Pain, misery, and uncertainty. From where I sit, that is what I see in the small business landscape. As my kids might put it, Worst. Time. Everrrrrr. At least for mine and subsequent generations, we have neither seen nor experienced anything like it. In a stark and grandiose way, I also think it is the best time ever. Worst of times, best of times. I will let you decide.
Worst of Times
Earlier this week, I read Kevin O’Leary opine that 20% of small businesses who received PPP loans will fail. Ever the optimist, O’Leary simultaneously acknowledged the math: that means that 80% of recipients will survive, primarily through rationalizing their distribution systems to conform to the new reality of our economy. He deemed it a good investment, and I agree, but the thread also understates the problem…. ”of the small businesses who received PPP loans”. We know that there are thousands of small businesses who did not qualify, who got in the game too late, or even if they qualified had concern over meeting forgiveness requirements and were daunted by a full two year amortization of the debt, even with the very attractive interest rate. I worry every day about the widespread financial ruin that will result from this pandemic, not to mention the psychic harm of busted dreams.
Best of Times
On the other hand, what we have observed and experienced has been unthinkable, if not miraculous. A few months ago, I blogged about a peak capacity issue I experienced on Christmas Eve. My favorite Szechuan restaurant was bombarded with takeout orders that evening and faced a diner mutiny. I marveled at how a proprietor could be so unprepared for the obvious. Seasonal businesses have many different ways of smoothing out spikes with pre-orders and flex capacity. It appeared that none were in play that evening.
PPP was of an entirely different order of magnitude. In fourteen days, the SBA received fourteen years’ worth of applications. Stop and think about that. 200 business days in a year, times fourteen years, that’s 2,800 days by my crude calculations. Retailers will tell you that they do 50-60% of their revenues in two months. If each month represented 8.3% of sales in a perfectly “even” fiscal year, then they would be gearing up for 3-4x typical volumes in those months. So, with respect to PPP, if 14 = 2,800, that’s 200X. I used to hear an expression around the bank when capacity needs were elevated, “you can’t build the church for Easter Sunday”. Extend the analogy to PPP and you could offer services every hour on the hour for the 24 hours of Easter Sunday and still leave 88% of wannabe worshippers in the parking lot. PPP was truly amazing in that respect, and for me the “best of times” because for most banks it meant that virtually every person in the bank was committed to helping small business owners, nights and weekends, for two solid weeks.
Love Fest
Small business owners have never felt such love from their banks. It is not how it usually works. Most small businesses are served through a branch distribution system with multiple priorities: consumer banking, operational efficiency, fraud prevention, regulatory compliance, community involvement AND small business. Shareholders are desirous of low efficiency ratios, so clients experience a slant toward automation of transactional needs, not consultation and understanding. Broadly speaking, the channel underserves the small business client. With no clear, enduring personal connection to the bank, small business owners have increasingly migrated to credit card companies and online Fintech lenders for funding with rates and terms that are often punishing. Ironically, the banking distributors who pay the most attention to small business clients – community banks – had the most difficulty accessing the SBA system for PPP.
For a fortnight though, small business owners received outbound calls from banks, educating them on PPP – the process, qualifying criteria, information required. Bankers asked intimate questions like, “how many employees do you have?” “what was your payroll for the past couple of months?” Thousands and thousands of outbound calls. To avoid being sexist but at the risk of being shallow, I offer analogies to two Disney movies: Beauty and the Beast or Cinderella. Didn’t you love that moment when the Beast and Cinderella looked in the mirror and realized they were lovable and quite beautiful? Times thousands and thousands of business owners across America. That to me was the best of times.
Hopes For The Future
I just hope that the bankers loved it as much as the clients – the knowledge that they made a difference in someone’s life by trying to understand them and meet their most pressing needs. I hope it is enduring to the point of being addictive. What we have learned is that the time and attention is possible if we care enough. At that point, it is simply a matter of how we understand priorities and needs in the most efficient, effective way possible and act upon them.
I love what Nick Miller at Clarity Advantage does for banks in understanding small business clients. His programs build confident guides and confidants out of frazzled, distracted bankers. I know of no more powerful human dynamic than being understood. If the banking system delivered that experience more consistently, I know that small businesses would be much better positioned to weather storms like COVID-19, and lesser storms as well.
Despite the worst of times, I am riding high, thinking of the potential after observing what is possible with appropriate executive focus and mandates. But I kind of feel like I have just re-watched The Breakfast Club…. unlikely soulmates thrust together (except for Ally Sheedy – who takes detention just for the heck of it?) for a brief, intense time, gaining a deep understanding of each other, then walking off. We just don’t know who will live up to their promises, if the love was real, self-serving, or just convenient. Don’t you….forget about me!
