It was December 7, 1941, when a young army recruit walked out of a movie theater in Chattanooga, Tennessee, and turned on a portable radio to hear that the Japanese had attacked Pearl Harbor. That young army recruit was my father, and the army quickly rushed him off to Panama to defend the Panama Canal.
The war that America entered into on that day was a true existential crisis for the country, but most crises since have not been. They certainly can feel existential, though. As our financial markets respond to concerns about a global pandemic, many of us worry about the effects on our businesses, our employees, and our families.
As business leaders, we must learn to react appropriately to the challenges each crisis presents. This is where experience is valuable. I’ve been around long enough to have weathered many business crises in this country. I remember October 19, 1987, when the Dow lost over 22 percent of its value in one day. All of us remember where we were on that fateful day of September 11, 2001. And I remember sitting in an operations review meeting the week Lehman failed and discussing the future of our business.
From these experiences I have developed the following playbook that has served me well.
1. Learn to forecast cash well. The number-one reason businesses fail is that they run of out of cash. During good times, cash is readily available. Customers are buying, banks are lending, and investors are investing. During bad times, customers stop buying, banks stop lending, and investors quit writing checks. If your business can only survive during the good times, you haven’t built a great business. Great businesses forecast cash effectively and know how to adjust during hard times to remain solvent.
2. Determine whether this is an existential crisis for your business. Each crisis is different and affects each industry differently. In our current climate, the travel industry is going to be impacted very differently than the canned soup business will be. Both will see an impact, but for the travel industry it is existential. For the soup business, the main concern will probably be about handling the surge without increasing costs.
3. Reexamine every expense. Take a true zero-based budgeting approach to your business. If you were starting the business from scratch, what expenses would you keep, and which would you not? Jettison anything that is not a core expense.
4. Look for opportunity. Many businesses will fail over the next 12 months. This is an opportunity for strong businesses to consolidate markets and hire talent that might not have been otherwise available. You should be paying close attention to your competitors for signs that they are struggling and look for chances to attract key resources to your team.
5. Be the emotional shock absorber for your team. The first thought every employee on your team will likely have as they process these kinds of events is “Do I still have a job?” Even in one of my businesses, which I do not think is facing an existential threat, I had an employee ask me that question this week. While I hadn’t considered shutting down the business, clearly the employee thought it was possible. During these times you need to be out in front reassuring your team that you have taken the necessary steps to not only survive but thrive as the country inevitably recovers from this setback.
At no point is leadership more important than in the midst of a crisis. Use these five recommendations as your playbook for keeping the ship steady until outside conditions calm.