Last year I had a great conversation on what digital transformation means for small businesses with Joe Galvin, chief research officer for Vistage, a peer mentoring membership organization for CEOs, business owners and executives of small- to mid-size businesses with more than 22,000 members in 20 countries.
Vistage recently published a report based on a survey of their membership on how the coronavirus pandemic is effecting their confidence and impacting their business. So I was glad to spend a few minutes with Joe hear more about what he’s hearing from the Vistage community about how they’re operating during the pandemic. And how this experience may change the way they operate once we get past this trying time.
What Will Business After the Coronavirus Be Like?
Below is an edited transcript of our conversation. To hear the full interview watch the video or click on the SoundCloud embedded player below.
Small Business Trends: What’s the Corona Curve?
Joe Galvin: If you would take a traditional bell curve and flip it around, that’s the Corona Curve; where there’s a trigger event. And that was when we first heard Wuhan, China’s having some flu disease, right? We ignored that for a long time. But then a trigger event occurs. Which initially was the first stock market drop the week of March 3rd.
What We Know So Far
Then last week it was President Trump’s speech about shutting down travel. And now we’re on this slippery slope to the bottom. We don’t know where the bottom is. And you think about you’re sliding down a hill at night, you’re just holding on as best you can and everything changes because we haven’t yet started to find the bottom…
In China, we’re now beginning to see signs of the bottom. We’re seeing port activity open up. We’ve seen another day of zero new cases. We just learned that 80% of China’s factories are back operational again. And a belief that in another four to six weeks they’ll be at 90% capacity.
A Look at How Things Have Changed
So signs are beginning to emerge that they’ve reached the bottom. We’re not there yet. So any data you look at or we took a survey, closed on March 9th. March 9th that was a week ago Monday. And 15.6% were extremely concerned about coronavirus. I’m sure that number would be in the 70s now.
Small Business Trends: Wow. It’s moved that fast. I know you have the Vistage CEO Confidence Index. And it actually went from 91.5 at the end of 2019 to 84.7 at the beginning of the year. Where do you think it is now?
The Profound and Long-Term Effects
Joe Galvin: Don’t know. We came into this year under the premise that this slowdown was slowing. It’s time to prepare for prosperity. And then a Black Swan event occurs. A Black Swan event is an event that’s totally unpredictable, has a lasting and long-term effect. And in retrospect, maybe we should have recognized this was going to happen. 9/11 is a great example. It happened suddenly.
It had a profound and long-term effect on us. And you know, in retrospect, maybe we should’ve thought about that this could happen. Now, clearly we’ve had movies like Contagion and Outbreak about pandemics before. Different government agencies have grown or shrunk over time.
But to be surprised that this happened now in retrospect, yeah, we should have seen it. But in the meantime we’re all scrambling to, as we go down that slope, try to find the bottom. Because until we get to the bottom, we can’t assess the damage.
A Look at Digital Transformation
Small Business Trends: You mentioned digital transformation, and I know previously we had a conversation that started with digital transition before we even got to transformation and what would it looked like back then. What is digital transformation from an SMB perspective going to look like after we get past this hurdle?
Joe Galvin: That’s a great question and it’s one that we’ll have to sort out with time, but I think you’ll see some organizations, small mid-size businesses, are already thriving in this environment. Those folks that are intact, those folks that are in outsourced technology.
Those people are all thriving. In fact, some of these pure digital companies that support the digital environment, they’re going to do much better because so much energy is coming towards them as opposed to the physical world. It’ll radically accelerate the death of brick and mortar. But humans will still want to gather, so the entertainment stuff will come back. I think for small and mid-size business, it’s going to reinforce and reward those who have done the prudent financial planning.
Maintaining a Cashflow and Cash On Hand
Folks that maintain an adequate cashflow and cash on hand. People that have arranged for and already have a line of credit with their local banker. The government’s going to throw a ton of money in a small business administration. In fact, we’re going to post something on that on our website later today for folks. But the SBA is just a small little government agency. It’s not prepared to scale to pass out trillions of dollars. So it shouldn’t be your first line of defense, but know it exists there.
HR 6201 which extends the unemployment insurance, some of the implications about providing tax credits for that and some of the nuances. That too will be in place with time and we’ll sort that out. But in the short term, you got to get with your local banker and make sure you’re in a good place. Having said that, when you get to the other side, we will be at a lifetime low interest rates both business-wise and personally.
It’ll never get lower in your lifetime then what will be coming out of this. So establish that line of credit. Maybe do a refinance. I’ve got a daughter and son-in-law who are on the cusp of buying a house because, yeah, it’s craziness out there, but the interest rates are lifetime. I mean this is unbelievable. So there’ll be opportunities when we get to the other side, but until we get to the bottom of the corona curve, we’re just scrambling to survive.
Mom and Pop Business After The Coronavirus
Small Business Trends: But let’s face it, small businesses like the traditional mom and pops or the traditional meat and potatoes main street small businesses, they don’t have lobbyists that are in D.C. that are looking out for their interests and bringing them the money. So what can be expected really from the government when it comes to assisting those kind of small businesses?
Joe Galvin: I think in the longer term you’ll see the government there, but the federal government doesn’t move quick on anything or for anything. And irrespective of your political positions in these current times, the government just functions that way. So I think the immediate concern is our economy is driven by the consumer. The consumer represents two-thirds of our GDP. Consumers are home, they’re grounded. And those businesses, restaurants, all the ones we’ve been talking about, those people are going to be hurt right away.
So the unemployment insurance, the understanding that they will continue to receive a paycheck. And if they do get furloughed or laid off, there will be an opportunity for them to access funds. I think that’s really important. The small and mid-size businesses, both through their local bankers and through government supported programs, have the ability to get the bridge loans and the funds they need to stay in business because again, depending on how long the health crisis exists is how deep the economic crisis is going to be and how quick we can ramp up.
How to Address the Unemployment Issues
So I would like to see more done addressing the unemployment issues. I know there’s talk about a thousand dollars to every family. Well, for those of us able to continue to work in our really financially solid companies, I would rather see that money directed to those people that are in need, the people that live in the hourly wage or the gig economy, the Uber drivers that you and I use on a regular basis, the waitresses at the place, the people that clean the rooms in the hotels for those of us that are business travelers.
I would like to see more energy directed towards ensuring those consumers can maintain their space in society. So when the opportunity to work comes back, they can slide back in without a devastating financial effect or the real promise of hunger in our country in places that we haven’t experienced it before.
So I’d like to see more directed towards consumer support and the ability to help small and mid-sized businesses. I think our big businesses got a big boost in the tax cuts and many of them chose to do a variety of things with that money these days. But they’ve got the wherewithal and the resources to take care of their own. And we really have to rally around, I think, our small businesses and more importantly, the people that work for them to help them get through this period of time because we’ll all have to recover through this together.
Business After the Coronavirus
Small Business Trends: What are the kinds of industries, from a small business perspective, may not come back?
Joe Galvin: Well, I think it’s not about segment but about individual businesses. Clearly in the restaurant business, that’s going to hurt. There are no small business airlines except for maybe some commuter retail, high-end jet kind of things and I’m not really going to worry about that. I think some of your manufacturers are going to get really hurt. Let’s assume now that China gets geared back up and let’s assume that you are somewhere in that supply chain.
Lean manufacturing is a great concept. Just-in-time inventory was super for the CFO trying to manage cash and inventory. But right now, you can produce as long as you have inventory and as long as your supply chain continues to function. So there will be a ripple, especially if you’re connected to China. But we saw a lot of the folks that were affected by the tariff wars that are still going on are the same people that are getting hurt now in the corona crunch.
There Will Be Some Business Fall Out
So I think there’ll be some carnage there, I call it the corona carnage. There’ll be some carnage there. But again, those businesses that have good solid relationships with their customers. I think you’ll be rewarded and punished going forward based on how you treat your employees during this period of time and how you treat your customers.
I personally am extremely pissed off at one of my most important travel partners, specifically because the way they treat a certain situation. And they will be subsequently punished on the other side of this. Just as another one stepped up for me big time and they’ll be rewarded.
So you’ve got to appreciate the fact that in loyalty with customers and with employees, your trust is based upon a history of interactions and is strongly influenced by the most powerful. And this is a paradigm shift. In a paradigm shift, everybody goes back to zero. Whatever you did before, whatever good guy credits or hero points you got, don’t matter. What have you done since this effect? So I caution people, I said think carefully about how you treat people, people that work for you and the people that use your product today, because memories are long and crises are short.
Businesses Need to Step Up
Small Business Trends: What about the kind of companies that had tattered reputations? And they earned those tattered reputations in the past, but at a time like this, step up. So I’m thinking like a Facebook. Facebook, we know they’ve had their issues, a lot of issues in the past, but they seem to actually really be stepping up in a real time of need right now. What do you think about them?
Joe Galvin: Well, again, we don’t know where the bottom is, so we don’t know how dramatic an impact this will be. So we’re all making guesses as we go down that slope.
Small Business Trends: Right.
Joe Galvin: But I think again, in a time of crisis, your most recent interaction tends to dominate interactions in a world before. Right now, if you’ve got a 20 year relationship with someone and then they go left instead of right during this time, you’re more likely to forgive them.
Picking Small Business Partners
If you’ve only done business with someone a couple of times or you don’t have a strong relationship or you said they had a not so good reputation to begin with, that’s where you start from. So yeah you might be able to help yourself. But again, once this passes, you fall back into those prior behaviors, you go right back to where you were. So it will be as short or as long term as the consistency of your behavior.
Small Business Trends: Amazon has done some really interesting things. They said, hey, we’re going to hire 100,000 more people and pay them a couple bucks more per hour to help in the fulfillment centers. And then they also said that they are going to, and this is kind of on the small business side, if you are not selling items that are deemed to be necessities, essentials, don’t send them into the fulfillment center because right now we’re focused on streamlining the process of getting the things that people need to them. So that’s kind of a hardship on small businesses, but for the greater good from a customer perspective, how does small businesses view Amazon at this point?
Joe Galvin: Well, I think for those that are tied up in that ecosystem and sit outside those essentials, it’s a big worry because now your business is on hiatus. If you’re a digital business tied to this digital platform and they said, look, your stuff’s not going on the digital shelves these days.
How Digital Business Is Changing
That’s obviously going to be a problem. The question is how long will that last? I mean, quite frankly, our online shopping behavior probably hasn’t altered that much. I mean, there are things that we’re ordering that do we really need to order that now? But again, by ordering that you’re putting money into the economy and you’re doing consumer spending.
Small Business Trends: Right.
Joe Galvin: A couple of other thoughts too that triggered is if this had happened 20 years ago before Amazon, before Facebook, before the internet, think how crazy this would be.
Small Business Trends: Wow.
Joe Galvin: Right? And even another thought too we had is if this were occurring in November when it’s getting darker and colder… Now the southern hemisphere, it’s going the other way obviously. But now it’s getting lighter and warmer. Could you imagine how much darker this might be? So I think it speaks to one that our humanity has stepped so far forward into digital and into technology that we’re much better to ride this out and to be able to achieve some level of normalcy and understanding.
What Else Do You Need to Know?
Small Business Trends: So what are one or two things that maybe we haven’t talked about that you’re hearing from your small business executive membership that is still on their mind or is still pressing on them that maybe it’s below the surface that we aren’t hearing about in the media?
Joe Galvin: One of the things we have in Vistage, we have our networks, which allows members across the country, around the world to communicate in digital platforms. And we’ve been mining those and listening to those and created a coronavirus network specifically to help our members communicate beyond their local groups. And we’re starting to see questions now come out about how do I deal with customers, right?
My customers are asking for a deferment or they’re canceling or they’re saying, look, I can’t pay you for 90 days. So again, your customers will reward or punish you based on how you behave. So how do you now answer those customer questions, right?
How to Manage a Distributed Sales Force
Do you come to your customer and say pay me or go in default, or do you work through that? Or if you’ve got a sales team that used to work in a big call center and dial for dollars and high five each other rallying up every day and now everybody’s at home. How do you manage that distributed sales force?
And then as you get a little bit deeper into this say, well, hey, I couldn’t make my quarterly call. I couldn’t make my quarterly bonus goal because nobody’s buying. All those proposals, those companies that got the fiscal year of March 31 and they’re waiting for that big fourth quarter hockey stick. Thanks for playing. That kind of stuff isn’t going to happen. So how are you going to recalibrate on the sales side and on the customer side?
And there’s a lot of energy on the finance side and we touched on that with the SBA program, HR 6201, and some of the other things that people are doing on the finance side. But I think there’s a big talent issue that goes on. We had just… February unemployment was at 3.5% effectively full employment. And the talent wars were the top raging issue. And you know what, there’s a truce in the talent wars right now, right?
What to Do About Hiring?
Some people are continuing to hire, but most people are saying, you know what, I’m going to hold off right now because I just don’t know. Right? Some companies are going to have to release people and people who are good employees are now going to be free agents in the market.
And as I said, once we get through this and we get to the other side and we start to climb out, you’re going to see a reverse game of musical chairs where everybody’s going to be walking around but instead of chairs being taken away, more chairs will be added every day. As restaurants want to scale up, manufacturers want to scale back up. And they’re going to go back to their employees who they had to let go. And if they treated them right on the way out, they’ll come back.
Joe Galvin: And we know a lot of people stay in their job just because it’s easier to stay in your job, but once you’re out, you’re out. And again, you’ll be rewarded or punished based upon how you created your culture leading up to this. How you execute on your culture, is it consistent with what you’ve said?
Or did you have a culture that said employees first and now you’re behaving exactly differently. And will you be rewarded on the backside for that? Because, again, we’ll get through this at some point in time. There’ll be greater pain for some sectors than others. But when you get to the other side, the decisions you make today will have a big standing about how long and how hard it is for you to climb out and then what that new normal is going to look like.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.
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