In a crisis, never bet the ranch

You can do everything right in a start-up and still struggle and possibly even fail. You could encounter a “perfect storm” of adverse events that were impossible to predict and difficult to overcome. Or perhaps your organization suffers a single massive event, like the current COVID 19 pandemic. What can you do?

A competent entrepreneur I know describes these scenarios as being “OBE”: Overcome By Events. Despite flawless execution, excellent planning, and outstanding management, you can sometimes be Overcome By Events.

Perfect storms occur far more often than I once would have believed. The frequency of perfect storms is the bad news; the good news is you can overcome them with anticipation and planning. You can’t control many events, but you can control how you respond to them.

So how can you get better at handling a perfect storm? How can you avoid OBE? Let’s discuss how.

Develop response plans to a broad spectrum of issues. Responding quickly — with a good (or excellent) response — is paramount. The sooner you plan, the better. Planning interventions will always benefit you in a way worrying about causes will not. Examples of scenarios you should prepare for are Customers, or cash flow disappears, inventory is unavailable, or employees can’t perform. The mental cycles spent on assessing the probability of events aren’t as valuable as the mental cycles invested in constructing potential responses.

There are a few keys to effective catastrophe response. 1. Never bet the ranch. 2. Prepare to work differently. 3. Change missions.

1. Never bet the ranch.

Don’t ever guess the duration of a perfect storm. Put your company into a position so you can survive for an unknown period. When the storm does arrive, make sure you select a survival plan with no assumptions of duration.

Any crisis may be national, regional or specific to your company. The more significant scenarios may enable you to get some assistance from government programs. The specific ones will rely on your preparation. In any case, manage yourself into self-sufficiency.

If you have six months of cash, make sure you don’t choose to bet everything on a resolution in the early stage of a storm. Until you can be confident how long you will be in survival mode, you shouldn’t bet the ranch. Focus on what you can control. Move the company to a sustainable position.

Of course, if local or national financial assistance related to the crisis is available — pursue it. More frequently, these situations relate to your company, specifically. You’re on your own.

In a worst-case scenario, where payables are way more substantial than the receivables to support them, immediately call all vendors. Offer your vendors a settlement of the amount owed — 10% tomorrow, 30% in a month, 50% in three months, or 100% in six months. Your vendors will be justifiably upset. They will also know that you’re committed to paying, struggling to do so, and working out of a difficult situation. It is not a pleasant process, but it is a productive one that typically cuts the payables in half.

2. Prepare to Work Differently

As we have seen with COVID-19, a massive shift to working from home required within weeks of the outbreak. That change was nearly impossible to foresee. Almost overnight, companies had to think about working entirely differently. The way companies work is a combination of formal and informal processes. To work differently, you have to understand both.

The time invested in considering how you could do things differently is worthwhile. It can be the source of revolutionary insights. The process itself prompts an assessment of the effectiveness of your investments.

If you cannot market, service, ship, work as you do now with your proven processes, how would you do it another way?

Always have multiple ways to work differently. Let’s say you ship a physical product from your warehouse, and that warehouse or the inventory disappears.

Plan A is for your distributors to direct ship to customers. Plan B is to ship from the warehouse of a friend in the industry outside your area. Plan C is to contract with a third party warehouse. Plan D is to rent truck trailers as storage capacity and operate from tents.

You get the idea. Even thinking of this idea ahead of time might prompt you to discuss it with the appropriate parties before the need — research how you would execute Plan A-D. Ask yourself, would distributors direct ship large orders? Would an industry friend help you service your business? How much would rental trucks cost? Where could you rent the ones you needed? Who would drive? Would your insurance cover some of these costs? What would you tell customers? Do you have draft template messages for customers/employees? If not, who would write them during the storm?

If you run your business long enough, it is almost sure that you will need to work differently on occasion. Any preparation for that moment will pay dividends, some of which may be immediate.

3. Change mission

What your company does and how you do it might need to change.

You may be able to change what you do by pivoting the product or service to match a situation’s needs. If you can do so, why wouldn’t you?

During the Covid-19 crisis, many alcohol distillers changed their mission by moving to make and supply hand sanitizer. Taking advantage of their materials and their production capabilities, they filled an unexpected but urgent need. They changed their mission.

You may be able to change what you do by pivoting the product or service to match a situation’s needs. If you can’t change what you do, you need to change how you do it.

Yes, one can do everything right and get hammered by things beyond one’s control. But, in the final analysis, overcoming seemingly impossible challenges and leading your company back from the brink after suffering a potentially fatal blow is one of the most satisfying aspects of running a business.

Things will go wrong and sometimes go wrong dramatically. Change your perspective from assuming the road ahead is how you currently see it to spend energy on potential responses to all types of setbacks. Prepare so you can avoid being OBE.

The key to surmounting the perfect storms that will inevitably appear is to know EXACTLY what you will do if things go wrong. You may not be able to turn bad news into good, but you can undoubtedly turn bad into not as bad.

And sometimes that’s enough.