Dear Dr. Jana,
For the past 12 years I’ve had my own business which provided a decent living for me and my family, but last month we had to close our doors and lay off everyone. I really want to stay alive, but I’m not sure how. Job Keeper works if employees have been with us for a year, but most of ours had not. And even if I do bring back those who qualify, what would they do? What should I do to stay alive – or should I just close down?
It’s small comfort to know that every company has been impacted by COVID-19. And the news that Australia is likely to have a -3.7% growth rate this year has created a high level of anxiety from the Prime Minister to CEOs like you! Those of us who have been through this kind of turbulence have “seen this rodeo before” and have learned some hard lessons. One critical indicator of whether you should try to “stay alive” is whether your warning light is blinking red, yellow or green, because each colour suggests a different set of issues and requires a different response from the CEO. I talk more about what you should do, depending on the colour of your “blinking light” in my article below.
One big issue for CEOs is to be able to recognise whether your warning light is blinking red, yellow or green, because each colour suggests a different set of issues and requires a different response from the CEO.
Red Light – DANGER
Four categories of business right now are in the danger zone – travel, restaurants/cafes, arts, and leisure/sports because they are associated with places or events where people congregate – which is now prohibited.
Many companies have paid their employees their entitlements, closed down, and are hibernating. Some are trying to negotiate lower rent with their landlords, or a reprieve from rent for a period of time. Banks are providing six months’ relief on mortgage and interest payments. It’s important to remember that this relief is temporary; it is not “free”. At some time in the future you will need to pay back the rent and/or the deferred mortgage and interest payments. But sometimes a little relief is all you need to get through, so talk with your landlord and your banker ASAP and be honest about your current situation and future prospects. Meanwhile, don’t forget to explore all the government assistance programs that are available. Job Keeper is just one of them, and some states are giving companies outright grants to stay in business.
As you are doing all this, look at your company from the perspective of an investor – because that’s what you are: you are investing your time, energy and money in this business. Be honest about what will be required for it to be viable and ask yourself whether you are willing and able to make the changes required for it to re-open and start again? If your answer is “no, not really”, then give yourself permission to close it down and spend the next few weeks thinking about what you want to do with the rest of your life.
If your answer is “yes” and you believe the business is viable, then use these next few months to plan a “do-over” for the company. Engage employees funded under the Job Keeper program to help you look at your products and services, identify changes in customers or what they are asking for, develop a new layout or new systems, think through a better marketing strategy or refresh your website. Stay positive and think of this “hibernation” as a gift of time to make positive changes.
Yellow Light – CAUTION
A lot of companies are looking at a yellow light. As the leader you need to take this crisis seriously and not think “she’ll be alright”, or look the other way in “benign neglect”. Lack of attention could be fatal if the light turns red.
Begin with your financials. Study your accounts receivable, payable, P&L, and Balance Sheet. Project your cash flow for the next few months. How long before you run out of money and can’t pay staff and other expenses? Work on collecting receivables and think through how many expenditures you can delay.
Focus your efforts on selling what customers want and stop trying to sell the rest. Figure out how to make more of what customers want, i.e., put on a second or third shift or be willing to pay overtime. Stop selling to customers who cost you money.
Be honest with your employees. If you are over-staffed for the current volume of work, engage with them to come up with some solutions, such as taking vacation, reduced shifts or job-share.
Green Light – GO FASTER
There are some companies and some sectors for whom the green lights are signalling “go faster”. They are actually benefiting from this crisis. Construction is still proceeding, ventilators and face masks are in high demand, and hospitals need more protective clothing. Even distillers have switched from making spirits to making hand sanitiser.
One of our CEOs in the manufacturing sector wrote, “We have a record number of orders and are exceptionally busy. I have daily meetings with operations, finance and sales to monitor the rolling monthly forecast. We are identifying any orders in the production grid that may be at risk due to COVID-19 and are projecting the impact that could have on budgets and timing. We are constantly reviewing our sales pipeline for changes and any signs of deterioration. I am running as much overtime as possible and shipping everything we can, as quickly as possible! If we do have a recession, I want to have as healthy a balance sheet as possible.”
You could call him “lucky”, but I would call him smart and doing what a leader should do at all times, but especially when a crisis offers an opportunity to grow.
My Lesson Learned
I was in London when the 9/11 disaster shocked America, and it took me several weeks to get back to my home and company in Boulder Colorado. Planes were grounded, Americans felt under siege, and people simply went home and locked the door. Disbelief was wide-spread and panic was rampant. People were afraid we’d be invaded, who knew which city would be targeted next, or what innocent person might be killed.
Every week another one of our contracts got cancelled, but I kept thinking we would come through OK. In retrospect, I totally underestimated how long it would take before things were normal again. Knowing what I know now, I should have laid off staff and “hibernated” for several months, kept cash in the bank, and used the time to re-evaluate and restructure the business and plan the next stage of growth. But uncertainty plays tricks on rationality, and my staff and I alternated between worrying and comforting each other. In the end, I had to let them go because we were nearly out of cash; the USA had no Job Keeper programs. All that worry took a toll on my health and my family. When the economy did begin to recover, it took much longer for my company to break back and build momentum because we didn’t have the cash to hire/re-hire the staff needed to capitalize on the opportunities.
In a crisis, CEOs first need to ask themselves whether the company has a chance of surviving, and if so, what will be required to ensure that it does. They also need to ask themselves whether they are willing to do what’s required to rebound and grow again. If the answer is yes, then be prepared to make some tough decisions about people and strategy in order to make the changes required to strengthen the company so it can rebound and grow again.
Ask Dr. Jana your questions on company survival and growth. Submit your questions via email to Dr. Jana and she’ll answer in her ‘Ask Dr. Jana’ column.
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