It is a Crisis. What to do now.

Have you ever fallen off your bicycle?  One minute you are zooming along, next picking gravel out of your skin.  Happens too fast. Crises are like that, firms click along and too suddenly they are kissing the pavement. 

Biffed knee

There is a great book written about planning by Stan Davis called Future Perfect (my copy is from 1994). The book dealt with how we can create a different future by pulling apart how we view products and delivery. By now the idea of home delivery and separating the physical product from the information content is the very nature of many internet businesses.

In it he notes that we must manage the beforemath:

In the industrial economy, our models helped us to manage aftermath, the consequences of events that had already happened. In this new economy, however, we must learn to manage the beforemath; this is, the consequence of events that have not yet occurred.”

Stan Davis

In every crisis there is time and opportunity. What you do at the beginning of a crisis will help you control that consequence of events that leads to the aftermath.

As I’ve noted before, CFOs help CEOs run the company. 

Step one for both is to manage cash. Every crisis includes the problem of cash flow.  Get a firm handle on the cash in the business, what is coming in and what is flowing out.  The cashflow model you review most often is done on a set time frame: annually, monthly or weekly.  Whatever time frame you are using, go one step closer.  Runway behind you and altitude above you are no help when you are flying a plane.  Figure out your cashflow runway first.  Make enough runway so that you can safely last well, well past the crisis.  You may not have to sell that prize piece of real estate but if your cash flow plan says you need the money in month seven, and it will take 60 days to list and close, then you know when you have to take action. 

Step two is to develop a plan to protect the main profit-making portion of the business.  Don’t cannibalize what works to shore up what isn’t working.  This is a hard one for senior management.  The years of planning and capital investment are sunk in a new division and now we are in crisis. I’ve watched great company’s go bankrupt trying to continue growth initiatives in a crisis.  That recently launched product or new store?   Be prepared to retrench. I worked at a company with limited cash resources which renewed leases on money losing operations because they were statement locations where we’d spent considerable capital obtaining and putting into operations.  Unfortunately, they weren’t making money and they tied up considerable capital.  Sunk costs must be ignored. Keep what makes you money, making you money.  If you don’t know which products, operations, segments are most profitable, find out fast.  Some 10% of your customers generate below average profit rates and some 10% of your products deliver below average return on investment.  Cut those first. 

Step three is to be bold. Generally, changes suggested by an entrenched management team are too shallow.  We love what has worked. Sometimes the only way to make a business profitable is to pare it back to the profitable core and start growth over.  Get smart about what business we are in and what business we aren’t in. This role is uniquely the CFOs.  The saying goes “CEOs love their children” but the CFO knows that businesses aren’t children.  Generate a range of options for whatever contingencies are reasonably possible.  Start identifying likeliness, severity and possible options to reduce both of those.  The time isn’t wasted.  Options identified on how to keep one customer happy can be used to keep vendors in line also.  But whatever you do, keep in mind what drives profit in the business.   I’ve suggested several bold ideas in meetings, which were rejected initially but were embraced later.   It isn’t disloyalty to admit that a division isn’t working or that the environment has changed and strategy has to change. 

Step four is to move quicker. Napoleon said “There is one kind of robber whom the law does not strike at, and who steals what is most precious to men: time.”  Time, space and action can define most problems.  Space and action can be changed, time can’t.  Whatever management process you have it must work better in crisis.  Meetings that lack relevance must be canceled and new agendas developed that better fit the problems the firm is facing.  Many firms go from monthly to weekly meetings, and some from weekly to daily. More time helps but equally as important is who is invited to the meetings, what is discussed and whether actionable tasks are generated.  I’ve seen management teams dither for months while opportunity and cash leak away.  Take a fresh look at how the team works and make the needed changes. Now.

Step five is to manage the staff.  In a crisis, everyone is a little on edge.  Your staff is worried about their jobs and even when they say they are not worried – they are lying.  In a crisis, you must spend more time communicating.  Emotion is more important than information.  Most of your communications are going to be read for emotion first and then content. Be as clear as possible and repeat yourself.  Sounds stupid but when people are in crisis they don’t listen too well.  They are like the Far Side cartoon called “blah, blah, blah Ginger” where the dog only hears its name.   When people are nervous, they forget who to trust.  Don’t let your staff find out what the business is doing on the internet, tell them first what is going on and what you are going to do.  And then tell them again. 

There is no guarantee these (or any) actions will result in the business thriving or even surviving. However, doing these five things will improve your odds of success.