MORRISVILLE – What should businesses be doing right now to deal with the growing economic and health impact of the coronavirus pandemic? A veteran Triangle exec who also is a very active investors has timely advice based on his own experiences.
“I’ve been through three of these economic crises so far and I’ve never regretted moving quickly and always regretted waiting,” Scot Wingo tells WRAL TechWire in an exclusive Q&A.
“[To] be the best leader possible in times of crisis you need to be as transparent and over-communicate.”
What gives Wingo, the CEO of fast-growing Triangle-based vehicle maintenace startup Get Spiffy in which he also is an investor the “cred” to advise others when it comes to managing in a crisis?
Wingo made headlines in 2008 when he was among the first CEOs to make layoffs as the financial crisis at the time triggered a recession in 2009. Wingo put ecommerce services provider ChannelAdvisor ahead of the curve and had plans in place as thousands of other companies later cut jobs, pay and benefits or, in a lot of cases, went out of business. Wingo went on to take ChannelAdvisor public in 2013 before leaving the firm to focus on investing and then becoming CEO of Get Spiffy, one of his investments.
But Wingo also acknowledges he isn’t clairvoyant when it comes to the current crisis. Here’s what he is thinking – and recommending.
- You took ChannelAdvisor through the 2008-2009 financial crisis and economic downturn. How does the coronavirus at this point differ from what you saw a decade ago?
Good question and it actually helps illustrate the challenge with a crises. Hindsight is 20/20, but when the crisis is coming at you, you have no idea how long it will last, the depth, or the ‘shape/timing’ of the recovery.
So the specific answer to the question is that I don’t really know.
Based on what we know so far, this crisis is happening orders of magnitude faster than the Great Recession of 08. But the good news is this economy (unlike 2008) came into this crisis really humming, so that should help the recovery.
This is a good time to introduce a framework that can help for crisis management. In economics, there’s the concept of sunk cost. It’s a normal emotional response to think about all the costs and effort put into something -let’s say a project or product. Therefore when evaluating say the project or product vs. others, we frequently include the previous expense/investment in that analysis. When you are facing a crises, that model has to go out the window or you won’t make the hard choices to make it through the crisis.
A mental exercise that I use to capture the idea of sunk costs: Imagine you were hired today by your company to run it. The timeline starts today – you don’t know anything about the past and every decision must be forward-looking only without any consideration for the past.
- You made the tough call to cut workers before the 2009 recession really hit. Why did you do that and in retrospect was that the right call?
In venture-back startups, we spend a good bit of time thinking about the runway of the business – essentially the capital on hand divided by the monthly burn or investment being made in the business. The challenge is, that if you look backwards, that will give you a false sense of security.
Therefore you must look forward, but how can you do that when you don’t know the revenue impact. In the 2008 example, we knew we needed to last at least a year, and we ran models that assumed 20-40% in revenue reduction. Our best guess was 30%, but it ended up being more, so we had to make two expense adjustments.
This crisis is happening so fast as it relates to the coronavirus spreading, but from an economic side, while the stock market is gyrating, but we don’t have a good idea on consumer confidence or GDP which are the best indicators.
The silver-lining is the government (specifically the Federal Reserve) is reacting much much faster in this crisis than 2008, so perhaps a big hit to the economy can be avoided.
- Do you see a recession coming due to the virus or does that depend on how long the crisis lasts?
In 2008, we had a real estate debt bubble burst that created a big pile of toxic assets in the form of bad house loans. This impacted the financial system causing banks to start failing. At the time of this writing, the coronavirus is hitting the travel, events and restaurant industries hardest.
Based on the 2008 crisis, banks how have to be much more ‘shock proof’ and should be able to help absorb this. Plus as mentioned the Fed and govt are moving much faster vs. 2008 where they reacted only after the failure of Bear Stearns and the rest of the financial industry on the brink of complete melt down to take action.