I’m Still Standing. Now What?
The Anatomy of a Deal Newsletter May 22, 2020
Each month, Eric Duffee looks at a different piece of The Anatomy of a Deal – a series of easy-to-digest articles that break down complicated aspects of business transactions – helping you better understand terms + processes that can shape the direction of your business.
- Re-evaluate your strategy and don’t fall victim to your old, ineffective thinking.
- Disillusioned (but exceptional!) talent can be lured to new businesses for the right incentive structure.
- Now is the time to focus on planning for business continuity and ownership succession.
- Consider strategic acquisitions and divestitures as a result of your post-pandemic strategy.
“You know I'm still
standing better than I ever did;
Looking like a true survivor, feeling like a little kid;
I'm still standing after all this time;
Picking up the pieces of my life without coronavirus on my mind”
- Elton John and Bernie Taupin (mostly)
The goal of Phase 1 of the coronavirus response for businesses was simple: stay alive. The storm certainly isn’t over and there are already many businesses that have sadly been lost to the catastrophic economic fallout of the past two months. But there’s some hope that many businesses have survived the worst, and maybe there’s a chance not only to survive, but to thrive in the post-COVID world.
So you’re still standing. Congratulations! But the question quickly becomes: What do I do now?
First, let’s be totally clear. The challenges of adapting to the new normal are far from over. The day-to-day operating plan will change almost daily for many businesses for the foreseeable future. Interactions with customers and employees will be very different for a long time. And, we have no idea what could happen next if there’s a resurgence of the virus.
Even so, those businesses that have made it this far have a tremendous opportunity to turn the deep pain of this crisis into an opportunity for growth. Here are some thoughts on how those who are still standing can take the next step to position themselves for growth as the economy (hopefully) improves.
1. Re-evaluate everything.
In the immediate aftermath of the crisis, business owners “did what they had to do” to keep afloat. While many of these steps were undoubtedly painful, some of them probably were a long time coming.
The worst mistake a business can make now is to have its return to “normal” mean that the business looks exactly like it did prior to the start of the crisis.
Now two months in, surely there have been some changes that actually have worked out well if you think about it. And there have likely been changes that are unbearable. Let these experiences help to guide the next step.
Don’t go back to doing things the old way just because they were “working” before. If there were any sacred cows before, there can’t be any going forward. There’s nothing quite as effective as a global economic crisis to force you to sort out what you “need” vs. what you “want.”
2. Be strategic about hiring.
The economic shake-up means that a lot of very talented people have unexpectedly been forced into reconsidering their futures, and many veterans of Corporate America may be ready for something new.
This means that smaller and earlier-stage companies may now have an opportunity to bring on new talent that otherwise might have been difficult to lure away before. However, this often means that you’ll need to be creative about compensation structures and equity-based incentives to attract the right people. In case you missed it, we talked all about those incentives last fall (check out Part I and Part II).
3. Review and fix business resiliency, continuity and recovery plans.
Many businesses were caught totally off-guard by the pandemic and the resulting economic fall-out. If you figured out how to make things work this time, consider this your only free pass.
I probably don’t need to explain the importance of these types of plans to you now. You’re living it every day.
However, customers, investors, and potential acquirers are all going to be hyper-focused on your plans and processes for ensuring business continuation going forward. A cookie-cutter plan you found off the internet probably won’t cut it anymore.
The good news is that the current experience has provided the perfect laboratory to see what works and what doesn’t; where current technology is sufficient and where further investment is required; where supply chains are secure and where they break down. Use the lessons you’re learning right now to create and implement robust plans going forward.
4. Think about succession planning.
Succession planning is one of those things that’s perpetually on the “to-do list” for most established business owners. It’s also the one thing that’s easily put off to another time. There are real business concerns to focus on. Why waste time thinking about succession? Plus, it’s really hard.
Well, it turns out that there’s nothing quite as effective as a global pandemic at getting business owners to start paying urgent attention to their business’ succession plans.
Every business needs a succession plan. For some early-stage businesses, the succession plan is bound to be less formal and more fluid. For more mature businesses (and their owners), succession planning should now be at the top of that “to-do list.”
And for some of you, a (hopefully) short-term economic downturn can actually present unique opportunities to facilitate succession planning. Economic turmoil can reduce the tax cost of family succession and present additional financing alternatives for certain ownership transitions. For earlier-stage companies, a temporary decrease in valuations might lessen the tax cost of certain equity incentives that can be used to attract new talent.
5. Be prepared to seize opportunities.
The situation remains incredibly fluid, and opportunities may arise that are outside of what you would normally expect. For some earlier-stage companies, the prospect of completing an acquisition may have seemed far-fetched at the beginning of the year. In the current environment, new opportunities for investments and acquisitions may now be viable. Some of these may be through distressed transactions (which will require some creativity), but others may involve healthier businesses that are being shed off by companies that are now re-aligning their strategic focus post-pandemic. Are you ready to take advantage?
On the flip side, some businesses might think about divesting business lines that aren’t critical to their core business strategy. As we re-evaluate everything under point 1, think about whether some of those ancillary businesses still make sense or whether it may be better to sell off some of those assets now.
While you might think that now is not the time to dip into the M+A market or to seek outside investment, there will undoubtedly be potential opportunities for those who are able to think longer-term. And there are definitely potential partners out there now who are actively looking for the right deal, crisis or no crisis.
Even companies that aren’t focused on M+A opportunities may see potential for growth into new business segments—some of which didn’t even exist before the pandemic. Companies that are nimble and adaptive now have the chance to emerge as big winners from this crisis.
Let’s not sugarcoat things: this sucks. But every challenge brings opportunity. This is the biggest professional challenge most of us have ever faced; expect the opportunities to be equally abundant. What will be the lasting impact of the coronavirus on your company’s future?
It’s great that you’re still standing; now is the time to start moving forward.
Next Month: Strategic Buyer vs. Financial Buyer
Read last month’s piece: The Post-Pandemic Future for M+A Activity