Letter to a Young Operator on Managing During a Crisis

Description

Over recent years an increasing number of MBAs have decided to follow the search fund route as knowledge around the subject has been disseminated in business schools. At the same time, new investors have accessed the asset class, attracted by high historical returns. The success of the asset class is a function of combining young, ambitious talent with great companies and experienced, yet collaborative, investors. From a risk point of view, the "secret sauce" exists in limiting risk by acquiring "good companies" (high recurring revenue, growing revenue, growing EBITDA, growing profit, high EBITDA-margin?) in "safe industries" (growing above GDP, non or low cyclicality, fragmented?). The risk is concentrated in an inexperienced operator leading a business. This inexperience disappears over time and with it the risk. When a crisis interrupts the natural process, inexperienced operators need to focus on which emergencies to address first. This note provides guidance on essential factors that need addressing, as well as how to approach them. As investors, board members and mentors of search-fund operated businesses, we asked ourselves: What advice could we offer a young operator facing a pandemic-infused global recession and liquidity shock? Reflecting on personal experiences of previous crises, especially the 1998 Russian default and the 2008 subprime crisis, this note provides 8 concrete areas of focus. 1. Exude positive energy 2. Focus on your business 3. Put people first 4. Increase communication 5. Ask your board for help 6. Pay attention to liquidity, capital structure and long-term solvency 7. Secure critical supply chains 8. Deploy your crisis strategy

Learning Objective

This notes goes well with any case that discusses management and leadership issues during a recession, especially for SMEs or search fund-led companies.

Keywords

Crisis management managing SMEs leadership in crisis