How Small Businesses Plan for Reopening (and Other Acts)

(Bloomberg Businessweek) -- When small, high-growth companies—public and private—seek advice on how to handle tough situations, Adam J. Epstein is one of their go-to advisers. The former institutional investor is head of Third Creek Advisors in Silicon Valley and author of “The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies.” We spoke with him about strategies leaders in the life sciences, technology, manufacturing, real estate, office services, and other industries are employing. After the initial wave of fear and panic, business leaders now are “problem-solving in a steady, measured way,” he says. “I can hear it in their voices.” (Interviews are edited for length and clarity.)

How should CEOs be communicating?
CEOs really need to fight the natural urge to retreat. This is a time when your employees, vendors, and others you rely on—all of your material stakeholders—need to hear from you regularly. It's not something you can farm out to people. And it's a time for you to be really transparent and honest with them. Don't just cut off contact with your customers because they're not buying anything. That's a big mistake a lot of companies are making. You need to ask how they're doing and if you can help with anything. They won't forget that. 

What’s the best way to handle layoffs and other cuts? 
Anyone who has ever done layoffs knows it's going to be the worst business day you've ever had. CEOs should do the layoffs themselves if they can. Employees understand that businesses are really challenged. They're not going to be mad at you if you do it honestly and compassionately and with integrity. You have to avoid the proverbial death-by-a-thousand paper cuts approach of doing a few layoffs one week and then a few more three weeks later. That really destroys what's left of employee morale. When experienced CEOs look back on difficult periods, they always say that they waited too long to cut expenses, and when they did, they didn't cut enough.

What's one problem most small companies don’t realize they’re facing?
Most small companies believe they are not on the radars of cyber bandits. That's a big mistake. I was speaking with a cyber insurance carrier recently that is expecting north of 90 percent of all of its clients to incur some type of cyber intrusion in the next three years. The bad guys definitely know who you are if you're running a small company—and they are unbelievably smart. They know this work-from-home ecosystem that we reside in today—and that many companies will continue to use even after the health issues ameliorate—is a great opportunity for them.

What should they do?

First, CEOs need to explain and re-explain email phishing and voice phishing to all of their employees. Even if they have before. Often, the bad guys have already broken into your email server and figured out who is who to manipulate you more easily by using real names and facts they find.

Second, if an employee gets a strange request from a vendor asking for something out of the ordinary, such as wiring money or mailing a check to a new location, they need to check every letter of the URL of the company that it's from because a misspelled URL—even just one letter missing—is a sign you’re being scammed.

Third, you need to impress upon everyone in your company to never wire any money or send any checks to any new address without calling first. Don’t verify by email because you might be sending an email to the bad guys. You need to call.

What's one approach a business is taking that surprised you?

One small company I know has been designating every other week as either offense week or defense week for its senior team. During offense week, the team is 100 percent focused on new opportunities that didn’t exist before the current business dislocation. The next week is defense week: The senior team is 100 percent focused on how to mitigate all of the pandemic-related risk to their business. The CEO says if you don't organize it that way, it's too easy to get sidetracked. Obviously, if a huge fire erupts, you have to put it out. But the goal of having an offense week and then a defense week is to have everyone rowing in the same direction. It has transformed how they're approaching the whole crisis. (There are roughly 10 people on the senior team; the company has about 150 employees.)

The Paycheck Protection Program is a mess. How are companies managing the cash crunch?

I've been telling companies that cash is king. Some of my clients have been really successful in opportunistically reaching out to vendors and getting discounts on their outstanding payables. Can I pay you $8 now for the $10 I owe you and call it even? They know a lot of their vendors would rather have cash today, even at a 20 percent discount. 

I've also seen two companies negotiate deals to sell equity in their companies to big customers that rely on them for widgets. They're essentially saying, ‘we're facing an existential crisis. You have a vested interest in us surviving. Pay us $5 million for a piece of our company.’

I'm encouraging companies to be resourceful. Even if you've never gotten an SBA loan or you've never had a commercial banking relationship, research them. Small banks know if they're there for their community now, everyone is going to remember that. Go down to your local bank and get whatever you can from them even if you don't need it at the moment. If you don't use it, just put it in an account and give it back.

If your company isn't bankable at all, consider selling equity to friends and family. Say, hey, we're going to sell 20 percent of our company. Here's the reason why we believe this is a good time to invest. We believe we're going to survive but we need X amount now. This is what we're willing to give up and what you'll get.

What are people talking about regarding reopening?

Obviously there are the legal issues: Are you permitted to [reopen] by state and local law?  If you're in a place where your governor or mayor says you're allowed to do X or Y, it comes down to communication with your employees. Here's what we're planning to do. Do they feel safe enough doing that? Do they want to do that? It's not a situation where you can dictate this to people. People are scared.

A lot of CEOs of small public companies are terrified of liability issues. They're trying to figure out what to do: Do they have everybody sign a waiver that says you might die of Covid-19 if you come back to work? What do they do? There's a whole potential legal mess waiting on the other side of this. 

They're also trying to think through retrofitting their workplaces. Do they put plexiglass around some cubicles? What does that cost? Does it work? They're asking their building maintenance people about filtration systems for their HVAC systems. For facilities that nobody has been in for a while, what do you have to do to make them habitable? For hotels, for example, what's necessary to restart systems that are designed to be on all the time is unbelievable.

Responsible business leaders are all in the same place: They want to do what's right for their employees. They want to know the efficacy of the measures, many of which are going to be expensive. There are going to be a lot of scurrilous opportunists who are going to promise fantastic products and services for reopening, not deliver, then some will be found out. Reopening is going to be really challenging. Only two things will change that: A really high efficacy therapy, which will likely come before a vaccine. And a vaccine.

©2020 Bloomberg L.P.