Five lessons on how to keep your firm strong and nimble
by Martin Staubus
As the pandemic-driven economic crisis continues to unfold, a picture is emerging of how employee-owned companies are faring, and what they are doing to cope with the anxiety-stoking challenges. Of course, not all U.S. businesses are sharing the same experience. The reality ranges from those suffering a virtual cessation of revenue (as with a company I spoke with that specializes in producing live corporate events in San Francisco) to companies that are seeing significant revenue increases (e.g., some companies in the supply chain for medical equipment). Unfortunately, there are many more of the former than the latter.
So, for the many, many employee-owned companies that have seen real drop-offs in their traditional revenue streams, how are they coping? What can we learn?
I will offer five themes that have emerged in the past few weeks — lessons that others can apply.
1. Cash management is vital to staying afloat. When you’ve been hit by a truck, the first order of business is to get the blood loss under control. So, businesses that have seen revenue drop off the table with the lock-down orders have taken some time to figure out how to achieve a cash flow that doesn’t lead to near-term insolvency. Part of the solution is on the revenue side — the successful companies are figuring out new ways to do business, whether online, by delivery, or with new products or services. Loans from the Paycheck Protection Program (PPP) are essentially a subset of this side of things (it may be called a loan, but if you don’t have to pay it back, it’s really revenue, albeit a very weird kind). And part of the solution is on the cost side — negotiating with creditors and lessors to defer payment of those obligations.
One of the most effective strategies employee-owned companies use to engage the team is open-book management.
2. Open-Book Management (OMB) catalyzes creative solutions. Companies need every single member of the team using their creativity to figure out ways to help get the business through this crisis. If you want to reach customers online, for example, ideas on how to do that won’t be coming from old fart managers of my age, but from the younger folks who are digital natives, fluent in the language of social media.
One of the most effective strategies employee-owned companies use to engage the team is open-book management (if you don’t know what this is exactly, two excellent resources include https://grittbusinesscoaching.com/ and https://www.greatgame.com/). If the team members don’t know what’s going on — if they don’t know how much revenue has dropped, or how much the payroll will be next month — they are left with their hands tied behind their backs. They can’t help figure out solutions to situations they are not informed about. But when you share information broadly, you will be surprised at how willing people are to jump in with a truly constructive spirit.
Not enough dollars to continue covering the old payroll? That’s not an issue best solved in secretive management meetings. Let the whole team weigh in on whether there should be layoffs or salary reductions or another hybrid solution. You only have to point out that the payroll will need to drop by x percent, and the team can then figure out the solution that will be least painful for them. One Bay Area company I spoke with took this approach, and the employee-owners figured out who among them would be least harmed by a furlough, with people ultimately volunteering to go on leave.
3. Honesty combined with hope drives out fear. Engaging everyone in finding creative solutions is central to the success of employee-owned companies. And OBM certainly supercharges that. But people can’t think creatively when they are gripped with fear.
Sharing real time information about your company’s problems may seem like it will increase anxiety, but that need not be the case. Effective leaders are frank, honest, and open with their people, but they also offer a sense of direction and a sense of hope. Good leaders don’t simply tell everyone that revenue has dropped by 50 percent and then walk away. They follow up by sharing some next steps — even if that’s just forming a task force to figure out a response — and enlist everyone in helping with that.
4. A strong board of directors is of immense value in a crisis. A board composed of people with long and broad business experience will provide immeasurable help in getting a company through these difficult times. Today’s challenges are bringing home the need to have the right kind of people on your board: people who have been through other challenging times (e.g., the 2008 recession); outsiders who bring expertise that the company needs but may not have; people who are prepared to roll up their sleeves and get involved in charting a successful path forward. At a manufacturer near Los Angeles, the board includes two CEOs of other employee-owned manufacturers, both of whom got their companies through the 2008 recession. The board is conducting check-ins with the company’s senior leadership every couple of weeks to offer ongoing counsel and approve key actions.
5. Now is the time to plan for the future. While the first order of business is to figure out how you will have enough cash to keep going in some acceptable form for another few weeks, that’s not enough. Those businesses most likely to get through this storm are planning now for after the pandemic. When the virus is beaten (it’s only a matter of time) you don’t want to be caught like a deer in the headlights, wondering what to do next. Develop — and continue to edit — your plan for what you will do when employees and customers are able to get back in action. Be ready to get out of the gates strong, ahead of your competitors, with a team that is fired up, knows the plan, and is ready to execute.
A key part of that preparation will involve keeping your team together to the greatest extent possible. When business opens back up, it will be far better to have your experienced people, rather than having to hire and train new people. During the 2008 recession and its aftermath, ESOP companies typically went to greater lengths than conventional companies to keep more of their people, and those efforts paid off when the economy rebounded. It’s nice to know that taking care of your people just happens to be good business!
Martin Staubus is a senior consultant and former executive director of the Beyster Institute, part of the Rady School of Management at UC San Diego, where he advises business leaders on the design and operation of employee stock ownership programs to build stronger companies and provide liquidity to owners.