Fixing Bayonets

Navigating through this uncertainty is something that can define a leadership team – especially for a small enterprise with limited resources.

I have seen a few corporate crises as the leader of small businesses. Most notably as CEO of a small company of 60 employees when we were devastated by a catastrophic flood that destroyed the entire business infrastructure including 100% of offices, laboratories, and commercial inventory. To make matters worse, I am embarrassed to admit ….we had almost no flood insurance.

We managed to survive and ultimately to thrive as a result of the tragedy. It took amazing resolve on behalf of our team, the generous support of our customers and vendors, and some disciplined practice. Here are the lessons we learned from the ordeal:

  1. Define your Critical Path – There’s nothing like a crisis to help you focus on what is most important in your business. Triage your activities to what is the most important objective for the near term, midterm and long term. Then focus solely on what will get you to next week. In our case we had two primary business units – One group of products served an industrial customer base; the other served the pharmaceutical industry. The latter was more profitable but required FDA approval to get back into operation. The former was lower margin, but we could get going immediately. Our Plan: approach the industrial customer base and convince them to give us blanket orders to produce as much as they could possibly take. Simultaneously approach the FDA regulated market and secure down payments for future orders.
  2. Make tough personnel decisions quickly: We had to let some people go. It sucked, but we did it in the first 10 days following the disaster. As Ben Horwitz says in the Hard Thing About Hard Things, “if you have to eat shit don’t nibble.”
  3. Figure out your ask: When something catastrophic happens, people naturally want to help out. They will say “Let me know what I can do to help…” most of them actually mean it!! You just have to guide them. When our industrial customers asked us “What can I do?” – our stock answer was “Give us a blanket order to produce as much as we can for you, Pay us in Net 15 Days.” To our pharmaceutical customers, we would say – Give us a 50% downpayment – for delivery 12 weeks from now. Conversations with vendors went like this ….”Resupply us what we lost in our inventory at your cost … you shouldn’t double-dip your profit on our tragedy.” Almost every vendor stepped up.
  4. CASH, CASH, CASH – Figure out how to keep the money in your bank account. Cash is like oxygen – if you don’t have it you will die. Some tactics we employed to keep the money flowing:
    • At the time, we had a line of credit with Wells Fargo for $1.5million – we maxed it out and deposited the money with Bank of America. If you have a line of credit from the bank – Take it all down right now. In fact, don’t even read the rest of this article, draw it down right now. You might consider even moving the money to a separate bank. In 2008, many successful small businesses were forced to shut down because their banks pulled their lines of credit.
    • We figured out who we could stretch out on payments. Utility companies won’t shut you down unless you are 90 days past due; Credit card companies will work with you and allow you to make minimum payments; many vendors would let us go to 90-day terms if we asked them. We only purchased mission-critical items. We created a flow chart to clarify expectations.

5. Celebrate Small Victories – It can not be understated how important it is to recognize your team’s progress … however small it might be. When the flood water’s receded, we did not have any electricity or running water servicing our factory. Our most important critical path item was to restore the electricity to at least power the lights to our buildings. We had a generator delivered to the site, and we all cheered together when we flipped the switch. “Let there be light”

6. Create Bonding Moments for the Team – For the first month of our recovery, we brought lunch in for the entire company. When the food was delivered, we all broke at the same time to eat together. Creating this space for bonding and camaraderie was essential for our survival. Today with Covid-19 crisis I know of several companies that are hosting “virtual happy hours” with their teams – we need to do what we can to stay connected.

7. Communicate – The shared lunch hours also gave us a forum to communicate progress to the team. In the early days of the recovery, We also published a bi-weekly update that was in writing. On our first day after the event, I recall standing on a washed-up tree stump in front of our building briefing the team. I would hate to ever go through something like this again,… but if there was one moment I would like to relive, it would be that first day in the parking lot, standing on that waterlogged stump – telling people “It would be all right.”

8. Use as a Catalyst for Change – Flood Recovery was a galvanizing moment for our team. In the years following, we would measure time as something that took place before or after the event. We used the opportunity to fast-track a number of changes we had been dragging our feet on. When the situation is dire, you can really make things happen very quickly. I think that is happening in a lot of businesses across the world right now. Things are being fine-tuned and optimized for the next period of growth and recovery.