Has COVID-19 Derailed Your Planning? Tips From a Crisis Management Expert

For most business owners I’m guessing your strategy is off track and any exit planning is on the back burner given our minds are on the ramifications of the COVID-19 virus. What is probably on the minds of many is, “How and when can I get out as I don’t want to rebuild it again?”

It comes down to choices. Here’s one of those choices: 

Is the pain of rebuilding your business greater than the pain of selling at a discount? If it is, once there’s stability it’s time to sell. If the pain of selling at a discount is greater, then do what you can when you can. And depending on your industry, it could be a quick rebound or a long, slow process.

We should all realize there is nothing most of us could or can do when something like this wallops us. Customers can’t buy if your business is (forced to) closed. You can’t make sales calls when ordered not to. But that doesn’t mean you go into hibernation mode.

For tips on how to minimize damage I interviewed my friend Dan Weedin, who is a crisis and disaster management expert (you can see more about Dan at www.danweedin.com). Here are the questions I asked Dan and his insights, followed by a few pieces of information from me:

What were you telling clients 6, 12, and more months ago about crisis planning?

Business owners should create a written business continuity plan that covers who’s in charge of a crisis, what are your continuity paths with employees, customers, suppliers, and the community. Know your emergency preparedness procedures for things like loss of power, loss of water, damage, etc.

What about pandemic preparation?

“This caught me by surprise given it’s been 100 years since we’ve had anything of this magnitude.” He said if he had told clients to prepare for virtually the whole economy shutting down, he feels they would have thought he’d gone crazy. The biggest problem with this situation is the uncertainty as it’s different and scary. With other crisis’s (fire, tornado, flood, etc.) we have an end point, so we deal with it, and recover.

What about recovery?

Be worried about your supply chain. Your area and your firm could be back to work but if your suppliers are in other states or countries and they aren’t back to full speed you’re still treading water. Look at options now.

What are you telling clients now?

First, it’s different than what I would have said a week or two ago. My top things are:

  • Stay educated. There’s a lot of data out there. Know what’s happening with governments and their policies.
  • Employee safety is number one. What can you do to keep them safe?
  • Innovate. What if this is our normal for three months?
  • You can’t over communicate. Communicate to create community.

What are some examples of what businesses are doing?

  • A gym is holding virtual training sessions. They want customers back when they’re allowed to open instead of buying Peloton’s, building fancy in-house gyms, etc.
  • A bar is doing online cocktail making classes as they know they’re customers will remember them and be back.
  • A shared work facility is doing a virtual happy hour to keep front-of-mind.
  • A winery, not able to do tastings, offered their club members free shipping if they added three bottles to their order. They’re delivering the wine so the customers don’t get it at the store.

In the future he will do pandemic training as part of disaster planning and his final words to me were, “Talk about things other than COVID-19 and be a distraction to others.”

I (John) also realize we’re in the middle of something we never thought would happen, much less planned for. So, we have to move forward from where we are. Here’s my advice, most of it good for all times not just during a crisis.

Take care of your employees and customers. They are tied for number one on any list you have. You don’t have a business without your people and those who buy from you. Do what you can to keep your employees, have them come back if you had to let them go, etc. Stay in touch with all customers, even if they’re not buying now.

Be wise with your cash and at the same time work with (take care of) your suppliers. You want them around in the future. If you have a line of credit, consider using it to get cash on your balance sheet.

Do not “hunker down.” Be as large a marketing machine as you can be (as Dan said, you can’t over communicate), especially if you can do it for little or no expense. Use social media, emails, phone calls, etc. Besides regular messages, one thing my company did was send a request to lot of business friends to help a family my wife is assisting. The mom escaped an abusive situation and is trying to get her kids and herself back on their feet. We got some donations of things they need and kept my name in front of people for a great cause. A win-win.

There’s a Lot Going On in Today’s World

Just some thoughts given our current situation. Disclaimer: You will probably find something to like and dislike based on your political preferences.

  • Mother Nature, the Hand of God, or whatever you want to call it can bring billions of people to their knees pretty quickly.
  • A few weeks ago I was in the “it’s not that serious” camp. Then I started seeing the hockey stick like charts of how this exploded in other countries. Amazing how South Korea handled it, versus Italy, because South Korea took action and took it quickly.
  • There is ample evidence government officials (of both parties) knew this could happen and took no preventative action. Bill Gates repeatedly warned of this and the National Institute of Health ran a model that showed we weren’t prepared.
  • The response from government should scare you about what it would be like if the government ran all health care (for some personal insights into the testing fiasco read Peggy Noonan’s WSJ column from March 21 – she describes her experience with the maze of getting tested and then getting results)
  • On March 16 we decided that to get away from news we’d watch comedy, starting with some Monty Python videos. It was a week of mostly funny stuff, which sure lightens the mood.
  • This could be much worse than the financial crisis of 10-12 years ago, especially for small businesses.  
  • Will $1,000 or so per person make a meaningful difference?
  • Bankers are contacting their loan customers, worried about how this is affecting them (and their ability to repay).
  • A trillion-dollar stimulus package on top of trillion-dollar deficits, wow! FYI, I wrote the White House a couple years ago complaining about these huge deficits during an economic boom.
  • It would be nice if our president would act like he actually cares.
  • On the local (Washington) front, our governor spent all last week lecturing us like a primary school teacher lectures her little kids. And to no avail as the headlines have been about people ignoring his warnings and hanging out all weekend in groups in parks and on beaches.
  • There’s going to be pent up demand when this calms down and let’s hope it quickly brings back the jobs being lost, especially the lower wage jobs.
  • I think and hope it will spur activity in the buy-sell market. I’m guessing there will be a lot of owners who will say, “I’m done, it’s time to get out.”
  • The sports page and sports networks don’t have much going on, do they? 

All in all, pretty scary stuff we’re going through. I have no doubt we’ll make it through all of this. From a business perspective, now is the time to be active. Waiting this out in the equivalent of a bunker will delay your (business) recovery.

Small Business Survival Tips During COVID-19

I won’t be disingenuous by marketing services when most of us are in survival mode so I will make all readers of this newsletter an offer:

If you have questions about what to do, how to handle things, need a sounding board, or simply someone to vent with call me for free telephone counsel. Or, if you’re sick of being cooped up and simply want to talk, give me a call or suggest we meet for a walking coffee (at a safe distance).

On to a few miscellaneous thoughts on our current situation.

This virus has affected every business. Some are busier than ever – the grocery industry, medical supplies, etc. Most are stagnant at best, in horrible shape at worst – restaurants, catering firms, bars, their suppliers, theaters and other arts organization, athletics, car dealers, repair shops, etc. All are wondering what the heck is going on, when will it end, will it end?

I’ve read a lot on the virus and understand why the plea for social distancing. This virus is wickedly contagious at short distances and has a long life on surfaces, which is why they say don’t touch your face (hard for those of us with tree pollen allergies).

The testing of NBA players showed people can have it, and transmit it, without showing any symptoms. A chart in the WSJ recently showed about 10% of those tested have it, but those without any symptoms aren’t generally getting tested.

The president says he wants the economy back by Easter. Medical experts say it’s not feasible. Would be nice and it does pay to be optimistic but the peak of his predicted to be in April (earlier states like New York, later in others).

No matter what your political persuasion be careful of what the extremes say. This isn’t exaggerated to prevent the president from holding rallies (Fox News) and everything the administration says isn’t BS (MSNBC). 

Conclusion & Advice

Whatever your business is, be doing marketing. Call customers, referral sources, be on social media if it’s a fit for what you do. Be present instead acting like you’re in a business coma.

Take care of your employees the best you can. You want good talent back when this is over. Work with an employment attorney, research the Family and Medical Leave Act, know about State programs, and keep up to speed on new Federal and State legislation and disaster recovery programs.

Also take care of your customers, even if they’re not buying now. This could be better terms, deals, or simply talking with them.

Communicate with your suppliers. If cash is tight, let them know, work out payment plans, and above all, don’t be silent about it.

Work with your bank, especially if you have a term loan and cash flow issues. I’ve also heard a lot of PE firms are telling their operating companies to use the lines of credit to strengthen their balance sheets cash position so consider this.

If business is slow, do those administrative things you’ve put off. Take care of personal things. And be ready because there won’t be an announcement saying, “It’s over, back to normal.” It will sneak up on us.

Creativity in a Crisis

Once again, the phrase, “We live in interesting times” is being used.  There’s nothing but news about the coronavirus and at the same time marketing creativity is starting to flow. 

  • The Catering Company in Kirkland is offering ready-to-heat meal packages with reduced rates, no delivery charges, and emphasizing their food safety protocols.
  • Precor is running ads promoting the benefits of working out at home in the “clean, fresh air.” With many people scared to go anywhere, including the gym, they’re hitting a raw nerve their potential customers have.
  • An HVAC company is extolling the virtues of an air scrubber. Whether it works anywhere close to airplane filtration systems (hospital quality, removing 99.9% of contaminants) it sure sounds good. 
  • I received an email from HubStaff informing me their system helps track the accountability of employees working from home including automatic screenshots, website activity, and activity level based on keyboard and mouse usage. Given and owner told me she feels her working-at-home people get done about 70% compared to what they do in the office I’m sure there will be interest for this type of tracking software.
  • Pagliacci Pizza is marketing touch free pizza delivery. Order online, leave a tip online, and get it delivered at your door with no person-to-person contact.

To me the calm and quiet feels like Christmas and New Year’s with one exception. There still seems to be activity between business buyers and sellers. And, historically an economic slowdown has meant a vibrant buy-sell market as individual buyers fear losing their job (or they’ve lost it), owners say, “Not again, it’s time to retire,” and other owners see opportunity to grow (by acquisition).

“Nothing dates harder and faster and more strangely than the future.” (Author) Neil Galman

Details, Details, Details, and Ambiguity

The attorney looked at the audience and said, “Make sure you understand everything in your agreements. If there are any ambiguities, they will come back on you, not your attorney.” This was many years ago when said attorney and I were on a panel together.

Wise words, aren’t they? I will never forget them. I thought of this the other day when an exit planning client told me about a dispute over a distribution agreement with another company. And, it seems the other party also ignored this advice, thus a mess.

Without giving away any details, my client signed an agreement that gives the other side an out. The other party signed it including a clause that gives additional control to my client. How does this happen you may ask? Here’s how.

  • My client got to the point where he told his lawyer he didn’t want to spend any more money on legal fees. The lawyer had mentioned the out clause, but the client was mentally more concerned with fees than anything else. However, the lawyer should have said something like, “There’s no charge for this conversation as you need to realize the other side can get out of the agreement at any time, leaving you with expenses and no recourse.”
  • The other party said, when it was pointed out there was a clause giving my client ownership of the brand (versus distribution rights), “An employee of ours put that in there and we didn’t notice it.”

In both cases, not paying attention to the details, not noticing ambiguity, and being cost conscious versus results conscious. In the buy-sell world there are more details, more intricacies, and lot more words to read and understand than in the above example. 

In all cases, don’t ignore the advice above.

“A little alarm now and then keeps life from stagnation.” (Author) Fanny Burney

Show Urgency or Lose the Game

It’s 2020. Another year, another decade. Doesn’t seem that long-ago people were worried about the world collapsing on 1-1-2000 because of computer clocks, does it?

As Jessica and I talked last week about getting back in the swing of things after the holiday break, one word we used a lot was urgency. Urgency on our marketing, urgency with our clients, and just keeping things moving.

Seattle football fans know the Seahawks would have had a home game in the playoffs if they had shown some urgency on the one yard line instead of getting a delay of game penalty. 

Urgency doesn’t mean rushing into things without a strategy or good tactics. To me it means when the starters gun goes off you move at the appropriate pace. By this I mean, in marketing you can move fast. Making changes to your processes or culture are done at a different pace so you don’t trip and fall. It’s different for all of us.

Think about three areas in your business where you can pick up the pace. And then move on them now, not next month or next quarter.

“Few things are harder to put with than the annoyance of a good example.” Mark Twain

What is the Bane of Your Business?

Goals are an ongoing task, not just for a calendar year.

Many years ago I was a regular at a pretty cool restaurant in Minneapolis, when I traveled there about once a month on business. I remember the manager telling me, as he propped up my wobbly table, unstable tables have always been, “The bane of the restaurant industry.” And he’s right. Invent a table that doesn’t wobble and you’ll have quite a business.

So, what’s the bane of your business? Is it:

  • Marketing – this is a common one. I’ve talked to so many owners who say something like, “If only we knew how to market better.”
  • Sales – too often there are more order takers than true salespeople. And, finding a good salesperson is one of the toughest hires there is.
  • Inefficient operations – growth, and I mean profitable growth, can mask a lot of problems. But if there’s not growth or when it stops, it’s time to get an expert in to improve productivity. Improve gross margin by 2 points in a $5 million business and it’s $100,000 to the bottom line.
  • Poor culture – let’s face it, most problems have to do with the people. Don’t believe it? Just look at all the articles, podcasts, etc. on management, leadership, culture, and similar. I always find it amazing when we do “focus group” type meetings with employees. Very insightful (and usually the owner is surprised by the results).
  • A dependency (key customer, an employee who if they left would create a huge problem, or you, the owner, can’t get away without risking catastrophe) – easy to spot, tough to fix (quickly). But when it comes time to sell, a large dependency will scare buyers away or reduce the price.

It’s time to figure out the bane of your business and deal with it (or them).

“The main dangers in this life are the people who want to change everything – or nothing.” Nancy Astor

Growth by Acquisition Isn’t for Everybody

This was originally written for the blog on www.ibainc.com.

An interesting title of an article about how the author helps his company’s clients, isn’t it? Immediately telling readers the subject might not be for them. It’s because I’m not a salesperson, one size doesn’t fit all, etc. In fact, I start out speaking engagements on buying a business by telling the audience (usually management and executive level people0 there’s a good chance it’s not for them.

But when it is for you, be sure to do it correctly. And that means don’t jump in without a plan and when it comes to growth by acquisition that means know why you’re doing it.

In my book, Company Growth By Acquisition Makes Dollars & Sense I have a list of 19 reasons to consider growing by acquisition. I’ll list them here and go into detail on six of them.

The cake – 16 solid reasons (in alphabetical order)

  • Acquire great talent, including the seller
  • Assets are cheaper as a package
  • Competitive Advantage (fill a weakness)
  • Dependencies reduced
  • Diamonds in the rough
  • Diversify your product offerings
  • Easy money
  • Integration is easier
  • Location, location, location
  • Make a competitor go away
  • Psychology – Employees like to be part of a winner (growing firm), just like sports bandwagons
  • Risk, it’s a lot lower
  • Overhead the same, volume higher 
  • Synergy
  • Technologies
  • Vendor relationship strategies

The icing – the top three

  • Customers (efficiency vs. make more calls)
  • Yes, we can!
  • The bigger you are…the better

Acquire great talent

Good employees are hard to find and often are not in the job market. Just talk to any executive recruiter. While all buyers want capable employees, most strategic buyers (that’s you) also prefer to see a solid management team in place.

Great employees with industry knowledge and experience are in the job market even less. When you are looking for great salespeople, I believe this is amplified. They won’t change if they’ve got a good thing going. Here are some statistics from an executive recruiter, which explains why it’s tough to find good people.

  • 82% of people aren’t searching for a job.
  • Leadership, or the lack thereof, is the top reason management people switch jobs (not money).
  • 46% of millennials left their last job because of the lack of career growth.

If you acquire their company and create an atmosphere of growth, those employees will want to stay. While I can’t comment on the culture in all companies, I do know that many small family-owned businesses have owners who are coasting. They are doing very well, they aren’t working too hard, and they don’t want to disrupt the nice moneymaking system they have. 

Dependencies reduced

Dependencies are a huge issue in most small businesses. By being larger you can reduce most or all of the following:

  1. Customers
  2. Employees
  3. Management abilities
  4. Product
  5. Owner

 Not too much explanation is needed. More customers over your expanded revenue base, more employees, deeper management, less product concentration, and most importantly, there’s more talent to take a load off the owner. And an owner dependency is often the brightest red flag for most profitable small businesses. Of course the owner has to be willing to take advantage of the deeper bench by delegating to them.

Psychology – Be part of a winning team

Employees want to be part of a winning team. They want to feel they’re contributing to a winning effort. It’s very much like sports, the more the team wins, the greater the number of fans it has.

I’m thinking of a young man in his early 20’s whom I know. He took a while to figure out some things in life and is now steadily employed and has been for the last few years (with the same company). He’s proud of his job, his contribution, and showed disdain when a new, younger employee (whom he called “the kid”) flaunted the rules and wasn’t dedicated. (But let’s be honest, some employees at this level don’t care, but they’re not the ones who are important anyway, like “the kid.”

Now elevate this to the more experienced people including the management team. In one company there was some doubt about the general manager accepting new ownership. However, this doubt was unfounded as he’s leaped at the chance to implement quality controls, better processes, and accountability. 

The icing – the big three

Now here are the top three reasons to grow by acquisition.

Customers

“This would be a great business if it wasn’t for those darn customers” was a semiserious comment someone made to me years ago. Of course it’s the annoying (bad) customers he was referring to. It’s good customers we all want more of—customers who are loyal, steady, in good financial shape, growing, pay their bills on time, appreciate the value you offer, and consider you part of their team.

An ideal situation is where there are some overlapping products, so there is some continuity and synergy to be achieved. The figure below shows this. Your salespeople now have an easy transition to discussing, and selling, their products, and their salespeople have an easy transition to discussing, and selling, your products.

A picture containing electronics, compact disk

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In simple terms, if your primary motivation is acquiring a customer base, you are acquiring market share. You may have many other reasons (above), but the bottom line is you are buying customers, and that means top-line growth.

Yes, we can!

This is not about ego; it is about building an exit strategy in order to get a higher selling price. Buying another company, assimilating it into your operation, and showing that the combined profits are greater than the two individual companies’ profits demonstrates to potential buyers that this can be done. It proves you have the team that can integrate one operation into another.

This integration could be their assimilating your firm into theirs or it could be a signal that growing your business (or now a division of theirs) is possible by further acquisitions. A management team that can successfully integrate other firms without major disruption and with immediate efficiencies is a valued team. Too many big mergers and acquisitions fail. Up to 95 percent of public mergers do not live up to expectations. A savvy buyer will appreciate this talent and experience associated with past integrations.

Why larger firms sell for more than smaller ones (all other things being equal)

The bigger your business is, the more it will sell for, all other things being equal. A $50 million (revenue) company with 10 percent earnings will sell for a higher multiple (of profit, earnings, free cash flow, or whatever metric you use) than a $25 million company with 10 percent earnings, which will sell for a higher multiple than a $10 million company, and so on.

There are generally accepted ranges for multiples of earnings based on the range of companies’ revenue. However, too many small business owners see in the Wall Street Journal that a $300 million company in their industry sold for ten times earnings and assume their small business will also sell for ten times. That won’t happen; there’s more risk in smaller businesses than larger, so the desired return on investment is higher.

The fastest and safest way to grow from $5 to 15 million is by acquisition. Buy another firm in your industry—a supplier, customer, or unrelated company that provides diversification—to have an immediate revenue increase and a larger platform from which to grow organically. See more profit and a higher multiple when you exit.

“It’s not bragging if you can do it.” (Dizzy Dean, 1934)

A lot of business owners talk about their company’s potential or the growth that will occur if the buyer just “does some marketing.” Of course, most of this is just talk. Business buyers of all types and sizes are a skeptical lot. When buyers hear too much about potential they think the seller has tried every conceivable way to grow and can’t.

So prove you can do it. Grow organically and also go out and buy another company. Show that you can integrate the people, processes, financial systems, customer service, and everything else into your operation. Private equity groups and large corporations make multiple acquisitions. If you can buy another firm and successfully assimilate it, you become more attractive to these buyers. They will assume you can do it again and that your management team is capable. Strategic buyers and equity group buyers highly value management teams—it can even increase the multiple (compared to having the same size company that has not made acquisitions).

We’ve covered just six of my 19 reasons on why it makes sense to grow by acquisition. I realize most may not apply to your business. It’s the few that do apply that are the reasons why this strategy may make sense. Heck, your catalyst may be a reason not mentioned here. The point is this has worked for many companies and you should always have your eyes open looking for opportunities as there are a lot of good reasons to do so.

At the same time I must acknowledge there are pitfalls you need to avoid, but they can be avoided if handled correctly. How you handle the cultural integration makes a huge difference. Letting (most of) the employees, with both companies, know their jobs are safe is important, as with any acquisition. And you will be taking on debt, but this debt comes with good things like customers, good margins, cash flow, etc. If it makes sense to buy another company these pitfalls are easily overcome. As a very wise executive once told me, “Growth hides a lot of operational warts.”

High Rise – High Risk – High Reward

Gazing out the window of a high-rise I saw workers on scaffolding on a building across the street. My first reaction was, “That looks like fun. It must be exciting to work above the city.”

My second thought was hanging from a building is a lot like entrepreneurship. It’s risky, thrilling, and can be very rewarding. It may not be your life at risk (like hanging from a building) but rather money, respect, and sanity. And the odds of an entrepreneur failing are much greater than a cable, with multiple redundancies, snapping. 

Within a business the scaffolding reminds me of what too many businesses have, and that’s a dependency. The workers suspended above the ground are dependent on the equipment, the maintenance, and other people. If any fail the result can be catastrophic.

The same is true in business, especially small and mid-sized businesses. Too often there’s a dependency on one, two, or three customers, a key employee or two, or the controlling, unwilling to delegate owner.

Often it works out in spite of the dependency. But then it’s time to exit and the buyer worries the cable will snap leaving him with acquisition debt payments but a missing key customer or employee or the (previous) owner, who has too many secret sauce recipes in her head. 

Lesson: high-rise scaffolding has redundancies to prevent a disaster and a business’s redundancies are having a diverse customer base, knowledge spread amongst numerous employees, and an owner who’s built a team he delegates to. This is what leads to a high reward.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” (Statistician) Nassim Nicholas

Taking Action – Maybe Tomorrow?

The Wall Street Journal had an article titled, “New Ways to Battle Procrastination.” So, I tore it out to read later.

Seriously, I did tear it out and did so because I was about to go into a meeting and wanted to get rid of the rest of the paper. Like a lot of people, I have a list of things I need to do. And I love checking off those I complete.

But, and this is a big but, when it’s something I can quickly do, I do it right way. Unlike some people I know who say, “I’ll put it in my book.” As we head into 2020, what are the things you want to get done before yearend?

My advice is, get everything you can get done in the next two weeks so 2020 is dominated by new initiatives, growth strategies, and enthusiasm.

“Nothing so needs reforming as other people’s habits.” Mark Twain