I’m reading a lot about how to stay busy during the shutdown. Practice meditation and yoga. Catch up on old movies. Learn a foreign language, etc.
If I were retired or happily unemployed, that’s what I’d do.
I don’t have that option. Like almost all the businesspeople I know, I’m working as hard as I can ever remember working.
And with good reason. We are in a crisis. A pandemic-triggered, macroeconomic, business-demolishing crisis that has already killed nearly 50,000 people, shuttered and/or bankrupted thousands of businesses, and put more than 25 million workers on the dole.
My guess is that the virus won’t end up being as deadly as many fear. But my fear is that the economic repercussions will be great.
The business outlook is grim.
Since March 1, the restaurant industry has lost more than 3 million jobs and $25 billion in sales, and roughly 50% of restaurant operators anticipate having to lay off more people in April.
Three out of 5 small businesses cannot conduct business remotely. And that’s probably why, on March 26, 74% of small businesses polled by the National Federation of Independent Business said they are being negatively impacted by the Corona Crisis. Just two weeks earlier, the equation was reversed. At that time, 75% said they were doing well.
Trimming the fat is important. Making sales is more important.
Despite my instincts and objections, I agreed with some of my partners – particularly in restaurant, hotel, and apartment businesses – to slash every dollar of unnecessary expense and to put some nonessential employees on furlough.
My brother, in whose real estate business I have invested for many years, has done that and more. He has put off improvement and expansion projects, furloughed nonessential employees, and asked those who remain to take on more responsibility. His hotel managers are manning the welcome desk. His apartment managers are selling leases.
He’s also reducing debt expenses by negotiating terms with banks. He’s put in nine applications for the government payroll programs, and he’s applying for additional small-business loans.
This is a downside of the hotel business that neither of us anticipated. His plans for surviving market downturns and even extended recessions were predicated on occupancy reductions of 15% to 50%. We never even imagined a scenario where you have virtually no customers. That wasn’t the case even in the Great Depression.
So he’s doing everything he can think of in terms of expense reduction and loans. But he’s also looking to buy triple-net leases and sell them to his investor base. A year ago, a good deal might get you 4%. Today, he’s finding properties that are yielding 6% and 6.5%.
None of these efforts individually would have been enough to keep these businesses running. He and his executive team have had to work doggedly, tirelessly, and creatively to cover cash flow obligations through the rest of the year.
And even if business gets back to normal in 2021, he’ll still be dealing with a considerable debt load that will take him years to pay off.
If you are in the supermarket, alcohol, or delivery business, your sales are probably doing fine. The online publishers I work with haven’t yet seen a drop-off in revenue.
But they are not relaxing. Rather, they are working furiously to keep sales going. They are completing marketing campaigns that once took months in weeks or even days. Our legal and compliance teams are working overtime to get those advertising campaigns approved and out the door. And so far at least, all those extra efforts are paying off. About 75% of these online publishers have maintained their previous revenues. The other 25% are actually doing better than before.
You Don’t Know What Your Customers Want
It makes sense to imagine that at a time like this the last thing consumers want is to buy products and services that are not essential. They should be saving their money to pay for staying alive. They can start buying your products again next year, when the threat of COVID-19 has receded.
That has a certain logic to it. But it’s not how consumers are responding now. For just about every industry where consumers can keep buying, they are. That may change. But for the moment, we need to keep that in mind.
The Good News About the Current Business Environment
When things get as scary as they are today, the brain’s reptilian and emotional representatives begin arguing. The reptilian rep wants to fight or flee. The emotional rep worries about the damage either action will cause and blames the reptilian rep for causing the problem in the first place.
These conversations are loud and boisterous – so loud and boisterous that they make it impossible for the representative from rationality to get a word in edgewise.
I am happy to know that most of my partners and key employees understand that. They have all made plans for a serious drop in sales, but they are also pushing hard to optimize their sales and marketing.
And there are good reasons for them to be optimistic.
* The cost of media is dropping fast.
If you are a digital marketer, you’ve already noticed that the cost of advertising on Google (PPC) and Facebook and other social media platforms is coming down. The main reason for this is that there are far fewer companies marketing now. As the demand for ad space goes down, so does the price of it. I’ve been told that the same thing is happening with TV and radio advertising. Less competition and lower prices sounds like a good thing. Don’t you agree?
* The demand for many products is still strong.
The publishing businesses I own or consult with sell books, magazines, and newsletters. The topics range from business to travel to health and to investing. In February, when we began talking about options for dealing with the impact of the Corona Crisis, we expected to see sales drop and refunds soar.
They didn’t. In fact, there has been little to no falloff on either front-end or back-end sales so far. Three of my clients have seen increased sales this first quarter. Most are seeing steady sales. For some, sales are dropping – but only by 10% to 15%.
There is a logical explanation for this. Most of them are publishers of health, business, and investment information and advice. One could argue that at times like this, consumers want more information and advice from sources they trust. I do think that’s what’s happening here. But I do not believe that these businesses are immune to the Corona Crisis. I have advised them that if the economy stays in lockdown for more than another month or so, they should expect the honeymoon in sales to end.
The main point is this: We considered the cost savings we’d get by reducing our ad spend but decided to continue for a few more weeks, and were rewarded for it.
But the larger decision to keep selling isn’t the only thing we are doing. We are also trying to figure out how to attract new customers and possibly capture market share during this time when so many of our competitors are standing aside.
* New opportunities are emerging.
Several of my colleagues in the information-marketing world, for example, have launched crisis-focused publications that talk about how the crisis is affecting their particular industries, with specific advice on how to respond.
A friend of mine in the furniture business has been advertising yearlong, zero-interest payment plans. He tells me it’s working. In fact, he says, sales in March were higher than they were last year. (This is also something the car industry is doing.)
I’ve received several notes from legal firms I work with, offering to take care of any estate-planning “issues” I might want to address. And notes from accountants offering to help process government loan applications for me. (I might have seen such efforts negatively if they had come from firms I didn’t already know. But since they came from trusted sources, I took them as helpful and replied to some of them. Good for them and good for me.)
During the bull market that ended with this crisis, big companies and brands grew tremendously, as you’d expect. Small businesses did, too. But at times like this, small businesses have an advantage over their larger competitors. They can move more quickly – adapt and innovate to not just maintain revenues but also increase them by capturing bits and pieces of the market from the big guys.