032: Building Long-Term Sustainable Businesses

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One thing that the year 2020 has taught us is that we have to think differently with our businesses to survive and grow in new ways.

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Becoming profitable with redefine this past year. And it takes leadership to recognize and understand that change is needed, and the conditions around you are no longer the same. Further, long term sustainability of your business will be vital for the future, especially in making it a goal to minimize layoffs and firings when the economy downturns.

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Please enjoy the episode.

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Welcome to the finance leader podcast where leadership is bigger than the numbers. I am your host Stephen McLain. This is the podcast for developing leaders in finance and accounting. This is episode number 32. And today, I will discuss a new approach to profitability and long term sustainability for your organization. And I'm going to talk about three areas. Number one, never get complacent with your business model. Number two, you must be modeling long term sustainability, and including a crisis concept inside it. Number three, we must change our retained earnings approach, so the future can be more secure.

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And after all that I'm going to share a couple of examples.

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Starbucks founder Howard Schultz said, profitability is a shallow goal if it doesn't have a real purpose. And the purpose has to be to share the profits with others. The year 2020 has taught us many things. The keys to business survivability will be creativity, for generating new lines of revenue, and also for building long term sustainability into our strategy. This episode today isn't about generating the most profit for ourselves. It's about ensuring our company can generate profit, to survive through continued uncertainty.

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And to be more socially responsible to an enlarged group of key stakeholders like the employees and our suppliers so they can keep their employees working. Also, we can never get complacent, never take the economic or market situation for granted. What happened yesterday or last year may no longer work, we must be ready for change and overcome the forces that prevent change. We must pivot to new ways to generate revenue. And this is going to be key to survivability. How can we be prepared to keep our staff on the payroll, this is going to take a new commitment, a true commitment that builds trust for the future. Now in the past, companies would cut employees first to achieve that very short term profitability. They cut the expense. But this has always been faulty thinking many of you will disagree with me, I'm sure you can definitely achieve short term gains by cutting staff. But you will also have long term failures, which we often never see, because employee cuts always go too far. And the work doesn't stop, the work continues the same reporting the same level of work from around the company will continue this will not stop, the same requirements will be there, the same processes will continue and will continue to be expected. So you need to do the same work, it's not going to stop just because you cut 10 or 20 or 30% of your staff, it's going to take time to repurpose and eliminate some of those tasks, because that's not what we're going to be conditioned to do or leadership is going to be expecting the same output. But with fewer people, it will be the same work product with fewer people, your team will be stretched and fatigued, loyalty will fade and fear will set them let's do something different, something very different, let's think long term. So we don't have to go to employee cuts first. And when you think you have it figured out, I want you to do it all over again, I want you to continue to do the thinking never stop planning. This discussion today is not going to be just a mathematical or a technical one. But in fact a leadership approach to ensuring your company can adapt better in the future and can survive. Now I talked about these topics previously in a few bonus episodes back in April of this year. And now they're that discussion was in bonus episodes two and four. And when you become complacent, you increase your chance of failure, especially about being focused only on the short term. Now let's change the typical short term approach to a long term approach and by doing our part and keeping our workforce fully employed, the old ways are not going to work anymore, the culture of the company will need to change. And it's our duty as finance and accounting professionals to help support that change in the culture. Now I'm going to discuss the three considerations that I mentioned earlier for increased profitability, and longer term sustainability. And number one, we can never be complacent with our business model, we need to continue to adapt and find new ways. Now I'm asking you to look at the top line first, and get creative in generating new lines of revenue. Now, this isn't just going to be a finance and accounting responsibility or task. What I'm asking is that we do our part, who work in this profession, to work and partner, with leaders and people around the company, to start to have those conversations to start that movement down that pathway that we can think about new ways of generating revenue, look at our product and service lines, what else can we do? What can we change? What can we adapt? And what can we continue to work on, to create new ways to bring in revenue so the company can continue, there are new ways, it just takes a little bit of thinking and a little bit of creativity, I want you to talk with customers, I want you to know your customers, I want leaders around the company to talk with customers and know their customers really well. And find out how you can deliver your products and services in new ways. And then find new product and service lines that meet a need that isn't being met today. And then always exceed expectations. This is about building stronger relationships with your customers. After the top line analysis is done, and maybe you found some opportunities, then I would say go to looking at some efficiencies in the non labor expense lines on your profit and loss statement. And then lastly, I would look at labor, Every company has a bottom 10% that can probably be let go at any time. And that's where I would start if you need to start cutting into labor. But usually the labor is like the first thing that we want to do that we want to cut. And it's always hurtful in the long run, it looks great in the short term, because you just cut a huge expense. Because we all know that an employee is just not the salary that we're paying for.

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It's all the additional taxes and benefits and everything else that goes with keeping that employee on staff. So we know that it's a it's a huge expense that we can cut out of the profit and loss statement. But it's so hurtful in the long run.

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We know that in our gut, but it's so easy to just cut the staff First, if you have any influence or any way to curb that decision. Please work on and work with those in the company to try to look at some other things first before you start cutting your labor. And that means that we should always have as finance and accounting professionals have some of these ideas in our back pocket, a few things that we've modeled and a few things we've looked at and a few plans we have tackled, so that we can make suggestions when the need arises, that we don't just have to jump into cutting the staff right away.

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It's going to take leadership, just like I said, from finance and accounting professionals to modeling communicate new ways to generate revenue. And for long term sustainability. I believe that we continue to have discussions at multiple levels continue to partner across the company. And our models need to include what happens during a crisis. Now this may require an update to the strategy with some contingency plans and some options. And some what if scenarios that we can all talk about, and agree and kind of build around some assumptions and some facts and start to have a plan in place for when a crisis that we are dealing with throughout 2020 happens again or continues to happen into the future. Now I want you to ask yourself also how much risk Do you have right now and your product and service lines, maybe you've been able to survive throughout the year you get a little creative, maybe your product or service is really one of those that's necessary that people are always going to buy that maybe you've been able to survive a little bit during the year. But I don't want this just surviving to give you some confidence. Never get comfortable in what you're providing and never get comfortable in the status quo.

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The teams that are doing the heart analysis and talking about critical change will be able to succeed into the long term we must model long term crisis situations for profitability and sustainability. We have nearly an entire year of a pandemic that could be used as a data set to help model a future crisis for the business planning is crucial. I need leaders who will embrace this concept And we'll need to communicate the change across all stakeholders, including investors who mostly have a short term gain focus. I know this, I realized this is going to take a lot of communication, a lot of your ability to influence new ideas and new change in order to change that focus. And not everyone's gonna agree people who are listening to this right now are probably saying, There's no way I can agree with this, there's no way my leadership will ever buy into this. And this is where I continue to talk about on this forum is about building your influence skills, ability to communicate a new idea. It's not just a one time discussion, it is a continued discussion over days over weeks over months in talking about new ways, new ways to tackle new ideas. And to talk about change that needs to happen, especially for the long term, I just so much wish we would stop focusing on just short term gains, because you need to continue to fight to get those short term gains. And it never usually helps you in the long term, we must change our approach to retained earnings so that we can continue to survive in the long term. Now I am advocating for more retained earnings to ensure survivability. So we keep the team together when the economy does go through a downturn, and there are going to be downturns, this is going to be continued in our business cycle, we're going to have very good years followed by just incredibly horrible years, we need to be ready for those. And I say that over the good years, we need to be keeping more of our retained earnings so that we can survive into the future. Now, I do agree and believe that having a higher retained earnings or higher assets on our balance sheet does put companies at risk who are not privately owned. I understand that. But I believe that is a risk worth taking and building into our strategy and being very public. And talking about this. Because this is what we want to focus on is long term sustainability. I believe that companies who follow through will be winning even bigger in the long term, their employees will fight harder for companies who give them security going further, the long term should be able to survive while not letting go and employees. And this will not be an easy task to accomplish, because it will take resources. Now when the employees know they have security. After a crisis occurs, more loyalty will occur. leaders who embrace this concept will need to communicate the change across all stakeholders, including investors who usually have just that short term focus on their minds, it's going to require a change in the culture for many businesses, and decision makers and stakeholders will need to endorse such changes in the culture. I want to talk about a few examples from 2020 of organizations, companies, industries that were able or at least were forced to make the change to survive. Now I always like to talk about sports. So the first thing we're going to talk about are sports leagues and sports teams. You know, they lost their in stadium fans, so they had to find new ways to generate revenue, new ways to get people excited about their team's excited about their brands. You know, they had lost concessions revenue, they lost the revenue in the stadiums when it comes to fan gear and other stadium revenue advertising revenue inside the stadiums. So they had to figure out how to engage the fans better to create revenue, they had to figure out ways to get the fans involved a little bit more. And that's why we saw a lot of the zoom type meetings where they would bring fans in and broadcast their participation in the event and in the game. And they had to get fans more excited who are staying at home who could not attend the games in person, especially we're talking about major league baseball and a National Basketball Association, the National Hockey League had to just get those fans involved in completely different ways. We had to take a little bit more risk and get them involved to get them excited about their brand so they can continue to make the sales for the make up for lost revenue. And what I've always thought about was was the horrible after effects of not being able to have fans in the stadiums. And then the league's going into bubbles is that you also had a lot of the second third fourth order effects of that lost revenue. That means you have a lot of stadium workers who lost their jobs. You also had local suppliers who are not able to make deliveries and lost a lot of their revenue.

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You'll also have people who are driving Lyft and Uber vehicles that lost business and their gig side businesses and also you had taxi drivers, you had delivery people, you had custodial workers, you had all sorts of second, third fourth order employees and small businesses and other people who would support the sports teams just not being able to generate revenue and being able to have jobs to survive. So that's why the sports teams needed to make some changes and some of those people who would be supporting the game day events really never got that opportunity back. But that's why we need to continue to find new ways of finding revenue new ways to supporting those local businesses and also the employees who support our businesses every day, we need to find new ways we need to fight this, we need to get this built into our strategy built into our culture. Continuing restaurants also had to pivot they had to provide curbside offerings and home delivery offerings, including some cook at home packages, they had to get really creative on how are they going to deliver their meals and be able to offer those to the same customers restaurants took it hard this year, especially the ones that were owned by families, a chain restaurants were able to pool resources and push resources around and be able to survive a little bit better. But those restaurant owners had to get creative and a lot of them have closed and will probably never get them back. We also saw farmers who saw their demand from these restaurants plummet, so they also had to work and pivot and some of them work to supply homes directly with fresh ingredients. They bypass the whole sort of different types of suppliers and service providers and just went ahead and created their own way of supplying homes directly. And I thought that was a great idea.

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Companies also started to offer products that supported at home work like cleaning and self care supplies. And also we saw surge and homeschool products because of all the kids that were staying home from school because they were closed. So there was a whole different range of products and services to support parents teaching their kids at home, there was also a big move to do training via zoom or other meeting providers and course platforms. We saw gyms and Fitness Trainers offering classes, we saw dance instructors also doing their classes over zoom cooking professionals offering classes, also virtual tours became popular. So these are just a number of examples that we witnessed in 2020. There are many more and there's lots out there that you conduct your research on how businesses pivoted and then redid their revenue lines in order to bring in the resources to continue operations. There's a lot out there, I would dig in and do the research and find more examples along the lines of the industry that you are in and the type of services and products that you provide. Now businesses had to think differently in 2020. In many cases, businesses just couldn't turn around based on local conditions. Now for a win today, I want to ask you, how can you best support a strategy to pivot the business when facing a crisis? Now I'm asking a lot of our finance and accounting professionals because you're already busy. There's already a lot going on. But I'm just asking you to start in your planning and you're thinking how to continue to best pivot the business. And this is also going to take decision makers to consider everything that I said today. But as finance and accounting professionals, we can set up our companies for success. And these suggestions, think plan model for the long term, embrace change, think differently, couraging you to think differently, to think about all the possibilities that are out there to help your company survive and grow. Even in crazy times, even in tough times. Even when we are facing challenges we have never faced before. I have a free guide for you. It's called the leadership growth blueprint for finance and accounting managers. In the guide I talked about three leadership areas communication, team growth, and empowerment.

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Plus a few recommendations around challenges with the systems you are probably using to complete your work. The link to the guide is in the episode description. Or you can go to Stephen McLain calm. Please use it to help you with a few leadership wins today. Thank you. This episode is sponsored by my new online course offering through finance leader Academy.

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It's called Advanced your finance and accounting career developing a promotion strategy that will set you apart Are you having difficulty getting recognition from your leadership despite all the hard work you pour into your job and your organization. This course helps you analyze what you bring to the organization how you can set yourself apart from your peers to high visibility work and developing your leadership skills plus how you can devise a strategy to move ahead, you can go to Stephen mclain.com. For more details. Today I talked about how we can help the business achieve a longer term ability to be profitable and sustainable. And I talked about three areas. Number one, we can never be complacent with our business model. Number two, we must model long term crisis situations for profitability and sustainability. And number three, we must change our approach to retained earnings so we can survive into the long term. Next week. I'm going to be talking about turning around a failing organization. And yes, it's gonna take leadership leadership from you. I hope you enjoyed the finance leader podcast I am dedicated to helping you grow your leadership. I hope you enjoyed the show. You can get this episode Wherever you find podcasts, until next time, you can check out more resources at Stephen McLain calm and sign up for my updates so you don't miss an episode of the show. And now go lead your team and I'll see you next time. Thank you.

032: Building Long-Term Sustainable Businesses

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