We All Crave A Sense of Normalcy

May 26th, 2020

For the last several years, a sign that spring was coming was a return of a duck couple to our backyard.  Mr. and Mrs. Duck, as we creatively named them, have been regular visitors to the Gale backyard for years.  My wife waxes poetically at how chivalrous Mr. Duck is, always looking out for Mrs. Duck.  We look forward to them returning every year.  They arrived a little late but came back again this year.

The ducks apparently forgot my wife loves all animals.  When my mother passed away two and a half years ago, my wife decided we should take her two golden retrievers.  Our dog and I probably should be in counseling but that’s a subject for another day. 

For those of you unfamiliar with golden retrievers, a few facts:

  1. They shed a lot.  I mean A LOT.  Vacuums (plural) run nonstop in our house and still can’t keep up. 
  2. They are bird dogs. 

For the last two years, the goldens (and to some extent, our dog, a lab/beagle mix) have been fascinated by the ducks.  We regularly scanned the yard to make sure the ducks (and other animals) were not around before letting the dogs out.  The dogs are all around ten years old (I say we run a dog geriatric center but again, topic for another day.) and don’t move like they used to.  One of the goldens, Tucker, is still in great shape and has bursts of energy.

Two weeks ago, the ducks were frolicking in our yard.  The dogs had to go out.  My wife and I both checked and it looked like the ducks flew away.  I let the dogs out.  (Yes, this incident is completely my fault.)  Within seconds, I heard my wife screaming.  Tucker got the male duck.  I ran out there and got Tuck away from the duck.  He just laid there.  I bent down to get a closer look and the duck hissed at me, a good sign.  After a few minutes, he got up, noticeably limping, but he was able to move.  He hobbled over to a bush for cover.  My wife held a vigil looking outside all night to make sure another animal did not attack Mr. Duck.

The next morning, he hobbled away.  Mrs. Duck returned, but no Mr. Duck.  We feared for the worst.  Three days later, they both appeared.  Mr. Duck still hobbles, but he can fly.  Normalcy has returned, except for maybe Tucker.  He doesn’t understand why he got yelled at for getting a duck.

Imagine the fun a juvenile father and a fourteen-year-old boy can have with, “The Tuck got a duck.”  Even my wife now laughs at our song, though she tries to hide it.  Until Mr. Duck returned, she didn’t find us very funny. 

We’ve been hearing about a “new normal” since the financial crisis and even more now.  Yes, there’s a new normal.  But anything you can do to give your family, colleagues, employees, and customers a sense of their old normal will be appreciated.  We all crave connectivity.  We all crave normalcy.  I hope the ducks return to your life. 

When Does Economic Growth Return?

May 18th, 2020

Every talking head, every politician, and virtually every citizen in the United States has the same question:  when will economic growth return?  Prior to the coronavirus shutdown, the US economy was doing well. Unemployment was at a record low.  Capital was available.  Then came the shutdowns. 

As states begin to “open up” their economies, we are treated to alphabet soup of what the recovery will look like.  “V” represents a sharp bounce back.  “U” a gradual recovery.  “L” represents a long time at depressed economic levels.  These descriptions make for good soundbites but they really don’t get to the underlying issue:  under what conditions does the economy start to grow again?

For growth to return, we need to let businesses focus on value-add activities.  I submit businesses, even those that never shutdown, are in survival, or at best, wait and see, mode.  When businesses worry about complying with unclear health and safety regulations, they are not adding value.  I talked with a friend of mine who also owns a business, “I spent a half hour today talking about whether or not we’d provide coffee in the office when office workers return.”  He laughed, only to text me a few days later, “I had the $&#&*#@ coffee pot conversation today.”  Another business owner friend texted, “I’m playing psychologist, health and safety advocate, purchasing agent of hard to find items, and FDA expert.  All in the same hour.”  Nowhere in there was anything about working with customers or thinking about the future.  

When do businesses get to focus on value-add activities?  When the fear level of the general public drops.  Right now, our political leaders have indicated the fear can only drop if there is a vaccine, more testing,  or better treatment for covid-19.  That could be a long way off.

The esteemed governor of Illinois is only allowing 2 people on a boat, even if you’re in the same family.  You can live together but “you are putting your family at risk” (his words) if you go out on a boat together.  I wish I were making this up.  https://chicago.cbslocal.com/2020/05/04/boat-owners-say-social-distancing-rules-under-revised-stay-at-home-order-dont-make-sense/

The US has always had tension between the value of individual freedoms and the collective good.  We have prospered more than any society in history because people have used their individual freedoms to improve the collective good.  Right now, the political narrative is we must sacrifice our individual freedoms for the collective good.  Unless our leaders change the narrative, we’re in for a painfully slow economy for the foreseeable future. 

Big Companies are Starting to Flex Their Muscles

May 11th, 2020

In the spirit of “Never let a good crisis go to waste,” many large companies are starting to demand concessions from their suppliers.  We, like many manufacturers, have received numerous requests for extended payment terms and discounts.  Generally, those requests come from big, well-known companies trying to use their power to improve their own financial situation.  If they bankrupt a few suppliers, so be it.  They’ll find someone else.  There’s a sucker born every minute.  In times like this, people often forget that there is no sale until you get paid.

One of my favorite lines came from a well-known public company.  In their letter, they said, with presumably a straight face, “Due to the inefficiencies caused by our staff working from home, we are immediately extending our payment terms to 120 days.”  Really?  We’re a little company and we figured out how to pay our bills.  This company has almost $40 BILLION in revenue and can’t figure out how to do ACH payments from a home computer.  Of course, their website lists values of communities and integrity.  I beg to differ.

Another large company sent a letter that included the excerpt below to their “supplier partners”:

As a result of extensive analysis internally and the unprecedented economic conditions, we are having to move forward starting May 18th with:

  1. Increasing our payment terms to NET 90 days, if you are not already at those terms.
  2. Apply a 10% below the line (bottom of invoice) discount to all goods and services ordered from your company. This discount would be in addition to any standard unit price discounts you may be currently extending to us.

Ridiculous demands like this are how the economic system falls apart.  For our economic system to work, trust has to be prevalent.  If I do not trust that you will pay me, I will not sell to you.  If you do not trust that I will deliver a good or service to you, you will not buy from me.  It sounds pretty simple but trust is the bedrock of our economy. 

There is a time and a place for the capitalist golden rule to be invoked. (He who has the gold makes the rules.)  Given the current economic challenges, trying to squeeze suppliers to effectively force them to become your bank or improve your margins is reprehensible behavior.  If you can’t make money buying from me and I can’t make money selling to you, it is best that we don’t do business together.

Let the Blame Games Begin

May 4th, 2020

Below are excerpts from and links to recent articles regarding coronavirus.  As the economy opens up, we will hear more and more politicians, business leaders, and talking heads try to assign blame for the spread of coronavirus and the reactions government officials took.  Humans like stories that have a good guy and a bad guy.  Unfortunately, the coronavirus story is complex.  Is China to blame?  Sure.  Should hospitals, particularly in densely populated areas, have equipment on hand?  Of course.  Should our political leaders have taken different actions?  Absolutely.  It is easy to look back at a situation with hindsight and criticize decisions.  It is much harder to offer constructive solutions that prevent problems in the future.

Leaders have a responsibility to think about lessons learned from this crisis.  I have now had the opportunity to learn from 2 crises in the last few years.   Here are a few lessons that I have taken. 

  1. Debt is great.  Until it isn’t.  I saw a great quote a few weeks ago.  “Asset values are contingent.  Debt is forever.”  (That might not be true if you can print money but that’s an argument for a different day.  Live within your means.  Capitalize your business within your means.
  2. Flexibility is valuable.  We have always let office personnel work from home.  Our IT department was able to ramp up allowing everyone to work from home relatively easily.  They did a great job partly because they had experience doing it. 
  3. Your employees’ risks are your risks.  What are you doing to help them?
  4. Your customers’ risks are your risks.  You better understand them.  You better help solve them.
  5. Your suppliers’ risks are your risks.  You better understand them.  You should work with them to mitigate those risks. 
  6. Every minute invested in developing relationships with your employees, your financial partners, your suppliers, your customers, is worth its weight in gold. 

I recently subscribed to a newsletter, The Daily Dirtnap.  I highly recommend it.  Jared Dillian, the author, brings a unique perspective to investing and human psychology.  He recently wrote, “(It’s) Too much fun complaining about stuff.  Solving problems is much harder.”  That sums up the world we currently live in.  Instead of casting blame, our leaders should be solving problems. 

Select excerpts and article links

At his daily briefing, Cuomo faulted a raft of other forces, including the World Health Organization, various federal agencies and the news media, for not doing their part to caution the world of the pandemic threat.

Specifically, Cuomo targeted the National Institutes of Health and the Centers for Disease Control and Prevention — “the NIH, the CDC, that whole alphabet soup of agencies,” he called them — and the nation’s intelligence community for not issuing more urgent advisories late last year, before health officials in China had even publicly identified the virus.

https://www.yahoo.com/news/governors-dont-global-pandemics-cuomo-120741785.html

A Wall Street Journal examination found:

—The hospital industry, in a bid to increase profit, slashed inventory of all supplies. Rather than bulk up after the swine flu, hospitals turned to inventory-tracking software to winnow stocks of protective gear and other supplies, hoping to be able to replenish it as needed.

—Manufacturers got bitten during the swine flu, ramping up production only to be left with few buyers when that crisis abated. Many mask and other device makers rebuffed later calls to build back emergency capacity, ceding a chunk of the market to overseas makers.

—The U.S. government focused more on preparing for terrorism than for a pandemic. Despite the severe 2009 flu, the government lacked a permanent budget to buy protective medical gear for its Strategic National Stockpile of supplies for health emergencies.

—The Trump administration further weakened the safety net as it rejiggered the Health and Human Services Department’s main emergency-preparedness agency, prioritized other threats over pandemics, cut out groups such as one that focused on protective gear and removed a small planned budget to buy respirators for the national stockpile, according to former officials.https://www.wsj.com/articles/miscalculation-at-every-level-left-u-s-unequipped-to-fight-coronavirus-11588170921?mod=hp_lead_pos5

Will Businesses Accept Lower Margins? Will Consumers Accept Higher Prices?

April 27th, 2020

The debates are raging about how to open up the economy.  The next few weeks and months will certainly be interesting as states take different approaches to bringing businesses back online. 

One thing that is clear is physical distancing will remain in place at least until there is a therapeutic treatment or vaccine that is widely available.  For many consumer facing businesses, physical distancing is going to pose incredible challenges not only logistically but economically.  Think about a restaurant that has a maximum capacity of 100 people.  Can it make money if that maximum capacity is 50 people for the foreseeable future?  Does it accept lower margins associated with lower occupancy?  Do consumers accept limited service or limited menus?  Do consumers accept higher prices as a result of restaurants trying to spread fixed costs over a smaller number of patrons?

During this shutdown, many restaurants have offered free delivery.  Nothing is free; restaurants are subsidizing delivery fees in order to keep some revenue coming in while their physical locations are closed.  In other words, they have accepted lower margins during the crisis.  Only time will tell if that will continue.  Will consumers pay a fee if restaurants decide not to subsidize delivery?

From a macroeconomic perspective, the US has been a consumer driven economy since World War II.  The US consumer has been the engine for world economic growth for the last 85 years.  God help the world economy if the US consumer does not return to profligate spending soon. 

Squirrels Need to Eat Too!

April 20th, 2020

When I was a kid, my grandmother loved “feeding the birds” as she referred to it.  My grandfather had built a huge platform with a large birdhouse.  My sweet grandmother actually cooked for the birds.  She would fry bread in butter and add birdseed and peanut butter to her special concoction.  The fattest birds in Ohio lived in my grandparents’ yard.

Squirrels were my grandmother’s sworn enemy.  She never said a bad word about anyone or anything except squirrels.  My grandfather actually bought a pellet gun to take potshots at the squirrels.  Because he was only supposed to scare the squirrels and not hurt them, the gun had absolutely no power.  It is now part of family lore that we could see pellet arc as he shot at the squirrels.  To my knowledge, he never got one.  For a young boy, there was nothing better than my grandfather saying, “You can shoot but don’t tell anyone I let you, especially your grandmother or your mother.”  He would wink and hand the gun over.  It was our little secret.  He did that with all of his grandchildren.

Flash forward over thirty years.  (It pained me to write that.)  Our son feeds the birds.  Despite the presence of large dogs, albeit a little old and slow, guess who comes to dinner?  The other day, before he put the birdseed away, a squirrel was hanging on our son’s birdfeeder.   We chased the squirrel away and I told the story of my grandfather’s pellet gun for the umpteenth time.  Of course, he asked if he could get a pellet gun and “not tell Mom.”  I told him, “I’m generally a risk taker but that’s a risk I won’t take.”  He understood and acknowledged his understanding by saying, “Oh well.  I guess squirrels need to eat too.  I’ll put more food out.”    

His simple solution and understanding made me smile.  It reminded me that in these challenging times, it is easy to overthink, over complicate, and over emphasize everything.  Simplicity is often underrated.   

Does the Rule of Law Still Matter?

April 13th, 2020

One of the not so secret reasons the United States has thrived is its adherence to the rule of law.  In layman’s terms, we are all subject to the same laws and same interpretation of those laws in our judicial system.  Regardless of your political power (or who is in power), we are all treated the same by the law.

Recently, many statements and actions by politicians and business leaders are putting the rule of law at risk.  Consider the following:

  1. Several state legislatures are proposing bills that essentially re-write insurance contracts.  Many businesses carry business interruption insurance.  Business interruption insurance pays cash when a business is unable to operate.  Most policies are specifically written to define the interruption must include physical damage.  In other words, I get paid business interruption insurance if something happens to my building and I cannot operate my business in addition to my property being replaced.  Politicians want policies to pay for business interruption due to coronavirus.  Most business interruption insurance policies specifically exclude coverage of viruses or other illnesses.
  2. Seemingly every politician has encouraged landlords to “work with tenants” on rent payments.  Leases are contractual obligations.  I understand the politicians want to be helpful to people impacted by coronavirus and it sounds like they are looking out for the little guy.  That’s all fine and dandy but our economic system relies on trust.  If I don’t trust that I am going to be paid, I won’t do business with you.  That fear will create lasting repercussions we cannot even imagine.
  3. Perhaps the most egregious danger I have seen was the CEO of an oil company in Texas asking his competitors to “reduce production to better balance supply and demand and improve pricing” ON NATIONAL TELEVISION.  A month ago, that would have been considered collusion and he would have been arrested. 

I know we are living in an unprecedented time.  I also know adhering to the rule of law got us through every other unprecedented time our forefathers faced.  I fear the long term consequences of short term thinking.  The rule of law must be protected. 

Five Surprises from Coronavirus

April 6th, 2020

Prior to peddling labels, I spent time in the investment banking and investment management worlds.  Byron Wien became a famous Wall Street strategist by issuing a list of “surprises” every year.  These predictions often went against consensus thinking and were meant to challenge the assumptions behind your investment decisions.  You can read his 2020 list here:

https://www.blackstone.com/the-firm/press-releases/article/byron-wien-and-joe-zidle-announce-ten-surprises-for-2020

Without further ado, here are my five surprises that emerge from this global pandemic.

  1. The “farm to table” concept spreads to other goods.  Local restaurants often name the farm your food comes from along with the distance the food traveled to get to the table.  High end retailers will start to do the same for clothing. 
  2. I’ve written before about having a milkman when I was a kid.  Delivery routes will return.  It costs money to deliver items.  You will put stuff on your list and it will be delivered on a specific day each week.  Someone smarter than I will figure out how to consolidate purchases from several places and deliver them together.  (Hello, my packaging distributor clients!)  You’ll pay a premium for one time deliveries. 
  3. Supply chain logistics becomes the most popular major in college.  These skills are in high demand across companies big and small.  “Just in time” becomes a curse word, replaced by “safety stock.”  Power in big companies goes from the corporate finance department to the supply chain department.
  4. Trends towards urbanization decline.  As we are starting to see, some cities and states will fare better than others.  If you are a parent of a young person, do you want him or her chasing a dream in New York City or San Francisco?  Hello, flyover country!
  5. Prime packaging loses ground to functional packaging.  Do you need a fancy label or a fancy package if a product is never going on a store shelf?  Companies will rethink branding. 

I’m a broken clock that will be right every few years:  all of this (and monetary looseness) points to higher inflation.  Some of the inflation will be offset by reduced demand that will become permanent or semi-permanent.  Office space will be reduced.  Corporate travel will be reduced.  Other changes will reduce aggregate demand.  It will be interesting to see how the demand picture shakes out and its implications on inflation and/or deflation.  As always, it will be complicated.  Some items will rise in price; others will plummet. 

Shocks change the world in ways we cannot imagine.  Take some time to use your imagination and think about the future.  Let me know what you think might happen.

Don’t Forget to Drain the Swamp!

March 30th, 2020

My father started his business when I was two or three years old.  The first time I remember” going to work” with him, I was around five or six years old.   Every business owner’s kid goes to work, either out of curiosity or to get the kid out of the house and give a spouse a break.  I remember seeing a plaque on his desk that said, “When you are up to your ass in alligators, it is easy to forget that you came to drain the swamp.”  I had just learned to read, so it was cool in my juvenile mind that I could say ass in front of my dad.  That memory makes me smile to this day.  I can still remember that plaque.  It was a vintage 1970s piece of art – loud colors on glass and an alligator with a grin on his face standing cross-legged leaning up against a pole with a swamp in the background.  If I had any artistic ability whatsoever, I could reproduce it.  Unfortunately, I have limited artistic ability and I have no idea where the plaque went. 

When I was older, my Dad told me that someone bought him that plaque when he started his business.  He kept it as a reminder to the time he hung his shingle out and prayed for someone to return his phone call.  I relayed that story to a colleague at work and she gave me the plaque that proudly sits on my desk.  It is a reminder of my father and a reminder, especially now, that I came to drain the swamp.  That swamp for me is building a long-term, sustainable, successful business. 

With the deluge of coronavirus news, yes, we have to focus on day to day challenges.  But everyone, especially leaders, needs to also look ahead.  What happens in 1 month, 3 months, next year, five years from now?  At some point, things will get back to “normal.”  Of course, every crisis has an impact on what that normal is.  Spend some time thinking about what that normal is going to look like in your industry, for your customers, for your career.  You’ll be better for it. 

Boring Businesses Matter in Times of Crisis

March 23rd, 2020

Just a few short weeks ago, all talk on every financial and business channels was about technology companies and technology stocks hitting record highs.  In January, a “master of the universe” from Wall Street, Ray Dalio, proclaimed, “Cash is trash.”  Oops.  You blew that one, Mr. Dalio.  I am a fan of your book, though. Your videos on the economy are great as well.  Can’t believe you missed the cash thing.  If you ran a business that doesn’t quite scale like a hedge fund, say a label manufacturer, you’d understand why CIMITYM is my mantra: Cashflow Is More Important Than Your Mother.  (Sorry, Mom.  God rest your soul.  Miss you, especially now.)  Most businesses do not scale with a computer terminal.  We need to buy equipment, hire people to run that equipment, train them, produce stuff, sell it, and wait for customers to pay us.  Cash matters.

Now, the CEOs of companies like Sysco Foods (food distributor) and Tyson Foods are rock stars.  They are the ones keeping everyone fed.  They were doing that prior to this crisis but no one seemed to care.  Funny how we see what really matters when things get crazy. 

To all of you in “boring businesses,” thank you.  You are keeping this country from chaos.  Maybe clout will turn from the finance guys who pushed companies to move manufacturing overseas to save money to those who create real products with real people.  That is the silver lining in the coronavirus chaos.  Making stuff and getting stuff to consumers isn’t sexy but it matters more now than ever.  Stay healthy!