Episode 38: Preparing a Business for a Market Recession

Welcome to this week's Wisdom and Wealth Episode. Today David Sobel of CEO Coaching International joins Alan and myself to discuss his Recession Playbook for Business Owners and Executives.

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JOSH KLOOZ, CFP®, MBA
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Transcript

Joshua Klooz  00:01
Welcome to the wisdom and wealth podcast, a series of conversations designed to equip our listeners with helpful insights necessary to simplify the critical decision points of life. We believe true wealth is the thing Money cannot buy, and death cannot take away. Furthermore, we also believe our calling is to enable others to fulfill their own. And to that end, we endeavor. Investment Advisory services offered through CWM LLC, an SEC registered investment advisor. Welcome to the wisdom and wealth podcast. As always, I'm Josh Klooz, the senior wealth planner for Carson wealth here in The Woodlands, Texas. Today I'm joined by Alan Wright or managing director here at the office and also by David Sobel, a partner at CEO Coaching International. Welcome, gentlemen. Welcome, Josh. So today, we're going to explore five categories from David's recession preparation checklist. So if you're a business owner, or an executive, you're going to want to listen in but before we get there, I'd like David, for you just to tell us a little bit about your background if you are willing. 

David Sobel  01:37
Sure. Thanks, Josh. So being a partner and CO coach International, I'm a serial entrepreneur, helped build several businesses. And the last one was a home warranty business. And I knew only so much, I wasn't a big expert in home warranty. So I hired business coaches along my journey to help me achieve more than I could achieve on my own and help me understand the business better, and what the leading indicators lag measures are. And through hiring those coaches able to see things bigger and better than me. And one of the things that happened in my journey was going through the financial crisis in 2008. And understanding what happens during a recession of financial crisis and how to grow through that. So I'm going to share some of that today of what I learned during that time.

Alan Wright  01:59
Well, David, the question has been for the last several months, you know, are we in a recession or not, and doesn't even really matter. And, of course, we know that the the textbook definition of recession is two consecutive quarters of negative GDP growth. So if you go on that metric alone, we're already in a recession. But everyone wants to kind of throw all these other different metrics out there and say, we are we're going to worse have one, or we're not there yet. But it doesn't matter. Because what we do know is this, we do know that the economy is slowing. We do know that the Fed has been raising interest rates for the last several meetings and will continue to do so. And the whole purpose of that is to slow the economy down to help bring inflation down. So whether we're in a recession or not, I think and we think this is a really good time to review these different check this checklist, if you will, that y'all that y'all put together. And Josh said, Five, we have some time, maybe we'll get to a couple of extras. But I think if we kind of go through maybe that top five of the 20 that you think and maybe give us some examples, I think could really help our listeners. Yeah, great. And so yeah, are we in a recession? Doesn't matter. It doesn't matter. I'm with you on that. The it's a lag measure, right? But it's global numbers. No two recessions have been alike, right. So this is new, new for anybody, even if you've been through a recession, this is all new to because it's global. We got supply chain management, we still have the COVID issue still playing out. Inflation is at a 40 year high. So we're in recession, how bad is it gonna be? How it's gonna affect you and your business? How long it's gonna last? All unknowns, but I do know this, it will affect every business owner. It may not you think you might think I'm immune to recession, my business, but your customers may not be? Your suppliers may not be right. So there will be effect on everybody in this recession. So what would you think be the be the I consider the top five kind of the first one to kind of work our way through some of this list.

David Sobel  04:10
Yeah. top one is you got to communicate to your employees. You got to communicate to your key relationships, whether it be your vendors, bank suppliers, and you've got to communicate, communicate a different way to your leadership team. So communication is the key here. And it's proactive communication. And we're not here to say scare. Right? That's not what I'm saying. I'm saying be real and be honest, what's going on. Inspire them during this communication. So you gotta always share wins even though you might be in trouble time, share some wins, and show that show, your team, your staff, how we're going to lead through this recession. People follow leaders who believe

Alan Wright  05:00
So is there been a is this been a more difficult time, though, to communicate that message to employees because we are a little bit more scattered we are. Not every part of the country has opened up like others. And there are more of the hybrid work from home or from the office, are there ways that employers should be communicating that has maybe worked in the past, but may not work in the present?

David Sobel  05:22
Yeah, the past was in person, right. And everybody come in, and I'm going to do a presentation and tell you all about it. And it's very different today. So you have to communicate a lot more often, because we do have a remote staff. And we have in person staff. And we're at different times, in our career, we've just come through crisis, many companies during COVID, or many companies just grew really big during the COVID transition. So you have to communicate very often, and specifically of what's happening and what we're going to do specifically, to lead through the crisis. It's constant communication, constant, every day, every week, every month, communicate, communicate, communicate, That's how you'll leave. That's the number one thing in your relationships is very important. If you hide and don't communicate and share what's going on with your top, your banker, your top customers, your top vendors, you're missing something, because there's opportunities through those conversation. That's how you build a deeper relationship with your key suppliers, relationships, banks, customers, communicate to them what's happening, and they might provide some solutions that you didn't even know about, that they've been thinking about for their customers.

Alan Wright  06:45
So when you say communicate, it is more than just to your employees, it is to everyone that touches your business.

David Sobel  06:52
Every one that touches your business, your your sales team should be talking to all of your customers getting a pulse on how are they doing? How are they feeling? What challenges are they having? And bring that back to the leadership team to say, hey, we have some challenges, don't let's work on some solutions going forward to solve this for them. That builds a deeper relationship, and you could grow through the crisis.

Joshua Klooz  07:18
And David, there are obviously some group settings that make sense. Are there any of those communication either those conversations that need to happen? One on one that stands out to you? It might be different from business to business, but are there any that you found in your experience? Hey, this this has to be a one on one conversation?

David Sobel  07:37
My my top customers and top suppliers and bank is one on one. One on one, no question about the higher up you go. CEO to CEO conversation 100%. The other one on one conversation is your management team. See the operation team and your CFO are key to this. You need to work closely with your CFO, because they need to model things out. They need to see where we can shave some cost down perhaps. So you have to communicate the CFO, what I did during the financial crisis slash recession in? Oh, 809. I met with our CFO every day, what I want every single day. I want to know what we're measuring how we're doing? Are we moving the needle?

Joshua Klooz  08:27
Yeah, absolutely. So next, what would be the next most important item that you think, hey, now to communicate with my team? Where do you go next?

David Sobel  08:40
There's opportunities in every crisis. So I would go to look at your marketing spent. In most people think recession, cut back your marketing. And that's what most companies do, they cut marketing. But if you are confident, and you are really good at understanding your lead measures and lag measures your business, this could give you the opportunity to increase your marketing. Because the media by example would be an example, the cost to buy media will be lower during that time you have room to negotiate. So use this, see what your competitors are doing and use this as the opportunity. So I say invest in marketing. And it's not just spending the money. It's social media, telling your story in a better way, how you're helping your community, how you're solving problems, get really connected with your community and your customers during this time, that'll help you grow through this.

Alan Wright  09:41
Well, and I would think like you said, looking at what your competitors are doing, because that is the natural inclination of when you go through times like this as you cut costs. Where do we cut and for a lot of people, their marketing budget is one of their largest costs outside of their people. And so that seems to be a natural place to come. But it's kind of that, you know, you know, at times like this when everyone's doing that you do the opposite. And you're gonna come out much better ahead than your competitors.

David Sobel  10:11
Thanks out and you must be strategic about that. Now that your competitors, I'll share with you what I also did in Oh 809 Is I met with my competitors. Because collectively, we're a part of an industry everybody's a part of an industry. And okay, what can we do as an industry to build our brand up our quality of our service that we provide as an industry and understand those challenges, we didn't share metrics with each other, we just work together as an industry to grow the industry because we knew he could work together as growing an industry. And as we come out of the recession, more people would use our product service, etc. So build those relationships.

Joshua Klooz  10:54
So David, what, what what comes next? I like the contrarian sentiment there for sure. it bodes well for for many, many things, but this one is specifically as well. But what would be the next the next point that you'd say, Hey, if you're gonna let others go by Don't miss this one.

David Sobel  11:13
Oh, boy, we've been living in a world these last few years have really tough times finding great talent. And now's the time, now's the time, to focus on attracting top talent to your team, companies, people are getting laid off. And if they're not getting off, their compensation might be changing, or their boss is no longer their boss anymore, and they have a new boss, this is the time to attract top talent, look forward, meet these individuals, they're not looking for a job per se, they're not looking for a move. They're looking for vision, and an opportunity. Because perhaps they've been with this company, 15 years, and they're a rockstar A plus talent, I'm not talking about see talent, I'm talking a plus talent here. They may not believe in the vision or the leadership, or what our plan is to work through this recession. They want to be inspired. And this is the B opportunity that we haven't had in three plus years in many industries, and you can't even talk to top talent. So I we did this in our firm during the crisis. We invested in top talent rebuilt our management team, and it you know, that helped us grow through this recession that we were in back in, oh 809

Alan Wright  12:36
Is your are your clients when you when you tell them these types of things, especially like attracting top talent? Because we have been told over the last, you know, really 1218 months about all these new requirements that are out there for people that that are in the workforce? Are your clients seeing that as an issue? Or has that fog kind of been lifted a little bit and now more people are willing to have that conversation? And it's not so much of I need this, this this, this and this or you know, it's a non starter? Is there is there more flexibility that you've seen over the last few months.

David Sobel  13:12
It's it's a slow shift down, it's a great way to slow shift, but it's shifting. And remember, it's probably not going to be about the demands of what the call it employee wants, it's going to be do they believe where they're at, will get them to where they want to go financially, emotionally, career path, and your opportunities. If that's not happening there, they want to go somewhere else that will lead them to what they want to do. And it's not always about money at this time. It's about their future, their career, their path, their vision. So, my clients today, every one of my clients has a list, top talent they want to acquire in different roles. And now's the time that they're going out and talking to these individuals may not happen right now. But maybe in six months, three months, nine months, you're planting seeds, you're building those connections, those relations on a one on one basis.

Alan Wright  14:16
Yeah, that's an interesting thing that you said there. And I don't want to take this off the path that we're on. But do you have is that one of the things that you kind of asked your your clients to have is an ongoing list, no matter that no matter how businesses with good or bad recession or not? Do you always have your clients Hey, listen, you know, you know who the people are in your industry that that you would want to have build that dream team and know that the timing may not be right now, but it may be right in the future. Is that something that you encourage them to have, you know, all the time or just in certain periods of economic conditions? Yeah,

David Sobel  14:54
I'll say all the time I used to use ABR always be recruiting So to always be recruiting, so if you haven't started it, now's the time to start. If you did started three years ago, four years ago, five years ago, you have those relationships. And now it's just making a touch point. Hey, how's it going? Anything any changes in your company? Or maybe you read an article, there was a layoff? How's that affecting you? So you should always do that no different in sales pipeline, are the top 10 prospects you want to work with in your campaign should always be a top 10 in recruiting, sales pipeline, etc.

Alan Wright  15:32
Interesting. Makes sense.

Joshua Klooz  15:36
So far, we've focused primarily on you know, the people, right, and I love that that's been the focus. We there's one elephant in the room that we haven't talked about yet. Are we going to get to that one? That one next or no?

David Sobel  15:53
I think we have to, right? That's that cost reductions, right? We got to, we got to cut costs. You know, in the great times, we all get a little fat, we spent a little bit more money because we're making money. And now's the time to really do go with your CFO line item by line item, you know, what's the fat? Now? What's first, what don't we need, it's a nice to have, you know, we don't need it, and start building your list of what we can do. And this is a great time, while you're doing cost reductions, in what buckets, you got to look at your buckets on your p&l. Is it travel entertainment, were the areas that won't impact the business for growth, but will, you know, get us tighter in our plan, and we can invest that capital somewhere else, maybe where we can invest in marketing, as we talked about, or bringing on another top talent that we couldn't afford before. But now we might be able to afford that through cost reductions?

Alan Wright  16:54
Is that one of the harder ones for, or maybe one of the easier ones for first time entrepreneurs? Because I would imagine in your business, you have guys like yourself that are serial entrepreneurs, that you may catch them on the third or fourth turn. But I would also think you've got some that are, you know, first time entrepreneurs and they've never been through a recession, they've never been through the subsidies. So is the cutting costs? One of the more difficult things, things for them to do? Are there other other ones that we talked about that are a little bit more difficult for them?

David Sobel  17:25
Yeah, this is the hardest thing. And sometimes it doesn't matter if you're a first time entrepreneur going through a recession, it can be your third time, this is the hardest thing, because what we haven't mentioned is sometimes we got to cut in people, we had to cut our staffing by 20%. How do you do that? How do you rank your staff? So we have the a plus team going forward through the recession? Those are hard decisions to make. And it takes a lot of courage to make those decisions. But I always say this, how entrepreneurs say this, most of the time, is how do we keep our culture intact while we're cutting all this? Right. And I always say, think about if you don't, you might have a great culture, but you may not have a business, how's that culture gonna feel? So that's really it's a black and white in a lot of ways. Because if you don't make these decisions, now, it could be too late. And then the culture doesn't matter. So work with a team who will drive you forward. And they they will embrace it. They know this is hard times, but they will embrace it. Well, I

Alan Wright  18:40
would think to the, for my own personal experience, the first time you got to let somebody go is the hardest. So especially if you are a first time entrepreneur, and you're in that seat, and you've had someone with you, even if it's been six months, 12 months, you brought him on for a reason. There's some relationship there and then for you to have to go and do that can be a tough thing to do.

David Sobel  19:04
It's hard to do it first time, second time. 10th time, it's hard. You know, you have to have compassion. They have families, they have bills to pay, they have this. So if you're going through this, think about best way to lighten the impact that you can you can afford as a business owner, whether it be severance, whether it be paying for their health and health insurance for a period of time to get him through, give them contacts of companies that are hiring that they might fit into, or even recruiters to talk to you. So assist them out the door don't kick them out to door that that shouldn't be your culture, your plan. You have to be compassionate about this.

Joshua Klooz  19:49
David we've covered for, you know, what's the fifth one that makes the makes the top five

David Sobel  19:57
the fifth one is, this is the app 20 You can make investments, whether it be capital investments for equipment, or whether it be mergers and acquisitions. This is the time if you have the capital and you have the vision, and you have the leadership team and you're measuring the right things, these opportunities open up, and don't say no. Look at them closely. Because that piece of equipment that you might need to buy for your manufacturing facility could have been a million dollars in the last two years, and all of a sudden, there's a 30 35% discount, or better yet, maybe someone bought 123 years ago, and their business is not doing well, you could buy that at a lot lower discount. So look at opportunities that have what you need to grow your business and scale your business and see where it can be, whether it be organically, whether it be an equipment, or whether it be m&a, and you're gonna see a lot of m&a activity happening in the next 1218 months. Because this is usually the time for.

Alan Wright  21:01
Yeah, I think that's a good point. Because if you are running a very disciplined business, and you're looking at the end, that's what we kind of set the beginning, no matter whether in a recession or not. We think these are always things that companies need to be taking a look at. Definitely in periods of recession downturn, you're gonna have more focus on some of these areas, but they're always good points of interest, really, if you will, that you need to be paying attention to. And so yeah, when business is going good, things cost more. Because in your end, if you're into if you're doing well, typically your industry is going to be doing well. And so those costs in the industry are going to be higher. And so your cost to make an acquisition, your cost to buy that equipment are going to be higher at that point in time. And if you have, if you need it, you need it. But if the discipline, if you have discipline, and you have this strong cash on that strong balance sheet, when it comes times like this, you're gonna be able to get deals, you're gonna be able to find opportunities that others aren't going to be a willing or be able to, because of cash, or lack thereof, to make happen. And so it really bodes well for those strong companies that have the discipline and the good times to not get big and fat and happy to take advantage when times like this happen, because this is when you really make from what I've seen my experience with clients, this is where you make big money is when others are when when businesses are down, you go in, take them up for a lot less than you would have otherwise, if you'd rather growth on the back end of it.

David Sobel  22:27
100%. You know, it's interesting when you when you think of making investments in your business during this time, just know that, you know, financing terms are more flexible, because banks have to lend, right so you can get favorable terms. Or if you're buying from another company. That's negotiable, favorable, favorable terms, maybe they'll loan you the equipment that you need, that you want not buys on a loan, and you're renting it from them for a period of time, because they can't use it. So think of different ways you can go about things. But the opportunities are definitely there.

Joshua Klooz  23:08
David, I've got a question, though. We haven't talked about price integrity, or maybe even increasing prices. What's your thought? What's your your advice to business owners? regarding that?

David Sobel  23:24
Well, we we've been going through the last three years on pricing strategy, due to supply chain challenges. And it's settling down. I think most companies now have a baseline and I think it'll, from what I've been reading, it's getting getting better. q1 q2, q3. So now's the time to look at your pricing strategies. To your top customers made customers, small customers. Think about it as your customers might be in pain during the recession. But they need and want your products our customers have already can't afford to buy your product. Help them through that. What pricing strategy can you do to help them through this, you'll have to do a lot of homework on what your cost model is. And you'll do your homework on competitive advantage. Think of value pricing. When you're adding more value to your product service, that you can increase your price and show that value. That's what people really want in today's world, our pricing has changed. It's no longer about lowest price. It's about what value are you providing for the fee I'm paying? And how will that help my company? So this is the great time to look look into your pricing. It's called the opportunity. Maybe you can increase your price 10% We all we believe increase our prices 10% two years ago and last year, because our costs keep going up. Well maybe you're stabilized on your costs and now it's time not Just to cover your added cost, but now it's time to look at profit by providing but you have to provide more value, don't just raise prices to raise, raise it with a value proposition.

Joshua Klooz  25:11
If you do it right, it occurs to me that there may be other product lines that you're that you might be able to cross sell just because you had that conversation in the right tone and in the right circumstance.

David Sobel  25:23
Yep. And you might want to even consider price matching. In some cases, that happens a lot of retail, this is retail time, you'll be seeing that. I think, in a Christmas shopping season price matching, we haven't found that in the last probably three years at much, you'll be seeing quite a bit of price matching going on on the advertisements. So consider that you have to know what your competitors charging, though, to make it fit your cost model.

Alan Wright  25:51
So if I if my math is correct, I think we were at six and a half. So far, so why don't we try one more? David before, before we wrap this up?

David Sobel  26:02
I think the last one is you really have to go into experimentation mode. And, and and Alan, you said earlier, this is what you should be doing for your business at all times. And you know, every quarter we work with our clients say hey, let's let's create an experiment. It's a test, create a test, whether it be on a product, a service, create a test every quarter. And when you do that, you learn a lot, let's say you're gonna fail, it's okay to fail on a test, learn from the test. Because every time you test, you're gonna learn something, and one of those times back, okay, this test turns into a great additional service, additional product we should bring to the organization or a different way we're going to go to market, lowering our risk, etc. This is where your marketing team comes into play. This is where your product team comes into play. This is where your creative minds and your team if you don't have a product team or a marketing team, the creative minds come into play. What What should we test? What can we experiment with, to help lead us through this and grow our business? And sometimes you come out of it? And you're like, wow, I didn't, I didn't expect that one. And but the market responded. So you'll get a real good pulse on the market.

Alan Wright  27:22
So David, before we let you go, is there a one or two stories that you'd like to share of past experiences maybe recent or a little bit further in the past working with clients? Maybe not through recession, per se, but through difficult times,

David Sobel  27:39
give you a quick story of a client in the solar business. And right now we are testing a product in the RV space. So think of it as our if you have an RV, and RV sales went through the roof during COVID. So if you have an RV, and you have a gas generator in your RV, right. And we know what gas prices are doing right now, it's like it's you're paying a lot of money for gas. So you're not using your RV. But what happened what would happen? If so a solar generator could be in play, reducing the amount of gas and my climb the solar business is doing that right now in the solar industry in the RV space is promoting that type of product. And that was from a test. That was from an experiment, a test. And the the market demand is there. And so we're seeing changes in that. Another one was, I'm going to go to my business. during that recession, I looked at what my competitors were not doing. And what they weren't doing during that time is marketing advertising got slashed. And they instructed their their alcohol marketing biz dev teams to not be on social media, because that was kind of early early on in Oh 809. And I told my team while they're running away, we're going forward. And we spent our time on social media building connections with our client base. No one else could. So we did and we took big advantage of it. Again, that was an experiment we didn't know would work. But it worked out great. And you know the results were growing 50% year over year, oh eight, nine and 10. So those tests work. And we use this this checklist. And there's there's other items on here. But this checklist really keeps you thinking and as a management team, you have to look at this checklist. We looked at it every week. Are we are we making movements in each of these areas that we chose?

Alan Wright  29:45
Yeah. And that's when we were talking about it the other day, David, and you mentioned the house checklists. I really want to take a look at it because I think looking at it in our own practice or on office here. I think there's some things on here that we need to take a look at but we know for our clients and business owners that we work with, and those relationships that we have, this is a good kind of a good reset. This is really a good thing to take it, I think it very clearly shows where you need to be having your your emphasis during, during times like this.

David Sobel  30:17
This is the time where it's a choice as a as a leader, it's a choice, you know, your businesses give you is affected going to be affected, but doing nothing, it's that grow or die mentality. That's painful, doing nothing hunkering down a very dangerous place to be. Most people can't survive that, cause you don't know how long the recession is going to be if you knew exactly how long it could be, you know how much cash you had, you could build a plan for that. But you can't build a plan where you have the unknown date and time when things get back to what we call normal, right? So, you know, I, you have to push forward, you have to lead by example. As CEOs, I can say CEOs should be working harder today than they were used last three years. This is the time to pedal to the metal. Go forward. smartly, not haphazard. One of the thing I could share is, these are all good things, but you have to have understand your cash position. And we'll be sending this out. But cash, we have a cash flow analysis and cash bridge to work with your CFO to understand your cash position and create scenario planning with your cash positions. You know, we're gonna have a bad year, a good year, a great year do scenario planning with your cash flow analysis that will help you through it as well.

Alan Wright  31:47
Cash is king. Cash is

David Sobel  31:49
king. Cash is king. It's hard to borrow. You never want to borrow money when you need when you need it borrow money when you don't need it. That's going to happen pretty quickly. If you haven't lined up with your bank yet, you better do so right now. Because when you need it, that's not when lending happens.

Joshua Klooz  32:08
Excellent. Well, David, thank you so much for joining us today. If our listeners want to reach out for more questions around the checklists, what's the best way to contact you?

David Sobel  32:18
Yeah, best way to contact me is via email, davidsobel@ceocoaching.com. And if you send me an email recession checklist, I'll send it off to you and I'll send you a playbook as well.

Joshua Klooz  32:37
Excellent. Thank you so much for your time today. We've really enjoyed it. And I look forward to future conversations.

David Sobel  32:44
Thanks, guys. Appreciate you guys. Thanks. Thank you. Bye.

Joshua Klooz  32:49
Well, that's all for today. Thank you again for joining us. We trust that you were better equipped to steward both your wealth and your financial resources. If you have questions or suggestions for future topics, please direct those to info Houston, Carson wealth.com. But you and your family uncover truth, beauty and goodness. The opinions voice in wisdom and wealth with Josh Quinn's are for general information and are not intended to provide specific advice or recommendations for an individual. Past performance is no guarantee of future results. investing involves risk, including possible loss of principal. No strategy assures success or protects against loss to determine what may be appropriate for you. Consult with your attorney, accountant, financial or tax advisor prior to investing. Investment Advisory services offered through CWM LLC, an SEC registered investment advisor. Our address is 1780 Hughes Landing, suite 570, The Woodlands Texas.


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