In my recent Forbes article, I challenged business leaders to implement three things to have a roaring 20s. One of which was to review and update their business plan, and thus prepare for a downturn as we were pushing the limits of the ongoing market expansion.
When working with business leaders in their annual planning I start off by asking, “What will put you out of business?” A pandemic rarely, if ever, gains traction amongst the leaders as we debate the possible future threats to their business. Yet, here we are as the United States and world are faced with the fight against COVID-19.
An otherwise strong and robust economy was brought to its knees overnight. We didn’t have a financial crisis but a health crisis. The reach and depth of this has changed life as we know it. Empty streets, empty stores, empty shelves.
There are two primary zones in which businesses find themselves. One is the Driving Zone in which the business is thriving, systems and operations are in sync and growth is vibrant. The other zone is the Drama Zone. In this zone, the business is facing many challenges and threats that if not addressed can lead to pre-mature business death. During a Drama Zone, it is critical that the business leaders do three primary things to drive through it and back to the Driving Zone.
Communicate a clear vision. Develop a resource management plan. And finally, identify the key measurements that provide critical information for decision making.
Communicate a clear vision – fight the FUD
Communication is always critical but escalates when pressure and threats increase. During a time of crisis, the need for communication increases exponentially. In addition, precision and clarity are even more important as decisions have to be made quickly and alignment is critical to achieve success.
Sports provide us with great examples of how this plays out. An NFL game is 60 minutes long, yet, as the game hits the final two-minute warning the great quarterbacks are known for how they can quickly and effectively drive their team down the field to score. The quarterback provides clear, articulated direction to the team and they execute with precision. But what would happen if the quarterback allowed FUD (Fear, Uncertainty and Doubt) to enter his mind or his teammates? They would most certainly fail and lose the game.
This holds true for leading a business during a period of crisis. A leader can’t allow FUD to enter his/her mind or any of the many stakeholders including: employees, vendors, suppliers, and customers. It is therefore critical that the leader take the time to lay out a plan and clearly articulate each of the key elements to each of their stakeholders on a frequent basis, otherwise, FUD can begin to take root and undermine the ability to execute and perform at the highest level.
Things to do: Write a weekly update to each of your stakeholder groups. Give them a clear update on how the business is doing, what risks/issues you are addressing, and give them hope for what a successful future looks like.
During a time of crisis, leaders need to take inventory of the resources at their disposal. From financial to supply chain to employees, all must be measured and managed to ensure that they are carefully deployed and not wasted. One of the largest threats to a business is running out of a critical resource. Cash is king when it comes to critical resources and businesses must have a diligent plan to manage cash flow, both in and out. This is a time to engage major customers and work out terms if necessary to ensure a predictable cash influx, talk to bankers to ensure access to credit facilities to smooth out the cash flow, and work with vendors to arrange payment terms that ensure all survive a crisis.
Another critical resource are employees—who are needed both during a crisis and afterward. One of the most difficult decisions for a leader to make is how to manage the inherent conflict between retaining cash and retaining employees. Of all expenses that businesses incur, wages have one of the highest velocities to impact retention or expenditures of cash. While a business can negotiate terms with customers and vendors, wages and compensation don’t work the same. Thus, business leaders are faced with retaining people or cash.
The critical part of our current crisis is that it’s not a normal one. It’s anticipated the economy could come back fast after this crisis and employees need to be retained to ensure demand in the near future. The CARES Act Paycheck Protection Program is the largest government program to finance small business payroll costs and sustain employees. It may go down in history as saving American businesses and employees from financial ruin.
Things to do: Contact major customers and vendors to clearly arrange payment arrangements. Communicate with employees and lay out a plan for today and tomorrow to retain employees.
Financial statements provide valuable information, but during a period of crisis and uncertainty they serve as a rearview mirror to your performance. Indy 500 drivers have rearview mirrors and spotters to tell them what is happening behind them. But what is really important to their success is the dashboard of current data in front of them so they can make critical, fast decisions. It’s one thing to go on a Sunday drive and casually enjoy the scenery, but when in a race, like businesses are today, timely information is critical to success. The business metrics that have been used before may not provide the critical and timely information necessary in today’s business climate.
Take the time to identify those key measurements that will help monitor the business activity on a more urgent time schedule. Historically, a business may be able to rely on weekly numbers to make decisions, however, today this may need to change to hourly or daily numbers to better understand the changing business climate. This is critical to understanding cash flow cycles, production cycles, and customer buying patterns.
In addition, identify those other non-financial numbers that may be Key Prediction Indicators, such as: website hits, call volume, foot traffic, etc. that predict sales and activity. Furthermore, assess your customer base for concentrations of risk that should they slow will have a significant impact on your business, and monitor their industry performance.
We are in a crisis unlike one we have ever managed before and at a pace that is dizzying. We are measuring in days not weeks or months. This is the time to go slow and analyze the business. Identifying what to communicate clearly, how to manage critical resources and what numbers to measure.
Be strong, nimble, and decisive.
Originally posted on Forbes.