As leaders, our key challenge is to make decisions, first strategically, and then operationally. For the past few months, we have been making operational decisions as a reaction to the crisis we all are forced to confront. With most of those decisions made, we now turn to our primary job of guiding organizations into the future. Peter Drucker famously said, “The best way to predict the future is to create it.” How do we create a future with so much uncertainty about it? To make strategic choices we must rely on experience drawn from history.
How do we understand a global GDP contraction in excess of 3% and double that in the U.S.? How do we evaluate the economic impact in the U.S. of a loss of more than 33 million jobs in under two months? What will the government’s combined monetary and fiscal stimulus do in these circumstances? There is nothing in history, from the Great Depression to the Spanish Flu, to guide us.
Maybe we’re looking in the wrong places. I grew up on a farm in Northern Montana. Farming there is most affected by something we can’t control at all: the weather. We couldn’t predict the weather very well and we certainly couldn’t influence it, so we used a lot of common sense and that served us pretty well. We can’t predict the path this pandemic will take, although we can influence its path better than we can the weather. If we break down some of the fundamental issues it represents to consumers and the economy into component parts, perhaps we can see enough of what the future will look like to create our future.
On a consumer level, we are dealing with two related tendencies: 1) consumers’ willingness to get back to their normal lives, and 2) their financial ability to do so. Consumer willingness in this crisis is simply a function of personal safety. We are social creatures; we want to socialize. Therefore, having some type of informed confidence that we can do so safely is key. This means testing processes that work. Until we have them in place on a widespread scale, consumer willingness will be inconsistent, higher in areas with low confirmed case concerns, and lower in areas with high confirmed case concerns. Therefore, the first indication of a sustained national recovery is a testing program that consumers have confidence in. That appears to be at least a few months from now, and most likely in the fall for many parts of the country.
However, we also have seen that consumer willingness is significantly influenced by what is happening at the local level. We are seeing and testing data modeling that, when combined with social mobility tracking, provide us with solid insights into local market willingness. Overlaying these with franchised unit location data is giving us insights that are helping franchisors and lenders make informed recovery planning decisions.
If the primary driver of a recovery is confidence that social interaction will not put individuals at health risk, not far behind is having the disposable income to return to a normal pattern of behavior. Wanting to spend money and having the money to spend are both necessary for recovery. Unemployment approaching 20% or more not only directly affects huge swaths of our economy, it scares the rest of us and will have some longer-term drag on economic growth. The clear implication is there will be no “V-shaped” bounce, regardless of how much money Congress throws at us. At best it will be a “W-shaped” recovery with fits and starts as we climb out.
However, we need to think locally and not let national economic data dictate our ability to create the future. Understanding the combination of local economic trends and COVID case trends is the key to helping you time the recovery correctly across your system – and ahead of the business crowd seeking to hire the same labor pool and attract the same customers, who may still be in deer-in-the-headlights mode after months of sheltering in place. Do this too early and franchisees will be lining up for the next PPP program. Do this too late and your competitors will be serving your customers.
Finally, we have the ability of businesses to respond to a recovery defined by erratic demand expansion. The PPP program was vital to many of our businesses. It bought us time. It also reinforced the need to have local banking relationships. That need will grow as we transition from government loan forgiveness programs to more normal SBA and conventional lending programs. In fact, it will become more important to ensure that franchisees have the capital to grow again. Lenders will put even more underwriting emphasis on evaluating how a franchise system navigated these troubled waters.
Sorting through all the data to understand when to push the recovery button is daunting because it must be done on a local level across your entire system. Fortunately, the data to do so is catching up, and we are finding ways to apply the mountain of information that’s out there to improve your ability to create that future. Now if we could only find a way to do that with the weather…
This article originally appeared on Franchising.com on July 14, 2020. You can read it here.