I recently facilitated a workshop with several CEOs where we worked on the dramatic business growth model components. One of the questions that I had asked them beforehand was, "What is Your Profit/X?" The results showed that there this concept is not clear to many....
What is happening out there? Airbnb confidentially filed for its IPO last week. In the spring, the company laid off 2,000 employees and was negotiating over the terms of two fundraising deals totaling $2 billion in debt and equity.
However, total consumer spending on Airbnb in July was 22% higher than in the same period last year, according to Edison Trends. According to the company, it surpassed 1 million bookings on a single day that same month, led by an increase in stays at nearby destinations.
So, are we returning to normal? I would answer no, but there is hope. Normal is a long way away as people are still scared and want to social distance. However, given we can only take so much of staring at the same four walls, we are heading on vacation. Those vacations may not be the ones of pre-COVID days with cruises, trips abroad, or all-inclusive resort, but booking a house for just our family or close friends that we trust, works! Thus as the company reported, bookings are up for close to home destinations, basic economic substitution.
Along with other reports, consumer spending has increased during the pandemic, and I put that down to the fact that we are not spending as much on other things, e.g., commuting, sports, and meals out. However, will that spending last? Last week the Labor Department reported first-time jobless claims increased to 1.1 million, and it was the 22nd consecutive week claims exceeded those during the worst week of the Great Recession. On the positive side, the total number of Americans collecting unemployment fell from 15.5 million to 14.8 million, the lowest since early April. This data goes to show that the recovery will not be quick and a V-curve.
Where exactly are we headed, I am not sure. I hear lots of talk of continued layoffs ahead with about Wells Fargo and Boeing announcing more cuts as well as many smaller companies planning layoff. There is a sense of uncertainty over Q4 2020 and Q1 2021, and expect many are taking a wait and see approach. However, with school restarting, albeit in a confused manner, the Federal Unemployment Benefits in unchartered waters, and Congress in gridlock, there is a lot of confusion out there.
However, as an old Keynesian, the amount of stimulus that the government has poured into the economy is why we are experiencing a robust recovery to date. According to economic theory, in a world of excess capacity and mass unemployment, a combination of vast government borrowing with monetary expansion will not fuel inflation until most of the excess capacity is exhausted, which is where we are now. A Keynesian fiscal stimulus financed with negative real interest rates will boost private consumption and investment and should generate above-trend economic growth. Before the cry of “Crowding Out,” arises from many as I heard during the Great Recession, where all indications showed none. Currently, with central banks worldwide committing to financing this Keynesian stimulus with zero or negative interest rates for years ahead, there is no risk that public borrowing will crowd out private investment.
Thus, will this Keynesian stimulus lead to a healthier and longer growth economy? I would put that down to two factors.
- As always, public health. The sooner we adopt and proactive, data, and science-driven approach to the COVID crisis, the sooner we return to a functioning economy. Cases are rising again in Europe, which indicates that this is a marathon and not a sprint. I know for many, it already feels like a marathon, but the more apt analogy is the British in September 1939 saying, “It’ll all be over by Christmas!”
- The Stimulus. The actions by the Fed and the Congress, through the CARES Act, have injected substantial stimulus into the economy. However, as these have ended, we will have to observe to see what happens. As in the Great Recession, Congress stopped the stimulus too soon, for political reasons, which lead to a much weaker recovery than there should have been. Hopefully, this time, they will put the country first and give the economy what it needs to recover.
A lot of economists are arguing that the stock market is pricing in continuous stimuli for the economy, and if Congress fails to deliver the will, a market correction to accompany the economic contraction.
For those gnashing their teeth and anguishing over a Keynesian expansion, it is worth remembering that the 20 years of broadly Keynesian macroeconomic policy in place from 1946 until the late 1960s saw the most robust economic growth and productivity advances ever recorded. At the same time, we experienced generally moderate inflation and almost continuous bull markets in equities, property, and other real-value assets.
There is a war for talent. How do you attract talent to your company and have them apply for jobs there? You have to show why they should consider you, who you want, what you offer, and how your current employees feel.
Productivity remained during WFH with COVID. However, further analysis found that hourly productivity fell and was compensated for by employees working more hours. What was the culprit – Meetings. Want to increase productivity, have fewer meetings.
For those of you who are not aware of EOS, it is the Entrepreneurial Operating System. It seeks to improve businesses by getting six components aligned to enhance business operations. The six are: the vision the people the issues traction - meetings and goals...
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.
Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.
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.
Defining an organization’s culture as a “Family” culture reflects tolerance to subpar performance. Rather focus on those characteristics of a “family” culture that you want.
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 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.