For many businesses, 2020 was the year of the pivot. According to the Chicago Booth Review, Twitter mentions of the word “pivot” surged in March and April last year, by as much as 600+%. Last year, more than a quarter of U.S. businesses reported being affected by the pandemic, with nearly 70% saying the pandemic had a moderate to large negative effect. As of May 12 of this year, Harvard-based Opportunity Insights found that that the number of open small businesses decreased by just over a third compared to January of 2020.
Q1 2021 hedge fund letters, conferences and more
But while many businesses -- particularly restaurants -- were forced to close as COVID-19 ravaged the U.S., others were nimble enough to change on the spot, adopting business models that could carry them through the short term while giving them time to revisit their longer-term plans. In my home state of Michigan, more than 130 companies of all sizes received recognition from MichBusiness at the end of last year for how they stayed resilient, using best practices such as collaboration, accountability and innovation to maintain their success.
In my practice, we were lucky to have adopted video conferencing technology well before COVID-19 made it a lifeline, but until the pandemic, we had mainly used it to connect with our employees who work remotely. That experience prepared us well for the day that all our employees suddenly became remote. It also enabled us to transition quickly to conducting client meetings virtually and helping our clients become comfortable with the technology.
Lessons Learned
Now that the pandemic is slowing in the U.S. and the economy is showing signs of recovery, it’s likely fewer businesses will need to pivot the way many did in 2020, but some may still need a way to improve profitability long-term, invite opportunities for growth, and innovate to stay competitive. Tactics to support these initiatives need to be bolstered by strategic decision-making, according to Peter Boolkah of the Forbes Council, because the repercussions can be lasting. “Instead of acting impulsively and throwing the baby out with the bathwater, focus on fixing the problems that are holding your business back,” he says.
Daniel Isenberg and Alessandro Di Fiore found that approach successful with startups that decided to make only minor changes during the pandemic, even though some were in the hard-hit hospitality, travel, and furniture industries. Their advice to entrepreneurs: “Slow down, reaffirm your thesis, trim around the edges, watch the data, and test for weakness -- and if you do have to pivot, do it explosively.”
How an Interpretive Financial Adviser Can Help You Pivot
In previous articles, I’ve explained that there can be three types of financial advisers: paternalistic, informative, and interpretive. Paternalistic financial advisers tell you their strategies and insist you follow them. Informative advisers provide you with options but fail to help you fully understand the strategies they implement. Interpretive advisers help you sift through all the noise, explaining your options and collaborating with you to make a decision that’s in your best interests.
Interpretive financial advisers who work with business owners can be particularly helpful ¬¬— not only when a crisis hits, but also as you strategize the long-term future of your business. Let’s take 2020 as an example. When the CARES Act became law last March, creating the Paycheck Protection Program, our firm went to work analyzing the changes in the law and proactively reaching out to our business clients to help them determine their short-term funding needs during the pandemic. In crisis situations like this, an interpretive adviser can add value by helping you understand how to project your cash flow and expenses, determine options for conserving capital, help you understand potential options for additional funding, and what the tax implications may be for your business and you personally. He or she can also serve as a sounding board and an accountability partner, helping you determine whether a full pivot is necessary, or whether a temporary fix can solve your short-term problem.
Now, what if your business has been humming along steadily, but not growing at the level you had hoped? Or you’ve been approached by a potential buyer who wants to acquire your company? Believe it or not, an interpretive adviser can help in these situations, too, by helping you examine the business in the context of your financial and life goals, or by helping conduct due diligence to determine whether a merger or acquisition is appropriate, given your goals, life stage, and financial picture. An interpretive adviser will consider the tax consequences of your decision, as well as how it might affect the retirement plans of you and your employees.
Teamwork Makes Your Dream Work
An adviser who can go beyond investment consulting has to have a very different mindset from the average financial adviser. The shift is very like what author Atul Gawande describes in The Checklist Manifesto. It’s a move from a master-builder mindset to a collaborative one. In premodern times, massive structures, such as the great cathedrals of Europe, were built at the instruction of a master builder, a person who held all the necessary knowledge in his head. Today, when a skyscraper is built, there’s no master builder. Instead, it’s an integrated team of architects, engineers, and others who work together in constant communication.
The financial services industry is on the cusp of a similar shift, which means entrepreneurs should prepare to abandon the idea that they can find one perfect adviser -- with all the knowledge in his or her head -- and instead adopt a collaborative mindset. Interpretive advisers can connect you to subject-matter experts with experience relevant to your situation, either through their business contacts or within their own organizations. They can also work collaboratively with the members of your internal team. A well-designed, intentional team structure, including your adviser, can help support the weight and complexity of today’s business environment and ensure that both your short-term and long-term plans -- whether that includes a pivot or not -- serve you well.
