“The role of a leader is to “define reality and give hope.” This is a principle that has defined the career and reputation of our partner, Ken Chenault, as he led American Express, and it’s one that has helped our partnership successfully guide our founders through the last several downturns.
It can be very difficult to define reality when faced with a situation that you can’t control, and we are conscious of this collective and very human reality with COVID-19. The world has changed in a short number of weeks. However, we are confident that our economy will rebound, and we must give our portfolio leaders the hope that by taking actions today, they will manage through this new reality and emerge from this crisis in a stronger position.
As investors and board members, it is our role and privilege to engage in active, responsible governance to ensure the companies we back withstand the test of time. COVID-19 in many ways has the potential to be more devastating than previous crises as the global impact on people, society and business — as well as the response — are more pronounced. This crisis is a global threat, disrupting both the supply and demand side across the public and private markets, and therefore, the entire economy. No businesses are immune from the impact of COVID-19.
To that end, we are advising the leaders of our companies to acknowledge and be adaptable to the unprecedented times we find ourselves in. We must all reset our expectations and rethink how we operate, during what we anticipate will be a prolonged disruption with a full recovery likely to take up to two years or more.
We are counseling portfolio leaders to focus on what they can control to navigate through the current environment, keeping the following priorities top of mind:
- Place the health and well-being of your employees and your customers first.
- Communicate often and effectively with your team and your customers; learn how to maintain the rigor and intensity of your culture and embrace collaboration in a remote work environment.
- Have a clear understanding of the current supply and demand disruptions and how they will impact your business.
- Develop a new operating model and a plan that acknowledges these disruptions, but is still focused on moderate to long-term growth.
- Be planful and thoughtful about your capitalization and valuation models.
- Be transparent, be fair, and be pragmatic. As customers, vendors, and business leaders, understand that we are operating in a different world now and be thoughtful about how these changes impact your business and those you do business with. Don’t get caught in deals that don’t make sense going forward.
- Try to keep your companies capitalized for the next two years knowing that it likely will take that long for markets to correct, and valuations will reflect the uncertainty of the markets in the meantime.
- Keep in mind that you likely will need to raise more capital at some point, and the expectations you set today should be based on reasonable assumptions that take into account the uncertain environment. Anything short of prudent is a disservice to your business.
Similar to the proactive, relationship-driven approach that we took during the financial crisis, each of us is in close communication with our CEOs to listen, empathize, check in, and encourage them to think broadly while helping them prepare for all scenarios. At the end of the day, we are managing and building our companies to not only survive COVID-19 and its impact, but to prosper and endure for the long-term.
As investors, board members, and leaders of the private sector, we understand that the implications of the decisions and actions we take now will have a lasting impression on our portfolio companies, our firm, the economy, and society for quite some time. We also know that no matter how prolonged this disruption may be, with principles, fundamentals, and values guiding us to work together, we will not only navigate through this existential crisis, we will emerge stronger together.
— Ken Chenault, Hemant Taneja & Team GC