CEO Checklist #1: Shifting Gears From Survive To Thrive

I know you have a lot on your plate at the moment. Let me cut to the chase, as you have probably been inundated with ‘advice’ from people trying to be helpful in the current situation.

After talking with dozens of CEOs, business owners, and their advisors over the last few weeks, some common themes emerged. Here are a few highlights of take-aways that I think might be helpful as CEOs navigate the post pandemic landscape. The nearly certain turmoil that lies ahead will likely be the worst economic numbers we have seen in our lifetimes as they start rolling out in the coming months.

My editorial to their recommendations: speed is everything right now: preparation in the face of the most ambiguous and volatile market we have seen in our lifetimes is critical.

Here is the first part of a checklist from other CEOs and some of their advisors for CEOs, management teams and boards:

  1. Business leaders and shareholders of America’s private business sector are trying to assess the damage to their companies, their customers, markets and their supply chains. It is becoming clearer that the full extent of the damage will not be known for some time as the effects cascade through the system.
    1. At this point, it is critical to take time to do scenario or contingency planning. Waiting for clarity as situations unfold may be fatal if repositioning is required.
      1. ACTION: CFO & OPNS should do contingency planning & stress tests to a depth much greater than previously done.
    2. Looking at supply chains and customer chains 3, 4, or even 5 levels deep may be in order to determine geographic, product, or resource vulnerabilities. Assuming strength at the 1st or 2nd level may be fatal as some companies are finding out.
      1. ACTION: Supply chain and marketing/sales teams tasked with 2-5 level deep analysis
  2. Most CEOs are consumed with the ‘survive’ planning and tasks at the moment and for good reason.
    1. The opportunities to ‘thrive’ will go to those who are paying attention NOW from the high level macro view and planning ahead, despite many unknowns.
      1. ACTION: Marketing tasked with analysis of industry and market vulnerabilities
  3. What IS clear, is that in the front end of this self-inflicted recession, like any other recession, there will perils but also a multitude of opportunities.
    1. Some opportunities may be counter intuitive to plans companies had before the lockdown.
      1. ACTION: Executive team analyze competitors, industry, supply chain, product portfolio, and markets for counter intuitive opportunities – see b. below.
    2. Comment: As Mark Cuban says, there will be a significant number of new businesses, technologies, and even industries that spring from this crisis.
  4. There is a LOT of capital on the sidelines continuing to drive the pent up demand by private equity and strategic buyer firms to deploy it in the face of a need for consolidation. Per Bloomberg News April 2020: $2.4 T in private equity and $2.2 T in strategic buyer equity.
    1. This will lead to valuation gaps of up to 50% between seller and investor/buyer, a peril for some, an opportunity for others.
      1. ACTION: Executive team analyze the opportunity or threat this presents to company over the next 24-36 months.
  5. The valuation gaps derive from two major sources: reduced EBITDA and reduced times (x) multiples.
    1. This brings into very sharp focus the non-financial value drivers or risk factors that drive investor assessment and offering prices such as those in the Invest-Ability Index™.
      1. ACTION: Executive team analyze strategies to boost market value of company besides the obvious focus on EBITDA and BAL sheet
    2. Comment: The time horizon to implement strategic changes to address these has increased significantly as the difficulty of implementation has now increased.
  6. Liquidity options will find a permanent place in corporate planning scenarios going forward
    1. Cash management plans and liquidity options are critical planning issues to weather future economic downturns, as shifts in revenue sources and matching expenses drive liquidity options available to companies in the face of heightened scrutiny.
      1. ACTION: CFO: Cash preservation plans need to become a permanent part of planning best, worst and most likely cases. EBITDA stress of -25-50% for worst case scenario.
      2. ACTION: CFO: Balance sheets will looked at differently: higher level of reserves will be essential

For management teams, the first installment of the above checklist is just scratching the surface of issues to be addressed, but it is a good start on the macro level of thinking that needs to happen in the near term.

The ultimate metric for any CEO, management team, or shareholder, is the market value of the company.

Rebuilding the market value of your company in the current climate is now more challenging than ever, but certainly more critical than ever to ensure long term success of the enterprise. Obviously the financials are critical, but the non-financial value drivers need at least as much attention. Put a team together focused on rebuilding market value.

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