It’s at times like this I wish I was a doctor, a nurse or somebody on the frontline fighting this virus. As I am not qualified for the front line, I am trying to fight it in other ways.
At Broadlake, we have spent the last three to four weeks working with our six Broadlake companies to help the leaders and our 2,500 staff respond to the challenges. I have also been in contact with many entrepreneurs, some whom I mentor and others where our paths have crossed in the past to check in with them and see how they are doing.
It’s such a difficult and uncertain time for all of them. Over these past two weeks, I have gained many insights into myself, my colleagues, our companies, the challenges entrepreneurs are facing and some solutions they are working on.
As I am unable to save lives on the front line, I’ll try to do my bit by sharing these insights that might help entrepreneurs, business leaders and managers cope with some of the stresses they are faced with. It’s not an exhaustive list, but it’s practical and maybe one or two things will work for you.
Protecting and educating your people
As the details of the mutations, impacts and the spread of the virus become better known by the day, the one fact we need to acknowledge is that Covid-19 is serious, and it kills. Don’t get lured into thinking it only affects the old.
Make sure you protect your people in work by adapting your business processes to minimise the risk of contracting the virus and the contagion impact of spreading it. If done successfully, you will be educating your people and increasing awareness on best practice. This education will remain with them well beyond this virus and hopefully reduce the impact of the next one.
Staff will also carry this awareness into their homes, families, social networks etc. which will have a multiplier effect. As employers, we are in a position of responsibility, just like teachers and their pupils, to have a profound impact on our people if we create the right environment and do things right.
Communicate frequently and clearly
People just want to know where they stand. A lot of managers can be slow to communicate with staff while they are trying to figure it out and come up with a plan.
My recommendation would be to communicate with them while you are planning, so they know you are working on things, with a date when you hope to have greater clarity. I have seen people in strong businesses with what I see as very good job security be unnecessarily concerned because friends and family members are being laid off in other businesses or sectors.
From Monday, March 9, we held daily conference calls where all our leaders share their day’s learning and the responses they are taking. As a family of companies, it is great for our leaders to learn from each other and to know they are in this together.
We have communication logs where we record staff, customer & supplier communications to ensure nobody is being left in the dark. We are keeping communications short, clear and frequent to ensure maximum impact. We want to ensure what’s being said is what’s being heard.
One should assume people are very distracted with the stresses, uncertainty, fears and anxiety they are feeling at present. Ensure two-way communications to confirm their understanding of key messages.
Lean into your principles
Most companies will have principles that they work to or want to work to. Sometimes, they are clearly publicly defined like the All Blacks’ 15 principles (worth googling) and other times they are just part of the culture or a team and go undocumented. Sometimes they are so clear they are just part of the DNA of an organisation and everybody lives them. Other times some people will, and some won’t adhere to them.
Now is a time for teamwork, alignment, collaboration and a focus on the collective over the individual. We are seeing this occur at a national and local level as we fight this virus. If you don’t have principles, talk with your team and agree collectively what principles you are going to agree to operate to.
A leader alone can’t define the principles. To get your team’s understanding, buy-in and ownership for anything, they need to be involved and empowered to own it fully. The list doesn’t have to be perfect and it can evolve over time, but it’s useful to have a starting point documented on a page.
By buying into principles, you are committing to live by them. An individual’s commitment to everybody in the organisation is far greater than their commitment to a line manager or a team. They are far more powerful in aligning than any plans, actions or tasks.
About 18 months ago, we gathered our top 30 leaders across our family of companies for a day and collectively agreed our 12 Broadlake Group Principles. This was a transformational day and everything we do now centres around our principles.
To give you an example of some of our principles:
- Trust and respect (for each other every day);
- Openness and honesty (nothing goes unsaid, feedback is personal but we don’t take it personally);
- Know each other (to truly work as a team we need to know each other well and what makes each of us tick);
- RFM (respect for money – pennies make pounds); and
- IROAR (individual radical ownership and responsibility – we own our position on the pitch).
Great principles can be applied to everything you do.
Form a new thesis for a new world
The first three points above talk about the “Why” and a little about the “How” to respond. Now I want to focus on the “What”.
We live in a new world and this is evolving day by day. As I write, estimates for the impact of this on European GDP in 2020 vary widely from Standard & Poor’s estimates of -1 per cent to Goldman Sachs estimates of -9 per cent. In essence, nobody knows the true impact yet, so we have to take it one day at a time.
My advice is to form a new thesis or budget for your business that accounts for the facts as you see them today. Don’t be overly optimistic or overly pessimistic but be cautious of going against the facts.
Take a very practical look at your business and break down all the component parts to identify risks associated with Covid-19. Once you have all the risks on the table, put them in order of scale of impact starting with the greatest. This will help you form your “thesis”.
The thesis might be a 10 per cent drop in Q1 sales, 30 per cent drop in Q2 sales, 20 per cent drop in Q3 and 10 per cent in Q4. The facts behind this will be customer-, product-, service-, country-specific. This thesis says 17 per cent drop in 2020 turnover with falls reducing towards the end of the year and flat sales in 2021.
Quickly take your costs and put them in three buckets: fixed, variable and semi-variable. This will give you a sense of how flexible you are in responding to these changes. This will also show you the profit impact of the declining sales, which is called operational gearing (discussed further below).
Form a thesis quickly of the changes in costs you need to make to respond. This will be based on the above 17 per cent reduction in our example. Ask yourself regularly: have my assumptions changed? Only change your thesis if there is new information or if your assumptions change.
Keep a simple log which captures and dates any changes in assumptions. This is important because, as people get sick and the pain around us increases, we will get more emotional, worried and anxious. All might lead us to consider changing our thesis without any of the assumptions actually changing.
A solid thesis based on facts will take the emotion out of it. If assumptions do change that change your thesis, then have a new plan which is up to date, giving you the confidence you are on top of this.
How flexible is your business?
You don’t know until you stretch. Forming different hypotheses or theses of sales’ relationship with profit will determine how flexible you are. What is my operational gearing?
Operational gearing is a simple concept but that doesn’t make it easy to understand. Ironically, when most Irish people talk about gearing in a business context, they are referring to their leverage levels.
Operational gearing is a far more important gearing because without knowing it, you never really understand your actual flexibility and true exposure to leverage. Coming on the back of five to 10 years of strong growth (depending on the sector), we forget that operational gearing works in reverse.
On the way up, a 10 per cent increase in sales can sometimes lead to a far greater increase in profits. Businesses with a lot of fixed overheads can experience an increase of more than 30 per cent in profits by growing sales by just 10 per cent. Unfortunately, the same applies on the way down.
By understanding this relationship, you can then decide if you need to make additional changes to increase your flexibility and better position your business to respond to slowdowns or market shocks.
There is no “right” level of operational gearing – you just need to find a safe level for you and be conscious of your level vs your competitors’ as this will impact on your relative ability to respond to both growing and declining sales.
Understanding operational gearing is key to understanding the fundamental risks you are taking in your business. Unfortunately, it often takes a recession for people to become aware of their actual exposure levels.
Avoid death by a thousand cuts
When you establish your new thesis and the corresponding operational gearing, you will sense the quantum of changes you need to make. Then make a list of everything you can practically do to minimise or respond to each risk to get your required outcome.
Speed is of the essence and I am a fan of simple 10-point plans – not over-complicated, long-form documents in which the main facts get lost. The right actions to take will range from business to business.
Be very practical in assessing the impact. Be brave and back yourself, you are leading for a reason and you need to trust your gut. At times like this, the paralysis of thinking and doing nothing, doing too little or reacting slowly are the greatest risks.
To protect your business, you will have to make some unpopular decisions. Experience has taught me that the people who respond quickly and decisively are usually best placed. By communicating quickly and openly with staff, you are being fair to both the ones who are staying and those who unfortunately must go.
If your people trust you, they know it is tough on you and they just need to know what you are thinking. If you need to downsize, you need to do it quickly because it’s in the best interest of the business and the remaining staff.
Try avoiding death by a thousand cuts. If you must cut deep, do it as quickly as you can and ideally make all cuts together. By doing this, you can minimise the impact on the remaining staff who are feeling for their colleagues losing their jobs and trying to cope with their own fears.
I have seen companies who get into a rhythm of “every Friday cuts” and it kills morale. Don’t be the leader who cuts on a Friday and runs away for the weekend. When you do make cuts, that’s the time when you need to be there for your people.
Cash is always king
While making the changes to your profit and loss, don’t leave cash to be an afterthought – regardless of how much of it you have. You need your business to be right-sized for the new world post Covid-19.
Sometimes companies can delay making the tough decisions because they have cash reserves to ride out the storm. Sometimes, this means they retain a business shaped for the old world. Just because you have cash doesn’t mean you can delay making the right changes.
Utilise emergency government supports which cover proportions of staff salaries or allow you to extend your tax payment dates as much as you can. But be conscious that while these schemes will help you, they are often kicking the can down the road. You still owe the money. Don’t delay inevitable changes you know you need to make as a result of having them.
Be wary of bad debts. Particularly where you have bank debt, put extra efforts on cash collection. If you have invoice discounting in place, realise the cash draw that bad debts will place on you as you have already drawn down payment against these debtors.
Talk to your banks frequently and be very open and honest with what you are seeing and doing to respond. We see banks as partners and as such communicate regularly with them. We share not just the spreadsheet but our response plans, staff communications, principles etc. These give banks a real feel for you. Spreadsheets alone can be sterile.
Banks are responding positively but, like the hospitals, will have a volume of cases to deal with. By making their life easier with speed and quality of information, they can make your life easier.
Cash is always king as it’s the fuel you need to reinvest in future growth, whether that be organic or through acquisitions. When the storm passes, we will get back on the growth path and will need cash to grow, so try and protect it as best you can.
Build confidence by winning the daily battles
We all get tired. Covid-19 is an ever-present word at the moment. Everywhere we look we see signs of its impact, in every conversation we have with family and friends we discuss it, TV and radio are dominated by it. It’s draining and the eye of the storm is still ahead of us.
For the last few weeks, we have been asking leaders to take it one day at a time. By focusing on the daily battles people, are getting a sense of achievement day to day. Once the new thesis is built for your business, you can shift your focus to controlling the controllables and making necessary changes.
Winning daily battles is vital when the scale and extent of the war is still unknown. It minimises your leaders and their teams becoming overwhelmed by uncertainty.
Be sure to acknowledge progress more than ever before. Confidence has been damaged and it’s one of the most important intangible assets we have in our businesses. We need to protect it and build it.
We also need to let our leaders lead. A natural reaction is to micromanage in a crisis, but now is the time to provide clarity, trust, empowerment and support to your people. This is a once-in-a-lifetime learning experience for our leaders and managers – let’s make sure we don’t take this away from them.
I strongly believe that good managers should function like good sports coaches. Now is the time to come up with a good plan with your team, give them confidence, support them and stay off the pitch and let them play.
Be open to the learnings
I have always found that wonderful ideas and changes often come as a result of a crisis. People unite, backed into a corner, egos left aside. They look at the world differently and come out fighting.
Be conscious that some of the wonderful ideas that will emerge as a result of this coronavirus will remain with us long afterwards. I hear leaders speak of many early learnings from the Corona Crisis: the improved communications, better clarity from managers, increased focus, increasing team spirit, speed of diversification, embracing of technology, making home working work – these are among a few.
Embrace the learning and be sure your people understand the positives of a crisis. I often say to people: if good things can come from crisis, how can we create our own mini-crisis from time to time to unlock some of this thinking?
The crisis is here, you should use it to unlock people’s minds. In the iconic words of Apple, let your people “think different”, encourage collaboration and come up with new ideas for your business. Use this experience to encourage a culture of learning and reinforcing its importance on business evolution.
Seek out the opportunities
Once you have formed a thesis of the new world ahead of you and the imminent changes you need to make to respond to this world, it is important to spend a little more time on what opportunities the new world might present for you.
To do this, you need to make sure you have stabilised the business with a base case thesis. Once you are stable and have made most of the significant changes, look up and look out. There is still a world out there that will present new opportunities as a result of Covid-19: New products, new services, new delivery models, maybe fewer competitors, market consolidation opportunities, market diversification opportunities, greater potential for home working, online selling, etc.
The world will still have almost 8 billion people at the end of this. Opportunities will remain, opportunities will emerge, and opportunities will expire.
The world will go on and reward the brave.
If you have any questions or I can be of any help to assist you through these tough times drop me an email pete@broadlake.ie.
