The Underpaid and Under-Employed Need Protections Too

The Underpaid and Under-Employed Need Protections Too

COVID caused Congress to respond a few months ago, but now as the CARES Act and other protections expire, Congressional action is missing. What form of stimulus emerges, who knows. For the moment, it looks like the additional $600 in unemployment is out, to the cheers of many, who see it as a work disincentive.

As usual, those who are pushing for its demise are loathed to let facts get in the way of a convenient theory. A recent survey of economists, who usually disagree on everything, found 0% disagreed with the idea that “employment growth is currently constrained more by firms’ lack of interest in hiring than people’s willingness to work at prevailing wages.”

There are several arguments why.

  1. Benefits. For many Americans, their jobs provide health care and retirement benefits, so it makes no sense to reject a position with potential lifetime benefits to receive a few more unemployment checks. However, many of the workers benefiting from the additional payments do not receive such benefits, so I am convinced how much weight this argument carries.
  2. No unemployment if workers don’t return. Some states require employers to report employees who decide not to return to work, and if the refusal is for anything other than health concerns, the benefits stop. However, given that most states’ unemployment offices are overwhelmed, how effective this is at present is questionable.
  3. Job Vacancies. If companies could not fill job openings, the number of vacancies would be high. However, in April, the U.S. recorded the lowest level of job vacancies since 2014. Vacancies have risen slightly since then. Also, Homebase data shows that applicants per job doubled in early April, suggesting that laid-off workers were seeking new employment. Here is evidence that the additional payment is not stopping people from looking for work.
  4. Rising wages. If companies could not fill job openings, the laws of supply and demand would expect wages to rise to such point that they could fill them. According to Goldman Sachs, average hourly earnings in Q2 2020 increased by about 7%, which initially would give weight to this idea. However, on inspection, this is primarily because low-paid workers have lost jobs in disproportionate numbers, dragging average wages upwards. Therefore either the market is failing, or there are just no jobs.

Thus it would appear that the additional benefit is not the detriment to work that many assume. However, there is no doubt that the removal of the additional support will drive more people back to work as they struggle to survive financially. This result may not be the panacea that many hope.

As I have said many times, this is a public health crisis, and until we address it, the economy will not recover. Well, looking at the data, it appears that the Gig economy and low paid workers may be compounding the health care problem. According to medical historian Frank Snowden in his new book, Epidemics, and Society, “Epidemic diseases are not random events that afflict societies capriciously and without warning. On the contrary, every society produces its specific vulnerabilities.” Thus, he wrote, a disease provides insight into a “society’s structure, its standard of living, and its political priorities.”

On inspection COVID’s destruction show one common factor, clusters of infection have been associated with those whose work is low-paid, insecure, and contingent. Researchers at the London School of Hygiene and Tropical Medicine, have found that nearly 80% of infections are traceable to:

  • food processing plants,
  • ships,
  • aged care homes,
  • grocery stores,
  • factories,
  • bars, restaurants,
  • shops and
  • worker dormitories.

All of which are associated with low pay and poor job security. While some office workers have contracted the disease, those infections are primarily the result of a business conference. In the U.K., the increasing number of outbreaks in care homes results from temporary staff, on zero-hours contracts, who get transferred between facilities.

This trend is not in the U.K. In the U.S., many of the most significant outbreaks were in with meatpacking plants, which are known for poor working conditions. Furthermore, the mortality rate is highest for African Americans and then Hispanics, people who have the majority of working-class service sector jobs associated with infection clusters. Besides, because these jobs often are considered essential workers, e.g., meeting packing plant employees, workers must be at the job site despite outbreaks in their communities. Furthermore, most such positions do not provide sick leave resulting in many working when they are sick.

Many of those who work in such positions, also meet other criteria the CDC has identified as a source of infections. They live in:

  • Densely populated areas and cannot practice social distancing.
  • Homes with a lack of complete plumbing making handwashing and disinfection harder.
  • Neighborhoods that are farther from grocery stores and medical facilities, making it harder to stay home and to receive care if sick.
  • Areas where they have to rely on public transportation, making it hard to practice social distancing.
  • Multigenerational households and multi-family households where older family members cannot be protected and the sick isolated.

While some front line health care workers have caught COVID, these infections are at a lower rate than medics less directly exposed. Thus straightforward precautions appear to be sufficient to reduce the risk of disease significantly.

So rather than pushing workers back into harm’s way and turning them into new sources of infections, we should seek to provide them the same protection that white-collar employees, who have been working from home for months, enjoy. With over 4 million infections and 140,000 deaths, helping those workers would help us all get the infections under control and the economy back on track. However, we show little regard for the underpaid and under-employed, and it is now killing us.

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B2B Selling During COVID

B2B Selling During COVID

An old colleague of mine recently posted on Facebook, “Life/business will not return to normal until we can get stuff done face to face.” While there is some truth to that, if we are going to live in our COVID world for another year, companies cannot wait for getting stuff done face to face, they need to sell now!

But selling during COVID is different, as a client recently said, “I am not sure our sales force have the skills or know-how to sell online.” Sales teams face two challenges selling during COVID, reduced budgets in an uncertain market, and selling when business is virtual. Already half of the B2B companies have reduced their budgets by over 40%. Overall, IT spend is predicted to drop 8% in 2020 – as enterprises spend roughly $300B less than they did in 2019.

A further complication for B2B companies selling internationally. How do U.S. companies sell in Europe where they are barred from traveling, while their European competitors can move around freely? This will pose problems and could result in a loss of market share unless companies develop new tactics to counter the lack of face to face interaction.

Andreesen Horwitz recently said that from their discussions with several CROs and founders they were seeing:

  • Cash is critical. Total Contract Values are lower, and there is a 30% drop in upfront cash, as actual payments are delayed or deferred.
  • Significant drops in the sales pipeline. Hardest hit are those with companies have sales-led prospecting and have direct multi-stage sales + implementation.
  • Increased involvement of execs, e.g., CFOs, in deals and procurement process
  • Channel is more critical. The proportion of deals coming from channel and renewal rates relative to bookings are both up.

Andreesen Horwitz provided six strategies for selling during COVID.

  1. Build pipeline through targeted virtual events. With everyone WFH and easier to schedule, including executives, figure out how to leverage your C-suite effectively. Don’t just rely on webinars with large numbers of attendees featuring execs, but use smaller events focused on specific topics of interest where you can get your CEO or CTO in front of essential buyers. The loss in quantity will be exceeded by what you gain in quality and higher intent. However, as much of this new, the pipeline from virtual events may progress differently from a traditional pipeline. Thus it is critical to understand and monitor the conversion rates of your virtual event funnel. 
  2. Get creative with your Business Development Representatives (“BDR”). If customers can self-serve initially, that will provide marketing qualified leads for BDRs to follow up on. However, to enable customers to self serve, you need to ensure that your website correctly explains and sells your product. If you have insufficient warm leads for your BDRs, consider switching BDRs to customer success managers (CSMs) focusing on adoption, retention, and renewal, since the two talent pools often overlap. Especially in a SaaS business, where the CSM is essential because customer success drives adoption, and adoption reduces churn and drives up renewal rates. Many SaaS companies used this tactic during the 2008-9 recession, and it often helps BDRs better understand customers.
  3. To renew customers, be flexible on all levers, except the price. It’s always easier to retain a customer and renew, or even expand, an existing account than to acquire a new customer, especially during a downturn. Extending flexibility to customers, when you can, will win customer loyalty and referrals in the long-term, assuming you can deliver successfully. Your current prices will determine your future prices, determining your total addressable market (TAM), so any reduction now has long term effects. Further, once you start negotiating on price, you have become a commodity. When renegotiating or changing contract terms, if possible, look to levers beyond price, such as flexible payment terms or additional professional services. 
  4. Implement a deal desk. If a salesperson gives something away to close a deal, that incentive can quickly become the new standard for all sales. Implement a deal desk, usually in the form of a mailing list or a chain of sign-off for deals over a certain threshold, to maintain deal structure around incentives and discounts. A deal desk will prevent reps from giving away too much.
  5. Manage the psychology of your salespeople, as well as your quotas. Set expectations that are achievable and realistic, not only because people need to get paid, but because great salespeople need to win. For great salespeople, much like for a top athlete or prizefighter, confidence is a big part of their game. The way they get confidence is they win and have the attitude, “I never miss a number. I usually blow it out. I never lose to a competitor.” Sales numbers feed that psychology, so what if you maintain your sales numbers based on life before COVID, and now, your top salespeople are not getting paid and are losing confidence. Eventually, their psychology will get to the point where they start making silly mistakes. “They don’t listen carefully.” “They’re not patient.” “They press too hard.” You need to support your sales team in keeping their confidence high, and that starts with a reasonable plan and then having an understanding of what’s going on in these cycles.
  6. Look for channel partners with strong customer relationships and pull from the field. Partners who don’t have to do prospecting but can pull you into existing relationships are the better partners right now. You have to shift your channel strategy from scrappier, more boutique channel partners to more established players who have the relationship and account control. Behavior follows business, so look for the pull from the field sales team to evaluate a partnership and know that it is strategic. Once you see that pull from the field, you can match up your sellers with their sellers, identify the accounts they’re in that want your functionality, and then do the integration that the salespeople want.

Of course, this is just the start. Other questions:

  • What metrics should you watch right now?
  • How do you qualify leads?
  • How do you evaluate the risk v. opportunity of channel partners?

See this Andreesen Horwitz article for a discussion on many of these questions.

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M&A Deal Volume is Falling

M&A Deal Volume is Falling

COVID, as I predicted many months ago, is taking a toll on M&A. In the first half of 2020, the value of mergers and acquisitions fell 50% from the year-earlier period to the lowest level since the depths of the euro-zone debt crisis.

Source: Bloomberg
Data shows the value of pending and completed M&A applied to targets in each region. 2020 figures are through June 28.

The Americas have realized the sharpest fall with deals value down 67% in the first half. Every major industry has been hurt. However, the financial sector fared better than most because of Aon Plc’s $30 billion offer for Willis Towers Watson Plc and Morgan Stanley’s proposed $13 billion acquisition of E*Trade Financial Corp.

EMEA was down 31% and Asia Pacific was down 7%.

As has been said before, the COVID situation is a public health crisis. Until we deal with the public health issue, everything else will suffer. The M&A numbers reflect this with Asia Pacific currently leading with the best response. EMEA suffered initially but is recovering, while the Americas, with the U.S. and Brazil failing in their response, has fallen the most.

U.S M&A activity in Q2 2020 continued to decline as COVID remained an unrelenting problem in North America, especially in the US. North American M&A activity during this period was $336.8 billion across 2,025 transactions. Currently, the US recovery is more of a “W” than a “V”, which threatens to further drag down M&A activity.

Nevertheless, certain sectors, namely tech, and healthcare continue to have a stable deal volume, as many companies in these sectors have benefited from COVID and are opportunistically seeking M&A transactions. However, in areas such as oil & gas, many companies are completing deals just to survive. 

Due to COVID, buyers and sellers are struggling with a lack of accurate earnings and cash flow forecasts, causing parties to avoid deals. Further, cash is key, and survival is not running out of cash. Thus, unless companies have large cash piles or can use their paper, deals will be further limited.

While both the U.S. and Canada confirmed their economies entered recessions during Q1, Canada has since emerged from its shortest recession on record due to its effective COVID response. The prospects for the U.S. remain bleaker with rising COVID cases negatively impacting the country’s economic outlook. Furthermore, many of the states that opened up too early, e.g., Florida, Texas, Georgia, have seen dramatic increases in cases and are shut back down.

Currently, the International Monetary Fund is forecasting an 8% decline in GDP for the U.S. in 2020. With no end in sight for the pandemic in the U.S., which has the most cases and deaths from the virus globally, that may be optimistic.

The outlook for M&A thus remains dim.

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Your Leadership Style and Culture Will Define Your Future

Your Leadership Style and Culture Will Define Your Future

I have written on this subject many times over the last few months and cannot emphasize how important it is. In a recent conversation, I heard that many Gen Zs are leaving jobs because they find the culture too oppressive. Now I can already hear the cries that they are soft, spoiled, don’t like hard work or responsibility. While some of that may be true in some cases, I would suggest rather than being defensive, CEOs and leaders need to look at their behavior to see why they are causing these issues.

Two recent examples that I heard of were:

  • A company had installed keyboard activity monitoring on their employees’ computers, and if the employees do not meet a certain amount of clicks per hour, they get written up.
  • A large employer is putting out a policy that if you have school-aged children and they are in an online school, then you cannot work from home.

I wonder who comes up with these “genius” plans because, in my opinion, they must be graduates of the school of “The beatings will continue until morale improves.”

These examples remind me of a discussion several years ago with an attorney who was advising his client to get all employees to sign non-competes. I pointed out that I would never join such a company, as they were hiring for my skills and were going to use them, so why should I grant them the exclusive use of my abilities, which I have developed throughout my career, for a market salary. The attorney’s view was that the non-compete stopped employees leaving with the benefit of what they had learned at the company. My response, to his chagrin, was instead of spending all this money on non-competes, if the company developed a culture and core values that attracted employees, they wouldn’t need them. 

Companies that are driving away employees at a time when unemployment is at record highs, rather than criticizing their employees, should look hard in the mirror and ask where are we failing in developing a culture that attracts the best. There is an old saying, “One satisfied customer will tell one person, but one dissatisfied customer will tell twenty.” Well, today, with Glassdoor and its ilk, dissatisfied employees are telling everyone. Attracting key talent will become harder for those with many critiques. For many organizations, they will find that employees are only coming until they can find the next gig, or are just collecting a paycheck.

COVID is, as has been said many times before, an accelerant. If your culture was vague to non-existent, and you couldn’t articulate why you exist, COVID is exposing these weaknesses dramatically. Since we are having to hire and onboard virtually, culture, core values, mission, vision, and why you exist are more critical than ever. They are the glue that holds a virtual organization together and keeps it on task.

A CEO I know, in most conversations, says, “People suck” when referring to his employees. However, his business has no core values, mission or vision, or defined reason for existing. Thus his employees have no “North Star” to guide them. Without that, they make decisions that don’t align with what the CEOs would do, so he assigns them to the “People suck” world. Investing time in fixing his culture, core values, etc. would resolve many of the problems, but he views them as uninteresting. Not everything in running a business is exciting, but culture is critical.

Another business owner I dealt with had a doormat outside his office that said, “Go Away.” Since he didn’t want to deal with personnel issues and people, I am sure he found it very valuable. However, the culture in the organization was toxic, performance below par, and high employee turnover, which just confirmed his view that employees were difficult. Forcing him to develop and live core values, a reason for existing, and removing some of the toxic people who had filled the void he created, resulted in morale and performance improving, increasing the value of the organization.

Again, I often ask CEOs the following question. You are interviewing for a critical position, and the candidate in front of you is an A+ on every criterion. Before extending an offer, you ask, “Do you have any more questions?” They respond with, “Why should I work for you?”

It is incredible how few CEOs can answer this question. The typical answers are, “We are a great company. We provide a great career path.” I responded that I am sure this great candidate probably is considering a few offers, and do you think those other employers are answering the question with, “We an awful company. This position is a dead job.” While many business leaders can sell their products and services, they cannot sell themselves as an employer. I expect it is because they cannot articulate why they exist and what they stand for.

My readings suggest we are going to be living a COVID world for another year, so you cannot afford a year of dysfunction. In an accelerated environment, an organization needs to respond quickly to market conditions. The only way to do that is to move the decision making to where the information is, at the front lines. But if you want the decisions made to be the ones you expect, your workforce needs to know and live the company’s core values, and understand why it exists.

Employees that are not performing at their best often work in an organization without core values, or if they have them don’t live them, and they don’t know why the company exists. As a result, these employees are detrimental to the organization’s long term health. If this defines your organization and employees, you are likely to emerge from COVID damaged, if at all.

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The Public Health Crisis Needs to be Solved Before the Economic Crisis

The Public Health Crisis Needs to be Solved Before the Economic Crisis

The accelerating increase in new Covid-19 cases is slowing the pace of the U.S. economy’s recovery from the pandemic. According to Bloomberg economist, Eliza Winger, “Most high-frequency indicators have shown signs of moderation. Consumers’ income and spending benefited from fiscal support and reopening efforts, both under renewed strains. The uncertainty was likely behind the latest deterioration in consumer sentiment, a key to the economic outlook.”

So, where do we stand?

  • Recent data shows that credit card spending has stalled.
  • OpenTable is showing a slowdown in restaurant reservations.
  • Initial jobless claims declined by the most in a month to 1.31 million in the week ended July 4, but they’re still double the highest level registered during the last recession. Furthermore, as states walk back their openings, these numbers are expected to increase.
  • A surge of layoffs are coming as company announce large layoffs to deal with COVID, e.g. American Airlines – 25,000; United Airlines – 36,000; Walgreens – 4,000;  Macy’s – 3,900; AT&T – 3,500; Hilton Hotels – 2,200; Chevron – 5,000; Boeing – 7,000; Uber – 3,700; Virgin Atlantic – 3,100; Wells Fargo – haven’t said but I am sure will exceed 20,000. This short list accounts for over 110,000, so the numbers will be large.
  • While many mortgage holders are refinancing to take advantage of the low rates, one in 10 households with a mortgage failed to make their last payment, and 16% of respondents in a U.S. Census survey said they fear they can’t cover the next one.
  • Federal Reserve Bank of Dallas President Robert Kaplan said that rising hospitalizations and death rates are having a “chilling effect on economic growth.”
  • With the eviction moratorium ending, the eviction of 20MM renters this month is possible. However, this has several ramifications, where will these people live and who will replace them as so many people would rent can’t make payments. Thus landlords will experience pain.
  • The $600 additional unemployment payments are ending.
  • The PPP program is about to end and those that took PPP funds have mostly spent them.
  • M&A volume is falling.

Thus, my take is that this is far from over. While I would argue that we are not in a second wave of the virus as we never exited the first, we are in an inverse square root recovery, but we could quickly move into a “W” recovery.

The key will be what will Congress do. The parties are wide apart at the moment, and to add to the problems, the Administration is pushing for a payroll tax cut (dubious effect), refusal to fund state COVID testing and tracking, and blocking billions of dollars that would go toward bolstering the Centers for Disease Control and Prevention, the Pentagon and the State Department to combat the pandemic. Somehow they haven’t yet accepted that this is a public health crisis and until that is solved, the economic crisis cannot be dealt with.

So, keep cash on hand and watch receivables and all leading indicators. It is going to be a rough second half, folks!

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COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

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What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Greatest Own Goal or the Greatest Collapse

The Greatest Own Goal or the Greatest Collapse

The European Super League collapsed within days of launch due to hubris and the founder forgetting the key parts of their business model, value creation, sales, and value delivery. The collapse might bring a high price.