As bad as they are, we’ve dealt with recessions before. This is different.
This is three kinds of crises that build on each other.
- A health crisis. There’s a war on and the virus is trying to kill us all.
- An economic crisis. Because of what we need to do to fight the virus a lot of people are out of work and a lot of spending is not happening. That means money is not flowing in the economy.
- A financial crisis. When money doesn’t flow in the economy, the stock market tanks, loans dry up and money is tight in the investment infrastructure that is supposed to support the economy.
Many are focusing on this as a financial crisis and in some ways the rules don’t apply.
In 2008 we had a financial crisis. The government intervened with massive financial relief to try to prevent it from becoming an economic crisis as well. There’s an argument to be made that they succeeded. With mixed results, but not as well as if they had been able to provide more relief faster and to other sectors (like home owners).
In the 1930’s we had a financial crisis that became an economic crisis as people were put out of work. The US government intervened by hiring people for massive projects (WPA and CCC) which immediately put money in people’s pockets and also built infrastructure that was beneficial to the economy for years to come. It also intervened with spending on WWII and the ensuing economic support afterward, like the GI Bill in the US and the Marshall Plan in Europe.
2020 is different
We need to deal with the health crisis first or all three problems will get worse. Noah Smith from Bloomberg had an interesting analogy. Suppose you broke your leg and the doctor said we’re going put a cast on it but you can’t put any weight on it for 5 months. (Fun fact – that actually happened to my wife about 10 years ago). Would you say no to the cast? You can’t put any weight on it regardless and it will be much worse without the cast. Bottom line? Keep everyone home who can. Protect those who can’t and wash your hands like a surgeon. If we don't deal with this first, the economics won't get better.
Can you help with the shortage of masks? Harbor Freight gave their entire inventory of masks, gloves, face shields and the like to hospitals? Facebook gave masks they had stock piled since the forest fires in California. Do you have anything you can donate? https://www.projectn95.org/
Spread Help, Compassion & Humor #StayHome
What can you do to help your customers? Can you reduce prices? Give stuff away? Bundle products at a reduced price? Share any data you have that helps them?
What can you do to help your employees? Send them home. Keep them protected.
Use your CEO Time to think about these things. Then act.
Advice for a Financial Crisis
Beyond the health crisis, this is a financial crisis. The advice for companies in a financial crisis is generally along these lines:
- Share the pain. Rather than lay people off, cut back on hours and pay across the board.
- Keep marketing. Adapt your message and the timing but don’t cut back. As your competitors cut back you’ll be seen as the one customers can depend on.
- Conserve cash.
- Plan out what you’ll do when cash on hand reaches different levels. See this article on how to cut costs. Do you know what fat looks like? Muscle and bone? What will trigger cuts in each area? Use your CEO time for that type of planning.
- Can you improve collections? Change your prices or terms?
- Talk to your Banker – don’t wait. There may be low interest loans available.
- SBA resources https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
- Consolidate for the upturn. Financial crises end. When they do companies that survive have the ability to buy up competitors or their assets; to hire people they ordinarily wouldn’t and invest for growth.
- If you have down time or people you can pay but don’t have the same level of work, buff up the place, document your standard operating procedures, improve your systems, do more training.
Stay Calm & Wash Your Hands
~ JOHN
