Changes at the speed of life

One of the things that amazes me about where we live in the Black Hills of South Dakota, is how quickly the weather changes.  Yesterday, my daughter and I enjoyed sunny 70-degree weather as we did some Christmas shopping.  As I entered one store at dusk, it was still in the 60s.  When I left the store an hour later, the temperature dropped to the 30s with a howling wind.  This morning I awoke to a fresh blanket of snow, temperatures in the teens and wind chill near 20 below!  It is a far cry from just 12 hours ago.

The South Dakota weather is a good picture of what we experienced in 2020.  You and your members entered the year with well laid plans only to have them whipped away like a gale force wind in a matter of days or some even in mere hours.  Very few predicted a pandemic, closures, riots, shutdowns, political upheaval, and a reordering of societies going into this past year.  Some businesses, despite their best efforts, had to close their doors.  Others thrived.  It also shows that good leadership is the key to survival in the future.  Successful leaders must have the characteristics of resiliency, flexibility, innovativeness, and keen insight.  These factors will apply to your own institution as well as your business clients.

Resiliency starts when the “going gets tough, the tough get going”.  We all know of business leaders who seem to succeed each year, no matter what is thrown at them.  This requires a keen knowledge of the cost of production on a whole and by different enterprises.   An extensive risk management and marketing program is another factor that identifies and contains hazards when they occur and also successfully promotes the brand.  Since cash is king, longevity requires the entity being able to have adequate resources of equity capital and, where needed, good borrowings.

2020 taught us that successful businesses are flexible.  In our area, very few restaurants shut their doors.  Part of this is from the wisdom of a governor who allowed people to act responsibly on their own.  The most successful ones are those that switched from in-seat dining to carry out.  These are the ones which saw the issues in the market and adjusted quickly.  The change optimized their cost of production in a most efficient manner and diversified the product/service to meet the market needs which made them resilient.  I will also bring up working capital here as this is a necessity to have options.  We saw many businesses helped with the PPP and other programs designed to strengthen working capital of firms.

Innovation goes with flexibility.  This is taking the actual events handed to you and responding with new methods to succeed in the rapidly changing marketplace.   We saw distance learning, Zoom meetings, and e-sign become important ways of getting things done.  Innovation requires an investment in people first since we are all by nature creative.  Allowing the entrepreneurial spirit of the individuals shine forth makes the company succeed.  

Keen insight is the last key for a business to succeed.  This involves understanding your business thoroughly.  Those who can read the weather on the horizon and develop a plan to combat the coming storm are those who are most prized in leadership roles.   The plan should cover strategies for execution and also be monitored for completion.  Plans for improvement should be written on paper and not carved in stone as flexibility remains a key.

Mike Tyson once said that “Everyone has a plan until they get punched in the face.”  2020 showed us that in the real world we often go through the fire and then learn the lesson compared to the classroom where you study the lesson and then take the test.  The attitude your business members have will determine how well they are set up for survival or a knockout.  The skill of leadership is becoming more important in how you judge the risk in your borrower.

Those most in danger are the leaders who are waiting for the prices and market to save them.  Their failures are never their own fault, it is always blamed on something else.  The inability to learn is a negative characteristic.  They continue to lose money in their operations, and it may only be a strong equity position which keeps them going.   These are the ones who question if they will survive another year.  They are stubborn, have no insight, refuse to change, and often quit when they should keep going.  I think seeing these attitudes early in a borrower and exiting that relationship will save a lot of pain of managing a problem loan in the future.

The leaders you want to work with are those who are proactive to the situation before them.  They may often just be a little better.  They get 5-10% more in their prices and/or save just a little more in their cost of production than their competition.  There is a focus on becoming efficient before getting bigger.  This requires intense inspection on the little things and a focus on the process.  Their focus is to plan, strategize, execute, monitor, and adapt.  They are teachable and rely on continued learning.  A valued team of advisors are relied upon in their decision-making process.

We all hope this new year will be calmer than the past.  But calmer or chaotic, we are assured that change happens and often much quicker than you want.  It is often how you and your members act toward the changes that will set the stage for success or failure in the future.