Last week, Mark Fisher from Eighty4 Recruitment invited me to be a guest on his Collabor8 show. Collabor8 is something Mark’s set up to help empower his clients, through learning, sharing and connecting. I was honoured to be his first guest and happy to help as Mark has been a client of mine for some 7 or 8 years. The theme was around business post-Covid-19 and his questions were insightful so I thought I’d share them here today, in case they provide clarity for you, too.
Q: Over the past 4 weeks you’ve been talking to lots of high profile and smart contacts — what’s the overall thoughts on how bad the effects of this will be on NZ?
A: Most companies will get through the next 2-3 months, thanks in part to cash on hand and that wage subsidy. Of course, some industries will have a very high % of near immediate business failure: tourism, travel, hospitality and retail. However, some of my clients are having very good — if not record — months in April. It’s quite possible some businesses (those in construction) will do well with govt infrastructure projects if the govt can make them happen quickly without getting stuck in red RMA tape… Overall, I think most companies will do ok(ish) over the next 6 months.
My real concern comes for 2021. With the GFC, we saw the true impact about a year after October 2008. My gut feel (which is backed up by smart people I talk to like PwC, chairpeople of notable boards etc) is that the true impact will not be seen until next year.
I think all the stats we hear shared by various economists are going to come to fruition. Unemployment will be 10%+. House prices and commercial property prices really could drop over the next 12-18 months, even in a low interest rate environment. We could have an over-supply of housing given net migration is likely to be the weakest it has been in 30 years.
I think the next 18-24 months will be the hardest in our living memory, economy wise. With NZ govt debt growing from $70 billion to $150 billion or more, there will be interesting times ahead with servicing this and the resulting impact on things like taxes and public spending.
That said, there are still plenty of opportunities for the best businesses to blossom!
Q: What cash burn do most businesses have? What’s normal?
A: This really comes down to the approach of owners pre Covid with them leaving money in the business or taking it out, along with whether they were a good or bad business. If we look at tech/software company examples, Microsoft and Google are extremes with almost 3 years of operating costs cash on hand. Xero has 8 months. Pushpay 2.5 months. For normal businesses, I’d say you can survive on 3-4 months and preferably 6 months but I know plenty of NZ SME companies have only 1-2 months or less.
Q: What financial modelling should we be doing when it comes to budgeting?
A: Obviously, cashflow forecasting is key in the short-term. I’d be rolling out worse case 6 months but preferably at least to March 31, 2021 — and it’s worth pushing out to March 31, 2022 with various assumptions. Those assumptions would be conservative and would be anywhere from 10% decline in revenue through to 50% or 80% or whatever your worst case might be. You’ll want to update your break-even point knowledge as it’s likely you’ve saved some of your operating costs during this situation.
While we all want to be as profitable as possible, for the moment it’s all about cash runway. How is your cash runway looking? How can you extend your cash runway another week or month or two?
The name of the game right now is to ID the pending cash holes in the business so you can start doing something about it immediately ie. talk to bank or however you might fund it.
I’d also pre-identify your trigger points for when various things — like redundancies — need to happen in your business. You want to make decisions based on metrics and not emotion…
Q: When times get really tough, should people consider redundancy first or borrow money?
A: It doesn’t matter if you’re the nicest person in the world, this is a situation where you have to put on your big business owner and leader pants and have the guts to make challenging decisions if you want to survive this.
This crisis is an opportunity to lose your weakest team members. They might be weak in that they are not a culture fit — ie. toxic even if they are not too bad at their job — or they’re a lovely culture fit but they’re never going to cut the mustard with being a profitable team member. You will be better off in the medium term losing these people (and they’ll likely find the right employer for them at some point in the future and ultimately be happier personally as well).
For many businesses, given there will be a hole in revenue at some point soon, you might have reasonable grounds to restructure and lose some heads so if you have any people who are C or D players, then consider this strongly.
Alternatively, if you have a dream team that has taken a long time to get into place and you have invested in making them as awesome as they are today, then you do have a tougher decision. What you do in this case is entirely a personal decision and you’d have to consider your medium to long term goals and plans and consider how hard it’d be if you did lose some of your A team (purely for short-term financial reasons) to still get there. How replaceable are they?
In terms of borrowing govt-backed money from the bank (which is super low at 2.6% for example), the answer would be based on whether keeping your current over-resourced A team will give you a higher chance of hitting your stretch medium to long term goals and whether they will also help you to get there sooner than later. If you reckon you will do better long-term with your A team, then you’d have to strongly consider borrowing money but taking into consideration whether you can pay it back within the 3 year pay-back period.
If I was borrowing money to keep my A-team together, I’d be considering how I can lock them into my business for the long term, given the reason you are borrowing instead of restructuring is to keep that A-team together.
Q: You’ve talked to 20+ connected speakers over the past month, coached over 50+ clients over the past week — who stands out from a leadership perspective and why?
A: Lance Jimmieson from Jacksons Engineering has been outstanding with his regular email comms to staff and his 1pm daily meeting with the senior exec team, where the top priorities are agreed for the next 24 hours as a company and across the various teams.
Bronson and Ida Murray from North Drill. Bronson played for the Highlanders for several years and they consistently run their business of 50 ish employees with a fantastic rugby culture, leading their staff with daily check ins. They’ve made the most of their 40-odd ‘on the tools’ staff who couldn’t work from home during level 4: they have a system where they are paying staff 80% but for that, they need to actually do something to develop themselves for 4 hours a day. For example, an hour’s exercise, one hour Zoom training sessions, a personal financial plan, watch Ted Talks, or read books on leadership, culture or self-improvement. Staff log everyday what they did yesterday and what they will do in the next 24 hours. The staff could decide to not take the 80% pay and the minimum 4 hours of self-development a day and just take the $585 wages subsidy — only 2 staff decided to do nothing and take the $585!
Vic Crone of Callaghan Innovation has always been a very good leader. A great learning from her is that for her to be the best leader she can be for her team of 600+, she has had to put time into resilience for herself, finding a new routine so she can have 100% energy to lead her team remotely and through this crisis. A good reminder that, as a leader, looking after yourself is quite likely the most important thing you can be doing navigating through this whole thing.
Q: What leadership styles will not thrive in this new environment?
A: I think…
- Those who don’t show care and concern for their team
- Those who don’t show vulnerability — staff want to see this as it’s human and this is how they feel.
- If you lock yourself in a room and don’t communicate much, you are going to really struggle. I’d go so far as to say that for the rest of the year you cannot over-communicate. The more you communicate, the better.
- Leaders who turn a blind-eye to things will struggle to make their companies successfully navigate through the next 2 years. You need to make the hard decisions and have the challenging conversations.
- I’d suggest that you do a personal review on your own leadership style and consider all the things that someone replacing you as the leader of your business could poke holes at, then see what you can do about those leadership deficiencies… Much of the future health of your business will come down to how good your leadership is…
Q: When it comes to developing a renewed strategic plan post Covid, how do we know we’re tackling the most important strategies for success?
A: You have always needed a long-term view of what success looks like for your business — this helps you to formulate the right short-term to medium-term strategies for your business… So nothing has changed here. That said, it is possible that the timing to get to this long-term view of success has been lengthened due to uncertainty from Covid and its long term impact.
Once you are clear on the long term, then for the moment it is a matter of emerging in 18-24 months in the best possible shape so you can carry on to hit your long term goals.
At this time, it is about short term focus and sprints.
I’d be doing two things today:
- Work to a 90-day plan consistently — you, personally, and all staff. Work to a top 3-5 focus points (let’s call them strategies) that are going to make your business as strong as possible in 90 days’ time… And then re-set them. Make sure these short-term focus points are the 3-5 things that will ensure in 90 days’ time your business has improved and is on track still to ultimately reach the longer term aims.
- During these 90-day sprints, make sure you are also doing some things that will make your business stronger in 2-3 years’ time. I’d suggest you put 70% of your time into maximising today and making the rest of this year strong (and that includes culture and leadership as well as protecting and maximising your business), put 20% of your time into working on future opportunities, and use 10% of your time for blue-sky thinking and R&D. As you can see protecting your time is going to be critical — as the leader you’re going to have to make sure you’re not getting dragged into stuff you shouldn’t be involved in. Tough when you’re short-staffed, I know, but do your best.
Q: For those who need to pivot, how do you establish what your pivot could be?
A: The starting point is to ask yourself what your future customers are going to want and need. Do that by talking with them… Don Braid of Mainfreight spends 35% of his time on the shop floor, talking to customers for this exact reason.
Also, get your greater team involved — ask them for ideas on what potential pivots to take.
Consider ‘what ifs’ — ‘what if’ you could do something that was super difficult and that nobody in your industry can currently do? Think of those impossible industry challenges that’d make you truly world-class if you could solve them and then create some R&D teams internally and give them some of these challenges as projects.
The sooner you start thinking about your pivot or your innovations that will make you the most successful company in your industry, the better. Don’t sit on your hands — think about it today, not next year.
WORKING FROM HOME
Q: How many of your clients are looking to set up all or some to work from home permanently?
A:Most people I talk to think that within a year or so, they’ll be back working from the office again, similar to how it has always been. I generally agree but do think that many companies might now look at updating their flexibility approach, allowing people to work from home for, say, a day or two a week.
One of the greatest things about working from home more has been the lack of commute time for most and the benefits that this has had. Instead of travel time, my wife Sip and I have been up at 7:15am every morning doing a 45-minute Zoom group call with our PT and I have never been so fit!
Overall, you should have a think about how can you get the most productivity out of your people, along with maintaining a good culture — if this includes working from home some of the time in the longer-term, then great. People having flexibility does generally increase engagement and engaged staff are 2.5 times more profitable than a standard, less engaged person so it’s worth considering seriously.
I think there will always be a need for most companies to have an office but over time, if more people are working from home, they will also act as social hubs so will need more meeting rooms and space for social stuff, and hot desking rather than set desks.
Tony Marks says
You are too young to remember the crash of late 87 . The real crash hit May of 88. Hundreds of companies went bust..cost me at Carters Building Supplies over $1.0 m in 3 months. So you are right . It will be early 21 whem manure hits fan