies. This will affect all local industries and communities. Thus, if you have clients in Texas, Oklahoma, New Mexico or North Dakota, you may want to consider how stable they are.

  • Small companies. Many small companies may not survive this downturn due to a lack of cash. Look at your client and suppliers to see where vulnerabilities lie.

  • Financing. Hopefully, you aren’t relying on any soon, as I think the market will dry up as everyone waits to see the fallout. Like I said, keep in touch with your banker and don’t surprise them.

  • M&A. I think we can expect M&A activity to fall significantly this year. If that is in your plan as a seller, I would plan alternative scenarios. If you are looking to acquire, there may be some great bargains if you have cash.

  • Supply chains. While we all know of the issues from China, Europe is now shutting down. Understand those effects on your company. Further, the Administration’s ban on European visitors will cause air passenger traffic to fall significantly. As a result, I see the passenger airlines curtailing flights. The effect is that 70% of all trade cargo comes in passenger aircraft. So even if your supplier/customer is operating, the transport of products will be difficult.

I have been talking with a lot of you over the week. As your chair, I am here 24/7 to talk through any ideas you have, or just to listen if you need someone to talk to. It is going to hard, and it is very hard at the top! You can reach me on my cell or by video conference. In any event, I plan to be calling you all regularly to check-in.

Finally, apologies if this ruined your weekend, but better to be prepared than reactionary.

Kind regards,
Marc

 

Copyright (c) 2020, Marc A. Borrelli

Recent Posts

Boosting Common Sense Decision-Making in Your Organization

Boosting Common Sense Decision-Making in Your Organization

Discover how to enhance decision-making in your organization by focusing on three crucial areas: solving the right problem, gathering all the available information, and understanding the intent. Learn to empower your team, foster a purpose-driven culture, and improve organizational clarity for better decision-making.

Do You Understand Your Costs to Ensure Profitability?

Do You Understand Your Costs to Ensure Profitability?

You can only determine profitability when you know your costs. I’ve discussed before that you should price according to value, not hours. However, you still need to know your costs to understand the minimum pricing and how it is performing. Do you consider each jobs’ profitability when you price new jobs? Do you know what you should be charging to ensure you hit your profit targets? These discussions about a company’s profitability, and what measure drives profit, are critical for your organization.

Sunk Costs Are Just That, Sunk!

Sunk Costs Are Just That, Sunk!

If you were starting your business today, what would you do differently? This thought-provoking question is a valuable exercise, especially when it brings up the idea of “sunk costs” and how they limit us. A sunk cost is a payment or investment that has already been made. Since it is unrecoverable no matter what, a sunk cost shouldn’t be factored into any future decisions. However, we’re all familiar with the sunk cost fallacy: behavior driven by a past expenditure that isn’t recoupable, regardless of future actions.

Do You REALLY Know Your Business Model?

Do You REALLY Know Your Business Model?

Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.

Ideation! Harder Than It Sounds

Ideation! Harder Than It Sounds

Bringing in new ideas, thoughts, understanding, and logic is key as your organization faces the challenges of a changing environment. But when you do an ideation session in your organization… how does it go? For so many organizations, many times, after a few ideas have been thrown out and rejected, the thought process slows down very quickly, and a form of hopelessness takes over. How does your organization have better ideation? I’ve come across a new approach with a few teams lately.

Recruit, Recruit, Recruit!

Recruit, Recruit, Recruit!

An uptick in business has begun this quarter, and companies are rushing to hire to meet this surge in demand. What amazes me is how many are so unprepared to hire. Continual recruiting is key to the survival of a company. It isn’t the same thing as hiring—continuous recruiting is building a pipeline of people that you would hire if you needed to fill a position, or “A players” you would hire if they were available.

We All Need Clarity

We All Need Clarity

If your organization is focused on obscurity over clarity, whether intentionally or not, your “A” player employees are vulnerable. There is a looming talent crunch. As we start to emerge from COVID, demand is increasing, and many are scrambling to fill positions to meet that demand. Headhunters and recruiters are soon going to be calling your key “A” employees. Have you been giving them a reason to stay?

Not Another **** Meeting

Not Another **** Meeting

As Leonard Bernstein put it so well, “To achieve great things, two things are needed: a plan and not quite enough time.” Your meetings can be shorter, more fruitful, and engaging, with better outcomes for the organization, employees, and managers. It’s time to examine your meeting rhythms and how you set meeting agendas. This week, I break down daily, weekly, monthly, quarterly, annual, and individual meeting rhythms, with sample agendas for each.

Is Your Company Scalable?

Is Your Company Scalable?

Let’s start here: Why should your company be scalable at all? If your business is scalable, you have business freedom–freedom with time, money, and options. Many business leaders get stuck in the “owner’s trap”, where you need to do everything yourself. Sound familiar? If you want a scalable business that gives you freedom, you need to be intentional about what you sell, and how.

Are you ready for the Talent Crunch?

Are you ready for the Talent Crunch?

Companies are gearing up to hire. Unfortunately, many are competing within the same talent pool. Some experts are currently predicting a strong economic recovery starting in May or June. But as the economy booms, there is going to be fierce competition for talent. How will you fare in the looming talent crisis? Your organization should be creating a plan, now, so you can attract the talent you need in the year ahead.