The Pendulum Team are delighted to introduce an 8 week series which will feature highlights from Pendulum Resurgence’s fantastic speaker line-up.
This week will concentrate on the amazing Keith Cunningham who gave an electrifying and eye-opening presentation providing us the tools to ensure we emerge enriched from disruption.
With more than 45 years of business and investing experience, he has taught critical business skills to thousands of top executives and entrepreneurs around the world. He is an expert at helping business owners turn fledgling businesses into highly profitable companies with explosive growth. In his Business School for Entrepreneurs, he teaches strategies of making great decisions and minimising risk which you can implement even in today’s volatile economy.
His presentation is sure to prepare you for all situations.
The last few months have been unlike anything we’ve ever seen in our lifetimes. After Keith’s session with you today we hope you come away with some new tools and strategies in your tool belt for dealing with business and financial chaos in your business.
Trip Down Memory Lane
Before we get started, Keith brings you on a short trip down memory lane. In the 1980’s the real estate market in the southwestern part of the United States collapsed and Keith and many of my friends and their businesses associates were experiencing the inevitable catastrophic aftermath of one of the greatest real estate booms in the history of mankind. It was because of this they collectively decided to record a Log Of Lessons learned for each of us.
Keith was extremely anxious to get this phase of his life behind him, to lick his wounds and get on with his life. But he also instinctively knew that if he wasn’t careful, he would repeat the errors which caused the problems to begin with. Keith wanted to make sure that he wasn’t doomed to repeat the mistakes he made.
Keith wanted to be certain that he never had to experience this kind of disaster again. His thinking was not that he can somehow control the economy or interest rates. No one can, but what he could control was the thinking and strategies that allowed him to get caught in the tsunami in the first place.
After experiencing this, Keith established a set of rules and then followed them maniacally.
Cash is still the game of Crisis Survival
Imagine five birds are sitting side by side on a telephone wire. Imagine that you shoot one of them and it falls off the wire and hits the ground. Now how many birds are left on the Wire? The obvious answer is 4 but the correct answer is none.
When you shoot the first bird the other four birds flew off. Keith went on to say he thinks all of us are experiencing an infestation of flying birds as a result of the covid-19 virus, the quarantine, the government’s response to the virus and the ensuing economic crisis that it generated for millions of people around the world.
Although this is obvious. This is not business as usual. In fact, if you haven’t already thrown away your 2020 and probably your 2021 budget strategic or growth plan that you might have dreamed up five months ago for 2020 that original strategic growth plan will not help you survive. Survival and maintaining stability are the only new objectives.
During a crisis your priorities and focus must shift from growth to solving the immediate problem in front of you which is survival and survival requires cash and cash flow. Oxygen is something we rarely think about until it’s cut off and then it becomes our highest priority. The reason is obvious without oxygen life rapidly becomes increasingly uncomfortable and then you die quickly.
The oxygen of a business is cash and cash flow and when your cash becomes low or you run out of cash and your access to cash or cash flow lurches into negative territory. Your survival is dictated by how quickly and effectively you address this problem.
In light of the current economic turmoil, you probably have several competing agendas and priorities while all of these issues must be addressed. You must be able to accurately estimate the changes in the cuts you must make to ensure survival. The problem is correctly estimating the length of time that you have before the crisis is over and the length of time before the cash runs out. It is critical that you have extreme clarity and specificity about your financial status.
Leadership During A Crisis
For this Keith introduced you to the Rolling 13-week Cash Flow forecast, which aims to support you getting cash clarity for your business. It will be the single most important resource you have to successfully manage your business through this crisis.
The mistake most people make when dealing with a crisis is being overly optimistic about the time period they need to be in survival mode or that there will not be a relapse. You’re probably experiencing a form of relapse with the new wave of government lockdowns to attempt to control the current pandemics spikes.
The default assumption a person makes is that the problem will be rectified sooner rather than later and therefore the adjustments and cuts that a person initially makes are not deep enough or sustain long enough particularly when it comes to their personal spending. The unhappy result is cash that could have been preserved to extend your businesses life won’t be there any more as you didn’t properly estimate in the beginning so therefore that cash is gone forever.
The easiest thing to do right now would be to assume the problem is the virus covid-19 or the problem is the government’s response to the virus or the problem is the stock market’s reaction to the government’s response to covid-19. The reality is that none of these are the real problem. Each of these are predicaments or said another way a state of the environment.
A problem is something that can be solved and not anyone individually can solve any of the predicaments of vaccines, quarantines or business lockdowns. The real problem for a person as business owners is how do we survive? How do we save our business? How do we stabilize our business? How do we respond to this? Focus on the problem you can solve. If you had too much debt or revenues were unstable or you’ve been carrying around some excess weight in the form of expenses or personal spending or you were light on dry powder and cash. This means your cash flow was weak or negative prior to the crisis.
This then means your ability to weather this storm financially has been compromised and you are at extreme risk. If you only have been playing offense for the last couple of years and have no defense then this is going to be a particularly difficult time for you and the adjustments you will need to make will be severe.
Several years ago. Keith heard a very smart man say this. How you run your business during the good times dictates how well you will survive the bad times. There is no script or playbook for the current economic and business problems because people have never faced these games of issues with this scope and magnitude and while your specific situation might be very different from most maybe you’re in the toilet paper business in which case none of this will apply to you.
Principals & Questions To Guide You Through This Process
You must face reality whatever the environment is. After the original crisis is resolved. Keith believes one of the biggest problems we all face is not knowing how long this’ll last rather than assuming extremes like forever or just a couple more days. Neither of which are very realistic. We’ve already had eight months of virus and quarantine. Based on how this first eight months have gone, we can now make a more educated guess on how the next eight months will go. Do you need more expense reductions? If so, what are they? Can you find additional sources of cash?
Not all progress is measured by ground gained sometimes progress is measured by losses avoided. We are in a loss avoided climate and that means break even and cash neutral are gold medals.
Leadership During A Crisis
In the middle of a hurricane cursing the wind and screaming at the rain does not stop the hurricane or ensure your safety and survival. Playing the hand you’ve been dealt is the only choice you have if you expect to survive. Everyone is playing the exact same hand and were all in the same hurricane. So the winners will be those that play this hand to live to fight another day. So here’s the question. What do you need to do immediately to ensure your survival and stability?
Certainly, there are times that call for the warrior or the gladiator in a crisis to fight. The day-to-day battles are critical, but the goal is not to win every little battle. It’s the winning of the war that requires a warrior. This war will be more dependent on the thinking and planning you do than on the number of bullets you fire running the wrong direction enthusiastically.
There are only two primary outcomes in this environment and survival requires cash and number two is stability by cash flow neutral. So here’s the question. Think about what are the smart strategic moves that you need to make to increase your odds of winning this war? What do you need to do to ensure survival? How much cash reserves do you have and how do you make sure that you’re not depleting them with excess spending today?
No one knows how long this will last, how deep it will go, how things will look when the quarantine is over or how fast or slowly the economy or your industry or your customer base will rebuild.
So here’s the question to ask yourself: How will your business need to adjust to post price consumer expectations? How does your cost structure need to change to accommodate survival?
Optimism or emotions will result in hanging on too long and not cutting deep enough or fast enough and the second-order consequences of that is running out of money for the business. The most important thing to do is pay attention. If you don’t know how long this crisis is going to last you better make sure you can stretch what you do have to last as long as possible. So here’s another question: How can you preserve and stretch your existing cash so that you can extend your survival?
Optics, flexibility and speed or mandatory. Although you may not like the example, it’s accurate and insightful. There is only one reason Kobe Bryant is dead and that is because when it gets foggy and visibility goes to 0 you cannot fly your helicopter by looking at the window.
Kobe’s pilot did not have the dowsing cockpit that would have enabled him to see where he was and give him instant feedback but yet stupidly the pilot kept flying. It’s deadly to believe that you can navigate in this environment without dials and optics. It’s simply too foggy; the most critical dial in your cockpit is the rolling 13-week cash flow forecast. It must be accurate, updated constantly and consistently executed. The margin for error is razor thin. So here’s the question. How up-to-date are your dials, your dashboards and your optics in your cockpit? Are any of your gauges flashing red? What do you need to do to avoid crashing into a mountain?
The rolling 13-week cash forecast is very different from your annual budgeting ritual in normal times. A crisis cash flow forecast requires an entirely different level of intensity and engagement. If you decide to put in the effort to do the cash forecasting, you must run your business according to that plan. Mistakes on execution with cash and cash flow are deadly in a crisis. So here’s the question. Is your cash forecast realistic for the next 30, 60, 90 days and are you hitting what your plan outlines and if not what must you change immediately?
There’s a tendency when forecasting cash to use the same methodology as you sometimes use when creating your annual budgets. You can’t prepare an annual budget and then divide by 12 to have a monthly budget. This will clearly not work even in good times much less in the middle of a crisis. The missing piece is the extreme granularity and specificity required to actually accurately predict either the forecasted revenue or the budgeted. The rolling 13-week cash flow forecast is the answer to fuzzy glossy and unrealistic assumptions. Here’s your thinking time question. How can you turn your plan and cash flow forecast into a yellow brick road? What is the exact yellow brick road, you need to design and build that will ensure enough cash is in the bank to see you through this crisis.
The single most important ingredient of flexibility and a turbulent business environment is dry powder. In other words cash on the sidelines. In case you missed it in the news thousands of the largest companies in the world had run down 100% of their bank line of credit. They’ve slashed payroll, they furloughed millions of employees. Since they don’t have clarity or visibility about the duration of this crisis, they’re opting for safe instead of sorry.
As everyone is aware banks are happy to loan you an umbrella when the sun is shining but the first hint of rain and they want those umbrellas back. So it is better for you to have the dry powder than the bank. So here’s the next thinking question: How much cash on the sidelines do you have today? And is there anything you need to do or can do to augment?
In 2001 a commercial airplane flew into a building and the world changed forever. Regardless of your opinion of him today Rudy Giuliani was considered a national hero because as the mayor of New York on 9/11, he is the man that orchestrated the city’s response and is credited with preventing far more deaths.
A couple of years after this tragedy Giuliani was asked how the city of New York was able to mobilize and respond to this crisis so quickly and effectively his response is a lesson for us today. The mayor said “New York city had a war room at City Hall, this room contained over 50 different plans for different current potential crises. There was a plan for a dirty nuke in New York Harbor and there was another plan in the event the water system was poisoned. There was a plan for a bomb in the subway system or a hundred story office building catching on fire so when 9/11 happened the leadership of New York city headed straight for the war room and began pulling different response techniques from different plans.
In less than 30 minutes they knew what to do and how to do it not because they had a plan for an airplane hitting an office building but because they had so many other plans that had already been developed. Here’s the message for you today: You will need multiple plans on the shelf as this crisis continues to wind its way through our economic system. You need to develop a robust sensitivity and analysis with varying assumptions for revenue and expenses. No one has the ability to predict exactly what will happen next but thinking about and developing various plans in the event of varying outcomes will accelerate your response time and reduce the risk of getting caught flat-footed.
So here’s your thinking time questions if you knew this crisis was going to last three more months. What are the decisions you would make today and what actions would you take? What would you do if it lasted six more months instead of three what if it was nine months instead of six?
Anyone who has ever flown on a commercial airline has experienced an announcement at the departure gate that your flight has been delayed by 20 minutes or 30 minutes later. Another announcement is broadcast that informs you that it will be an additional 45 minutes before departure an hour after that the announcement is that the airplane scheduled to fly has not left it’s destination at the origination city and therefore the airline cannot predict an estimated new departure time, but don’t leave the boarding area in case there’s another announcement.
Here’s the thinking time question. What does your plan look like if the scheduled end of this crisis begins drifting from your original plan?
Chapter Eleven, Twelve, Thirteen
Wall Street has a mantra risk-on/risk-off and when risk is on the pros know it’s time to be aggressive because the coast is clear. There’s no thunder clouds on the horizon or hurricanes on the radar when risk is off. Everyone pulls in their horns. Risk-off is time for extreme caution. Here’s the thinking time question. Do you think this is a risk on or risk-off environment? If you ponder this question and conclude it is risk-on you might want to double check your assumptions.
In reality this question is another way to get you to think about your cash and your cash flow and your survival. One of the hardest expenses to reduce in a crisis is payroll. The reasons are obvious as business owners. A person typically knows these people and they hate the idea of hurting them financially with the layoff or a furlough. The problem is can you survive for another 90 days, become financially stable and avoid consuming all your money before this crisis is over. There’s got to be a skeleton of a business for people to return to when you restart and that may not be possible without some hard personnel decisions.
Here’s the thinking time question. How can you get your current expenses aligned with your current revenue so that you’re close to cash flow neutral as quickly as possible.
This crisis represents a unique opportunity for some of you to take a hard look at the inefficiencies that have crept into our operations. Money spent that doesn’t support servicing your current customers and your current revenue or adding and servicing new customers is money that’s wasted. Since many of us are not in a growth mode during this crisis a thorough and deep cleaning of our expense structure might be appropriate. Here’s your thinking time question. What needs to change in your business model expense structure and the delivery of your product or service? What is the new messaging and the new promise you need to make it be relevant to my target audience?
Think about an emergency room in a hospital. There are only two strategic outcomes: keep the patient alive and stabilise the vital signs. Everything else is tactical things, like keeping the heart beating or stopping the bleeding and keeping the oxygen flowing to support the primary strategic objective of keeping the patient alive.
If your business is experiencing financial social turmoil, Keith highly recommends prioritising keeping your business alive and getting stabilised as quickly as possible. Here’s your thinking time question. Where are the opportunities for you to eliminate discrimination and refocus and seize the steering wheel of your business like your life depends on it?
If you’ve been the orchestra conductor of your business or attempting to become one, consider stepping off the podium and becoming first chair violin, this might be the time for you to become much more active in your business as we navigate this crisis. You can always exchange your bow for a baton later if you survive.
So here’s the thinking time question. Where are the places in your business that your direct involvement would help move the needle on survival and stability?
The single biggest mistake you can make right now is to freeze. If you decide to ride out this hurricane with no forethought plan, shelter or life jacket. Paralysis consumes cash and cash is oxygen and without oxygen we die. Here’s the thinking time question. Where are you paralysed? How much is that costing you? What is the real math about your situation? What decisions can you no longer argue with yourself about?
In a financial crisis, growth will usually not bail you out because during the crisis growth is generally not available. Everyone is hunkered down trying to survive the storm just like you are and this is not about adding new customers. It’s about survival.
This is a critical point and the problem people face is how does a person survive. How does a person stabilise? How does a person break? Does a person need to be aggressively frugal today so that they can avoid mortgaging their financial future?
Chapter Nineteen & Conclusion
Every failure of leadership has at its root a lack of courage. As the owner or member of the management team of your business, you signed up for this leadership job. You must have the courage to make the tough calls, have the hard conversations and ensure the continuity and stability of the business.
In the immortal words of Bill Belichick one of the greatest football coaches who’s ever lived. Do your job. Here’s your final thinking time question. What is your job? Am you doing it? If not what needs to be corrected? The key is that learning is not the same as acting. Use what you’ve been taught to be thoughtful and take action. Do your job.
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