The Square Root of Recovery: Alphabet Soup, Shapes, and The State of Business
As if you haven’t heard enough about the recovery after COVID-19, there are more theories than there are mask startups on Etsy. Normally if you read almost any economy journal, or the Wall Street Journal, and you take all the economist predictions and average them, you’ll get a pretty good idea of what might be next.
But not during the era of COVID. Before the Fed released the numbers on GDP, the guesses were drops of anywhere from 8% to 57%. The numbers came in much closer to 35%, but that doesn’t mean a thing about next quarter, and all the factors from a resurgence of cases pushing people back into quarantine to the same factors interfering with distribution channels and supply chains.
What does this actually mean to those operating a business, those who want to sell their business, and even those who are looking to buy a business?
The Many Shapes of Recovery
First, there are several “shapes” economists have talked about recovery taking. They include the following scenarios:
- A “V” Shape: This looks unlikely now, but this would have been a sharp drop followed by a rapid recovery.
- A “W” Shape: This is a common current thought. We started to recover, but a resurgence of cases is causing a fall in the economy again, after which we will recover.
- A “U” or a “Swoosh” Shape: This is where we have a sharp fall, and a long, slow recovery, more like a Nike Swoosh, although this is also called a “U” to avoid infringing on a popular sports trademark.
In a recent interview with Linda Keith, CPA, Dr. Bill Conerly, an economist, used the analogy of a different shape: that of a square root symbol. We’ve seen the sharp drop, but we will see a recovery, but one that will level off at a sub-par level, lower than that of January 2020.
The reason is there will be those industries that recover quickly, some that actually made more money during the pandemic and subsequent recession, but there are also those who will not fully recover for years, maybe ever. Those include restaurants and travel. Yes, restaurants will reopen, but with reduced capacity and traffic flow.
They might survive, but things will never be the same, and those who cannot adapt will not make it at all. That’s not cause for alarm, but more of a cue to take a closer look at things.
Location, Location, Location
The fate of any business has often been tied to its location, thus the famous mantra: location, location, location. This has never been truer. The difference between the recovery of a restaurant in Los Angeles and one in rural areas like Turlock, California will depend more on local recovery, regulations, and where cases surge again and where they are held in check.
This is not only true across California, but across the United States and the world. Sweden and Melbourne, Australia may have a long way to go to salvage both their reputation and to get the pandemic to a manageable state, where some places in Europe are already on the way to recovery.
While a seasonal surge of the coronavirus is possible nearly anywhere, those locations with the most robust plan and protections in place will also allow businesses who are struggling to recover faster.
Also, think about those businesses that benefit from various restrictions. You see all the plexiglass around checkout counters and customer service areas? Companies are making those and doing good business at the same time. That’s not to mention all the Etsy mask startups we mentioned earlier.
Gamer Dice and Business Recovery Outcomes
Maybe you don’t play Dungeons and Dragons or tabletop games, but if you’ve been in nearly any game shop, you’ve seen the multi-sided dice they have there. While a standard die gives you six choices, they give you many more.
That’s the world we live in now. Except if you adopt any one predictive model, any single strategy, you’re playing craps, only with gamer dice. The possible outcomes are endless. In that same interview, Bill Conerly sated this: “I tell business owners never to bet the business on any one economist’s predictions, not even my own.”
Think of what could happen to your business before we have a vaccine:
- You could lose business or even struggle to get the inventory you need to serve your customers or clients.
- Your business could become essential (or you could branch into an essential category) and actually thrive.
- Your business could change a little bit with some tactical moves but stay pretty much the same.
- Your industry could take a nose dive or come back in a strong way.
- Your industry might never recover to pre-pandemic levels, and level off at a new, lower profit level.
- You could sell your business, or even buy another one to supplement and complement the one you already have.
Realistically, this list could go on, depending on where your business is located and what you do. Businesses from Data Centers to home office furnishings and other support industries for those who work at home are already thriving, but no one knows for how long.
The most important thing to remember is that there is a new uncertainty that will be here for the foreseeable future. Those who stay nimble and flexible will be voted most likely to succeed in the business class of 2020.
Should I Stay or Should I Go?
In probably the greatest current debate, business owners are debating about whether they should stay in their current industry and wait things out, sell and move on, add a new service or product to expand their business, or in some cases simply close the doors, cut their losses and move on.
The interesting thing is that despite high unemployment, a low GDP, and some businesses suffering catastrophic losses, individual incomes are up, and markets are experiencing unprecedented highs.
So what should you do? First, it is important to remember that inevitably, every single business owner will exit their business at some point. Doing so on your terms is the most desirable outcome. So take some important steps before deciding.
- Check your business health. How are you doing, really?
- Get a business valuation, one that is objective and by a Certified Business Broker. Knowing what your business is actually worth can help you make better decisions.
- Check your personal feelings? Do you have the same passion for your business you always did? If not, can you get it back, or is it time to move on?
- Get advice: Ask your friends, family, and others what they feel you should do. Remember to take advice with a grain of salt. Ultimately it is your decision.
Once you’ve done these things, make a list of pros and cons, and maybe even talk to a business broker about what the market looks like for your type of business. Then you can decide whether to stay or go.
Reprioritizing Life
Have you ever heard “It’s not you, it’s me”? The dating expression that tries to reassure your ego while letting the other person walk away from the relationship on their terms often applies to business relationships now.
Everyone, you, your clients, and the entire world are looking at what matters most to them. How much time do you want to spend working vs. time with your family? Is it more important to work hard and make more money, or take a break with that new granddaughter?
This reprioritization can affect both you and your business. Evaluate for yourself just how “essential” your business is in these times. Empathetically look at your customers and the situations they find themselves in.
Also, look at your involvement in your business. Is it time for you to move on to something else, or even to consider retirement? Even if you plan to exit your business in the next couple of years, now is the time to start exit planning. It takes time to sell a business, so listing it for sale early rather than later can make all the difference.
The Unprecedented New Normal
If you’re not tired of seeing those two words in a sentence yet, it’s likely beyond time to retire them, if only we could. This is what we face though. Things as they are remain unprecedented. There is no business playbook for this situation. And we will, at some point, reach a new normal.
That normal will likely look like a square root symbol: a leveling off that overall is lower than what the economy looked like before the pandemic. We will reach that normal with either a vaccine, effective treatments, or both. The other containment solutions are too individualized and politically charged to be effective.
But whatever that new normal looks like, you must decide for yourself where you want to be in that situation. Do you want to continue as a business owner or sell your business? Do you want to move into a new area of specialization?
Perhaps you are currently an employee, and the pandemic has inspired you to stop working for someone else. If so, check out these great businesses we have listed for sale right now.
Wherever you are in your exit planning, the ball starts rolling with a business valuation. If you need one, or if you think you are ready to sell your California based business, contact us today. We’d love to be your business broker.
