Last year US billionaire investor Warren Buffet came under criticism for holding on to cash instead of investing it.
At the end of last year he was seating on a $120b stock pile of cash—fourtimes the size of the Uganda economy, many times over the target he has set for his company Berkshire Hathaway of mainitaining at least $20b in cash.
The criticism came from some of his shareholders who, pointing to the stock market which was in the middle of a bull run, said he was costing them by seating in the lower returning cash.
Months later the Oracle of Omaha has been proven right yet again. With the equity markets in a tailspin and many businesses large and small in urgen need of bailout, he will be the go-to-man when the dust settles.
And this is not the first time.
Before the global financial crisis broke in 2008 he was $40b in cash and criticism of him was mounting. One magazine even dared to ask whether Buffett had lost his touch.
He bailed out investment bank Goldman Sachs, conglomerate, GE, Bank of America and several other companies with multi-billion dollar investments.
Buffett not only survived that criss but thrived.
Which was the key lesson in Nassim Taleb’s book, Antifragile. He started out by saying antifragile was not the opposite of fragile – to break easily. The distinction he said was the opposite of fragile, robust, would mean surviving in times of difficuilty but antifragile means thriving in times of difficulty.
The one thing I picked out was that to become antifragile, one has to build redundancy in their lives or endeavours, which can be called upon in time of distress. To make hay while the sun shines...
So Buffett has his Himalayas of cash, making his company Antifragile. At least more than most.
Most of us are not in that happy position. We darent even go back to business, if we have any business to go back to after this corona virus.
Not only did we not build any redundancy, but also we shall find that market behaviour has changed drastically, since our doors were last open.
For instance we might find people reluctant to spend, even the little they have. We may very well find that our clients have changed preferences for how they want to be served – home delivery as opposed to coming to your shop.
So how do we survive when the lockdown is lifted and we have to get back to our businesses. Here are a few suggestions gleaned from all over the place.
1. Get your books in order
For the more corproate companies they probably do this all the time. The Small & Medium Enterprises (SME) need to pay better attention to this. To get a snap shot of the business will help every part of the recovery process, from cutting costs, to work rationalisation, to which customers to focus on, to conversations with the tax man and your bankers.
This last group, your bankers are going to be critical to your survival in coming days.
Your banker can allow you an overdraft to meet your day to day bills only if he has good sense of the money flowing in and out of your business. Apart from the activity on your account his confidence will be improved by seeing your cashflow statements.
2. Not time for pride
Related to the above you will quickly realise pride has no place in the recovery process. You may have to invite new partners who will lend you money or better still, take an equity stake in your business. Your pledge to keep the business in the family regardless of circumstances may have to fly out the window.
But for investors to get a good sense of your business and for you to ge the best deal possible they need to be able to assess the quality of the business, besides your slick sales pitch.
The story is told of the man in our town, who lost his company because he had billions owed to the tax man that were not reflected in his books. The potential buyer after due diligence pointed this out and lowered his offer substantially, in order to take the tax arrears off the founders’ hands. The founder’s stubbornness not to sell at the much lower price cost him his business and the money the prospective owners offered him.
Pack your pride away and get on with the business of surviving. Survive first and make money later, said George Soros.
3. Cut fat, not muscle
My man Buffett says alarm bells go off when he hears a business owner or manager saying his strategy is to cut costs. Cutting costs is like breathing, you dont go around saying I am going to breath, you do it every day or you die, he said.
You have to be clear what the core of the business is, and most likely that part of the business that will keep you alive the day after. Clarity on this front will cut through the politics and sentimentality, when it comes to hacking away at the fat.
4. Blow your ...uhm? Whistle?
Why do people buy from you? Because you have a good product? Because you are good value for money? Because you are convenient?
All of the above maybe true for your business, but they will count for nothing if the market doesn’t know about you.
This is doubly important now becausein the lock down we have become wed to convenience. Why should i come to you if you cant deliver to me, Is going to be a question many will have to answer in coming days.
It need not be the end of the world because your business is not Antifragile. But you will have to hit the ground runnig to survive.
At the end of last year he was seating on a $120b stock pile of cash—fourtimes the size of the Uganda economy, many times over the target he has set for his company Berkshire Hathaway of mainitaining at least $20b in cash.
The criticism came from some of his shareholders who, pointing to the stock market which was in the middle of a bull run, said he was costing them by seating in the lower returning cash.
"The 89-year old stuck to his guns, arguing that he could not see any companies selling at a reasonable discount and not attractive enough as investments, therefore he was happy to seat tight...
Months later the Oracle of Omaha has been proven right yet again. With the equity markets in a tailspin and many businesses large and small in urgen need of bailout, he will be the go-to-man when the dust settles.
And this is not the first time.
Before the global financial crisis broke in 2008 he was $40b in cash and criticism of him was mounting. One magazine even dared to ask whether Buffett had lost his touch.
He bailed out investment bank Goldman Sachs, conglomerate, GE, Bank of America and several other companies with multi-billion dollar investments.
Buffett not only survived that criss but thrived.
Which was the key lesson in Nassim Taleb’s book, Antifragile. He started out by saying antifragile was not the opposite of fragile – to break easily. The distinction he said was the opposite of fragile, robust, would mean surviving in times of difficuilty but antifragile means thriving in times of difficulty.
The one thing I picked out was that to become antifragile, one has to build redundancy in their lives or endeavours, which can be called upon in time of distress. To make hay while the sun shines...
So Buffett has his Himalayas of cash, making his company Antifragile. At least more than most.
Most of us are not in that happy position. We darent even go back to business, if we have any business to go back to after this corona virus.
Not only did we not build any redundancy, but also we shall find that market behaviour has changed drastically, since our doors were last open.
For instance we might find people reluctant to spend, even the little they have. We may very well find that our clients have changed preferences for how they want to be served – home delivery as opposed to coming to your shop.
So how do we survive when the lockdown is lifted and we have to get back to our businesses. Here are a few suggestions gleaned from all over the place.
1. Get your books in order
For the more corproate companies they probably do this all the time. The Small & Medium Enterprises (SME) need to pay better attention to this. To get a snap shot of the business will help every part of the recovery process, from cutting costs, to work rationalisation, to which customers to focus on, to conversations with the tax man and your bankers.
This last group, your bankers are going to be critical to your survival in coming days.
Your banker can allow you an overdraft to meet your day to day bills only if he has good sense of the money flowing in and out of your business. Apart from the activity on your account his confidence will be improved by seeing your cashflow statements.
Banks lend with ease to those who don’t need the money – show strong cashflows, rarely to those who do...
2. Not time for pride
Related to the above you will quickly realise pride has no place in the recovery process. You may have to invite new partners who will lend you money or better still, take an equity stake in your business. Your pledge to keep the business in the family regardless of circumstances may have to fly out the window.
But for investors to get a good sense of your business and for you to ge the best deal possible they need to be able to assess the quality of the business, besides your slick sales pitch.
"Poor record keeping may mean you dont get money at all or worse still, you get less than your business is actually worth...
The story is told of the man in our town, who lost his company because he had billions owed to the tax man that were not reflected in his books. The potential buyer after due diligence pointed this out and lowered his offer substantially, in order to take the tax arrears off the founders’ hands. The founder’s stubbornness not to sell at the much lower price cost him his business and the money the prospective owners offered him.
Pack your pride away and get on with the business of surviving. Survive first and make money later, said George Soros.
3. Cut fat, not muscle
My man Buffett says alarm bells go off when he hears a business owner or manager saying his strategy is to cut costs. Cutting costs is like breathing, you dont go around saying I am going to breath, you do it every day or you die, he said.
The robustness of one’s cost managment is tested during such times. The challenge is that if one hasn’t been disciplined in good times, when the bad times come, in the panic to cut costs more often than not, even the core of the business, the muscle, is affected....
You have to be clear what the core of the business is, and most likely that part of the business that will keep you alive the day after. Clarity on this front will cut through the politics and sentimentality, when it comes to hacking away at the fat.
4. Blow your ...uhm? Whistle?
Why do people buy from you? Because you have a good product? Because you are good value for money? Because you are convenient?
All of the above maybe true for your business, but they will count for nothing if the market doesn’t know about you.
Get in touch with your clients and inform them you are back in business, reach out to new clients to tell them about yourself.
"Now more than ever communicating about your business to existing and potential clients is going to be critical...
This is doubly important now becausein the lock down we have become wed to convenience. Why should i come to you if you cant deliver to me, Is going to be a question many will have to answer in coming days.
It need not be the end of the world because your business is not Antifragile. But you will have to hit the ground runnig to survive.
