Business Musings: The Waiting Game (A Process Blog)
Sometime in the middle of this very long week, I posted a note on Facebook: If 2020 were a novel, I would be skipping to the end to see how all these storylines play out. Because, seriously, you can’t make this stuff up. Or as comedian Stephen Colbert said this week (and I paraphrase), What I wouldn’t give for a dull moment.
I write this on Friday the 13th, and seriously, you can’t make this stuff up. As one wag said a week ago, What could go wrong in a week that starts with Daylight Savings Time, followed by a full moon, and ending on Friday the 13th?
Well, apparently, a lot of things.
I finished my personal work marathon that was my first 2 months of the year. I knew all the massive work would end on March 11, and I figured I could take a few days to decompress, before finishing two large projects that needed to be done by the end of the month.
Instead of decompressing, I found myself swimming in crisis. The U.S. stock market continued its volatility, large event after large event got cancelled. Then smaller events, and finally, pretty much everything. My social calendar for March and April was full as of Monday, with visits from out-of-town friends, races every other weekend, some concerts and plays, and a whole bunch of other things.
Today, my social calendar for March and April is filled with scratched-out items. Some even extend into May. For those of you who haven’t noticed, for example, the Licensing Expo has moved from mid-May to August 11-13. I must say that on that one, I am relieved. Not because of COVID-19 fears, but because there was no way we were going to be ready at the level we wanted to be ready. We have a better chance now, particularly since at least four weeks of our spring will be spent…I’m not sure what the phrase is. Social distancing? Staying home? Interacting online mostly? I have no idea. I just know that I’m trying not to have Lincoln City PTSD. There I was literally trapped in the house, unable to do anything because it would make me ill. Here, I can go out, but if I’m not careful, I’ll get some dread disease that could kill some of the people I might come in contact with.
Anyway. Social calendar is screwed for the spring, but writing calendar isn’t. And I can get a lot done, if I take care.
But I wasn’t writing the last few days, nor was I resting. Dean, Allyson, and I were triaging the business.
Because, as I said two weeks ago, we’re in a Black Swan event. Here’s how I defined a Black Swan event in my post two weeks ago:
A Black Swan is an economic term for an unpredictable event that essentially changes the trajectory of anything from the stock market to an economic system to the worldwide economy. Black Swan events have potentially severe consequences. Black Swan events sometimes look predictable in hindsight, although they often are not.
I try not to discuss politics here, and really, what I’m going to talk about isn’t meant to be political. But to understand some of the analysis at the bottom of this piece—whether you agree with that analysis or not—you need to understand where I am coming from.
And I’m coming from a lot of learning, both from live experiences and from an in-depth study of crises. From that learning, I know this: Sometimes, historically speaking, the person in charge of a country is suited to the problems that the world throws at that person, and sometimes the person isn’t.
As someone who has studied history, it’s always been one of my personal fears that I would live through a time when the leader of our country wasn’t up to the crisis he had to face. I went through it once before in the late 1970s. (Jimmy Carter is a better former president than president.) But the crisis then wasn’t as severe as what we’re facing in 2020.
Actually here, in the U.S., we’re in a confluence of two Black Swan events. The first started in November of 2016, when this country chose to elect someone who doesn’t believe in the basic functions of government. Those of us who understand the purpose of government knew that disaster lurked. And some folks, in Puerto Rico, in the border states, and anywhere in the U.S. that experienced an emergency that normally could be mitigated by governmental action, did experience that disaster—but the experience wasn’t nationwide.
The rest of us kept our fingers crossed, hoping we would get through this without something big—like 9/11 or the financial crisis of 2008 or damn near anything in 1968. If we could just hold on until this anti-government guy could leave office, we would be okay.
But one year from the potential end, a real international emergency hit. The virus hit, and created a Black Swan event of its own.
Had we had a president of either party who actually knew the purpose of government and knew how to use the levers of government to prevent the crisis from sliding into extreme disaster, this crisis wouldn’t be quite as bad as what we’re facing.
Oh, yes, the virus would be as bad, and the solutions to that would still be 12-18 months out. Sorry, Star Trek fans, but Dr. McCoy’s finding a cure for a viral outbreak in less than an hour is truly fiction—at least in 2020. Science just doesn’t work that way. Not as we practice it now.
No, the crisis that we would have averted is the severe financial one. We still would have had massive economic damage to the international economy, but it wouldn’t be as bad as what we’re facing at the moment.
I listened to an economist on Marketplace, one of my favorite PRI programs, and she said (paraphrasing) that in order to slow the virus down, we had to slow the economy down. And, she added, if we wanted to stop the virus, we needed to stop the economy.
If we had had testing early here in the U.S., something that did not happen (but happened in other countries), we could have slowed down regions of the country. Washington State, for example, or maybe the entire West Coast might have quarantined or shut down large gatherings. The Midwest might still have been allowed to chug forward, because the virus (in February) didn’t appear to have a toe-hold there.
But we have to essentially stop the entire U.S. economy to stop this thing because of a severe lack of knowledge as to where, exactly, the virus is. An economic slowdown is another term for a recession and, it could be argued, that some parts of the U.S. have been in recession since the beginning of the year. This has just made the slowdown worse.
Without leadership from the top, companies and corporations have had to take matters into their own hands. Major sporting events were canceled for public health, yes, but also because shareholders and the corporate lawyers and anyone else who understands U.S. legal system knew that if some sniffly person got into a stadium that seated 40,000 people, and all of those people got exposed to COVID-19 and some of them died, actual causality didn’t matter. Every deep pocket in that stadium, from the sports teams to the owners of the stadium, would have been subjected to massive lawsuits, probably based on some kind of negligence argument, and rather than suffer the publicity and deal with the years of litigation, those suits would have been settled out of court.
With all of those horrid dollar signs looming, the National Basketball Association (because they had a sick player) became the first to cancel games, and then the rest of the season. When they did that, the other sports franchises had to follow. Because should an ill person enter one of their stadiums, the other sports franchises would have the same problem that the NBA had along with the argument that if the NBA canceled for the same reasons, why didn’t the other franchises?
And so on and so forth throughout all of the entertainment aspects of U.S. society. My hometown of Las Vegas is a ghost town right now. There are more people cleaning the casinos than staying in them at the moment. Hundreds of millions of dollars in conferences have been canceled. As of this morning, conferences that were going to bring in over half a million visitors to Las Vegas (total) have already been canceled with more on the horizon.
That kind of wave—the necessary economic slowdown, accompanied by the each-company-for-itself cancellations—will cause a financial hole in the economy that will suck all of the money out of the economy. Here in Las Vegas, people started getting laid off last week, and the layoffs will continue, because tourism, the hotel industry, entertainment, and travel are a big portion of our economy.
All of this was happening around us. Dean and I already knew that we had to plan for the Black Swan of COVID-19, but we’d been hoping that this country might be spared the worst of it. When it became clear that we weren’t going to be, and that the federal response was being badly bungled, we realized that this money drain from the economy would have a deep and significant impact on our business.
So we needed to plan.
The problem with planning in the middle of Black Swan x 2 is that there’s no real way to know what’s going to happen next. The problem with this Black Swan x 2 is that we also don’t know when it’s going to end. I wasn’t kidding when I said that I wanted to see how 2020 ends. If I knew what was coming, I would know how to plan for it.
But we can only guess, based on past experience.
When Dean, Allyson, and I started our planning this week, we based it on three types of past experience.
- What Dean and I learned from running businesses during previous Black Swan events.
- The trajectory of all of the Black Swan events we’ve lived through.
- The trajectory of the Black Swan events over the past 100 years or so.
Those three types of past experience have one thing in common: after a Black Swan event, the world never returns to “normal.” It establishes a new normal, and sometimes that new normal is so very different from the old normal that the old normal seems like it belongs to a previous century.
Businesses that proceed into the new normal as if nothing has changed will fail. They need to pivot, and not hang onto the way things were done in the past.
Sometimes that pivot can happen over months, and sometimes it has to happen within days.
The confluence of two Black Swans has happened in the historical past. The two that came to my mind almost immediately were the start to World War I, and the events leading into the Great Depression.
Those two world crises were exacerbated by ineffective if not downright incompetent leadership. Read histories of the period and you’ll read histories of missed opportunities or leaders ignoring warning after warning after warning.
If you go back even farther in the U.S., you’ll find a similar pattern in the 1850s, just before our Civil War. The extremes in all of these cases might have been averted, had there been better leadership.
So, as we were talking, we put a pin in those historical moments. Because the loss of life in both of the more modern examples was extreme, and the changes in the world drastic. But we had to consider those things as we started our analysis.
Then we looked at the Black Swans that Dean and I have gone through. We went through three, while we owned businesses. They were the start of the Gulf War, which changed how retail business was done in this country, 9/11, and the financial crisis of 2008.
We lost our first business during the first Black Swan (the Gulf War). We survived the other two. I almost typed “just fine,” but we weren’t fine. There was scrambling and some truly ghastly moments, but we came out of both events stronger with healthier companies.
We have a healthy company now, but no company can withstand bad management.
And what happened in our first Black Swan was that we made some serious mistakes in our response to it.
The mistakes were:
- We believed that if we just waited until we knew how everything was going, we would know what to do. That caused the next mistake.
- We proceeded as if nothing had changed. We borrowed money to keep our staffing at the same levels, and our production at the same levels. We went from a debt-free corporation to a corporation with a quarter-million dollar debt load within two months.
- When we finally realized that we needed to make changes, it was brutal and ugly. We laid off most of our staff just before Christmas. My stomach still twists, remembering how awful that was—not just for us, but for all of them, many of whom had been friends. (Note the past tense.)
- We hadn’t planned properly. In laying off the staff, we lost the capacity to do any work that would enable us to earn enough money to get the company on its feet.
- We didn’t realize that our entire business model had broken in that two month period of time. We needed to pivot to a slightly different business model, but we didn’t figure that out for months after the change had already occurred. We lost the ability to be nimble by waiting to see how everything played out.
There were other mistakes, but those were the big ones.
What we learned from the next two Black Swans were based on the mistakes of the past. We learned to
- Act quickly. The faster we made our choices, the better off we were.
- Assume that the income would dry up until the new normal was established. If we figured there would be little or no income, then we would make choices based on that assumption.
- Base our plans on the present, not the past. We couldn’t predict the future, so we had to assume what was happening in the now was an indicator of what the future would hold.
- Look forward. Eventually, the Black Swan would turn into a new normal. In other words, the event would end. The question was…when? And how? The key wasn’t assuming we would get back to “normal.” The key was figuring out when we had entered the everyday of the new normal. That’s harder than it sounds.
- Suck it up. If the new normal had no place for our business as we had it structured in the old normal, then the business had to either be retooled or shut down. If we shut down immediately, we wouldn’t incur hundreds of thousands in debt. Nor would we experience the wrath that we caused at our first business. In the early weeks of a severe crisis, like the one we’re in, people understand layoffs. Because (the first time) we had waited until it looked like the crisis was over, the people we employed (people we cared about) did not understand why their jobs vanished.
- Use our imaginations. We had to figure out if the old ways of earning money for the business would work in the new normal. In our first failure, we tried to sustain the old earnings model, and it didn’t work. In the next one, we held on, taking some extra jobs, but managing. In the third, we did a full pivot, leaving the life we had known and entering a completely new way of earning using our skill set.
Dean and I started our discussions while I was still going as fast as I could to finish my weird workload. But we made an appointment with each other to go in-depth on the discussions yesterday, thinking we had more time than we did. We did not expect the extreme financial problems of this past week.
We went from “normal” to “what the fuck” to “where the hell are we” in a matter of days.
So, yesterday, before we looped in Allyson, Dean and I did a long analysis of the various ways this Black Swan x 2 could play out.
Worst case: The virus acts like the 1919 flu. It is relatively mild this spring, and comes back even more virulent in the fall and winter, killing a lot more people and forcing even more quarantines. There will probably not be a vaccine or maybe not even a good anti-viral by then. We’re going to be back to social isolation and hand-washing, and things getting shut down.
Nothing changes in the U.S. general election, so our federal government will not use its full powers to help with this second wave emergency. Some of the other nations in the world have similar problems to us—anti-government people in charge of the government. The tools of government go unused, and the crisis gets worse. Or the actions taken worsen the crisis rather than correct it. (That happened in the late 1920s here—and Herbert Hoover (the then-president) was not an anti-government guy.)
We will slide from minor recession into a major one or, if things get real bad, into a full depression.
The upside for our business is that people read books and consume a lot of entertainment in bad times. The downside is that people have very little disposable income, so they don’t spend much on their entertainment. The upside is that books are cheap. We’re not charging $100 for a concert ticket. The downside is that for a while, during any crisis, even a resurgent one, no one buys anything for any reason.
We looked at that scenario, decided that it was plausible, but it was too early to tell how that would play out if it did. And we set it aside, figuring we could handle planning for that in July if things look like they’re going to go that way.
The Messy Middle: We decided to assume that COVID-19, whatever it was, was going to be part of the new normal. Some communities would go through bad times. Families would experience losses. We will probably lose friends, and we might even get seriously ill. But we would take it in stride by the fall, because that’s what people do with serious disease years—such as a bad flu year.
The problems we looked at then were economic. Downturns usually have one of three patterns. They can be graphed as a V with a steep decline, a moment on the bottom, and then a return to normal (more or less). They can be graphed as a U, with longer time spent at the bottom before an upturn and a return to normal (more or less). Or they can be an L, a steep decline with the economy remaining on that low level as the new normal.
The messy middle is an L. We are going through the decline now, and we will remain on the bottom, whatever that is, throughout 2020. There might be an uptick in 2021, but it’ll be a gradual uphill climb, and we might never return to the heady days at the top of the L.
The Best Case: Well, that’s a V. Not just economically speaking but virally speaking as well. Everything dips, we suffer for a while, and then we return to right where we were.
That’s what we hoped for in our first Black Swan, and that hope killed our business.
In the three Black Swan events I’ve lived through, we have never experienced a V. We’ve had some minor economic downturns that I feared were Black Swans. Those were U events. And I counted us as lucky. But I’ve never lived through a V.
Here’s what we figured—and figure. We’re planning for an L. The world one year from now won’t look anything like the world did in 2019. We will be solidly in a new normal, and with the right kind of planning, our business will be functioning fine.
If we’re wrong, and we experience a V, then hallelujah! We are even better off than we were.
But we’re expecting an L. By planning for the L, we are making ourselves better equipped to handle the worst case as well. We can pivot in the summer or in September or whenever it becomes clear that this Black Swan x 2 is going to be as bad as some of the historic precedents of 100 years ago.
To do this kind of planning is requiring us to do a lot of work and to make some truly harsh decisions.
But we had seen the possibility of some major worldwide or nationwide disaster coming, and we have been working toward a more efficient business for three-plus years now, even as we’ve dealt with our own health and personal issues.
I’ll discuss some of that planning in the next blog, which will go up on my Patreon page at the same time as this one. The rest of you will have to wait until next Thursday.
And speaking of the schedule, I’m going to spend the next few days focusing on Rethinking The Writing Business, because I’ll be too distracted by planning to write fiction. (I hope to return to that on Monday.) So there will be extra blogs on Patreon in the next few weeks as well, because of that revision.
If you feel like supporting the blog on an on-going basis, then please head to my Patreon page.
If you liked this post, and want to show your one-time appreciation, the place to do that is PayPal. If you go that route, please include your email address in the notes section, so I can say thank you.
Which I am going to say right now. Thank you!
Click paypal.me/kristinekathrynrusch to go to PayPal.
“Business Musings: The Waiting Game (A Process Blog),” copyright © 2020 by Kristine Kathryn Rusch. Image at the top of the blog copyright © Can Stock Photo / photo_pw.
Every year in September my county sponsors a BookFest, with lectures and presentations and a big tent full of local and regional authors selling their books. I was pushing to get my second novel published by mid-June, to justify reserving a table by the late July deadline.
Now, however, it’s possible things will still be unsettled by then. But I’m telling myself, never mind, finish the book on time anyway. No excuses.
With the creativity I’ve seen, even if the Bookfest goes online, you might still benefit from it. So, yes, finish!
Somewhat off- topic, but do you follow Heather Cox Richardson on Facebook? A professor of history who is really good at applying patterns of the past to the present day. She writes a daily column. But I thought of it now because she had a Facebook Live Q&A today that included the 1918 flu, Herbert Hoover (and Mellon), FDR, Eisenhower undercutting the 1952 Taft Republicans who wanted to return to the 1920s… lots more. She’ll do one of these a week.
Oh….I’ll have to look that up! Thank you!
I worked as an Internet engineer during both dot-com crashes, and: yes. All of this. Yes.
I’m almost done with the first draft of my “Cashflow for Creatives” book, and sad to say, the pandemic has made certain parts soooo much easier. These things happen…
Thank you for this Kris. I’ve been looking for some clarity in thinking about the future as I struggle to get this year off the ground. It’s been such a roller coaster already.