What you need to know:
- Don’t sink funds into massive amounts of stock. Don’t invest in local relationships. Go for scale, quickly.
- As we learn and recover from this crisis, perhaps we can look again at “just-in-case” business models, not “just-in-time” ones.
Some businesses have really suffered in this coronavirus pandemic; others are weathering the storm quite well.
That might seem obvious, since some industries as a whole are better placed in this crisis. We can’t compare the fortunes of airlines and hotels, for example, with those providing home entertainment.
My point is a little different. Even within industries that are badly affected by the ongoing lockdowns and slowdowns, there are some that will make it to the other side more or less intact, and others who will need to undertake massive surgery to survive. The latter will send many people home, and might still not make it.
Why the difference? A clue can be found in a tweet by David Heinemeier Hansson, the co-founder of Basecamp, when the lockdowns started. He confidently stated that his employees would have no difficulty working from home as they had been doing that for years, and no one would suffer any pay cuts because the firm’s owners had always managed their business prudently. (Or words to that effect.)
What does managing prudently mean? Perhaps those who are throat-high in debt, or in the grip of impatient investors, keeping only minimal inventory and relying on just-in-time supply chains can explain, for they are the ones in the most trouble right now.
If your industry is one of the worst affected, such as travel, there is little you can do. Many will go out of business, whether they managed prudently or riskily. That is sad.
But there are those who are struggling only because of their business ways. The clarion call of efficiency is what might turn into a death knell.
The paradox is that these businesses, often funded by private-equity vehicles and following the prevailing orthodoxy to be lean and mean, might argue they did nothing wrong. They were simply being hyper-efficient. What’s wrong with that? Well, some tiny microbes just explained what’s wrong.
It was difficult to get away from what seemed like management wisdom. Use other people’s money, not your own. Don’t keep cash reserves, make your money work for you.
Don’t sink funds into massive amounts of stock. Don’t invest in local relationships. Go for scale, quickly. Be efficient; be transactional; run your business through spreadsheets.
All very nice, until it isn’t. When you suddenly can’t sell and you suddenly can’t source, your indebtedness and your leanness become fatal flaws. You need bailouts and handouts, moratoriums and sanitariums.
Meanwhile, a few folks did it the old-fashioned way. They grew cautiously and prudently, learning their lessons first. They were not in a hurry to dominate their market.
They put money aside, just because. They hired carefully as they grew. They invested in relationships with their staff, suppliers and customers.
They always kept some additional stock and capacity. They bought local whenever they could. These businesses were sub-optimal, but they were ready for trouble. They can see out this pandemic.
The old adages, such as “saving for a rainy day”, were there for a reason, issuing from centuries of human experience.
Yet ancient wisdom was cast aside in favour of the cult of more: more investors, more debt, more growth, more incentives linked to growth, more returns, more personal gain.
As we learn and recover from this crisis, perhaps we can look again at “just-in-case” business models, not “just-in-time” ones.
Perhaps we can keep sensible buffers against the unexpected. Perhaps we can rethink the greed that leads to manic growth.
Perhaps we can build deeper relationships, the ones that might actually see us through a period of difficulty, not the transactional ones that disappear as soon as the transaction sours. Perhaps we can build slower for longer.
The challenge is that thinking like this means saying no to a lot of temptations. The snares are many: quick and easy money to boost your business; seductive loans; the allure of hanging around posh clubs with the moneyed; the adoration of a society that worships the quickly rich.
Thinking slower and steadier means believing a peaceful, sustainable life is a perfectly good one to have. It means not keeping score and not comparing with others.
It means being quietly comfortable with your own principles and own pace of achievement, rather than being in the thrall of the lunatic orthodoxies of your peers.
Who has the strength to do that?