Financial Disaster Planning

Financial Disaster Planning
December 16, 2020 admin
In Executives, Leadership, Management
Planning for business financial disasters and downturns

Robert Barker, a tech veteran CFO, joins Ray Zinn to discuss disaster planning for CFOs and the tech industry in general.

Ray Zinn: Hello everyone. This is Ray Zinn. I am the host for this Tough Things First podcast. I’m Silicon Valley’s longest serving CEO and the author of the best-selling book, Tough Things First, as well as my most recent book, Zen of Zinn. I’m delighted to have as my guest today, Robert Barker, who is a good friend of mine and has been my CFO when I went public with the company back in 1994. Robert actually started a year earlier, but was instrumental in taking our company public on NASDAQ. He’s been a CFO at other companies and he was with me for a number of years. Not sure how long Robert was … How long were you with Micrel?

Robert Barker: Ray, Thanks a lot for the introduction. I was with you for 16 years.

Ray Zinn: Okay. So 16 years and we had a great time. Robert is just one of those cheerleader types at the company. He was one of our most outspoken advocates for the company and had a very successful IPO. And thanks to Robert in getting us ready for that undertaking, as you would. So I’ve asked Robert to join me today, not only because we’re friends and he’s been my CFO and he’s a very good one too, by the way, Chief Financial Officer. And the reason I asked him to join me because Robert has some questions he wants to ask and discuss on this podcast. So I’m going to turn the floor over to you, Robert, to ask the questions and then we’ll discuss them. Okay, go ahead.

Robert Barker: Okay. Yeah. A guy and I were discussing how much disaster should a CFO plan for? And as I reflected back on this over the time we were together, I thought about the disasters that we had. There’s certain things that you can plan for, but most disasters come just like the COVID-19. It’s almost impossible to plan for these. But what you have to do to be successful is to quickly identify the problem and then react. And that’s what we were very, very good at, at Micrel. So I picked three disasters, and I will define them as pandemic-like, because in this pandemic we’ve had a 30% reduction in unemployment and in business and everybody is reacting. So I thought, well, were there things that we had at Micrel that were like that? And there were.

Let’s talk about the first one. Shortly after we went public, Ray, we were informed by our largest customer, at the time who was Motorola, that we were doing 30% of our business, our revenue was going through Motorola, that they would be going away, and I can’t remember if it was in six to nine months. You remember that, Ray?

Ray Zinn: Yeah, I do. Yeah. Well, we had a number of those. I don’t call them disasters so much as downturns, Robert, because a disaster sounds like something that you can’t control. A downturn is more controllable. And you’re going to have downturns in life, whether it be an illness or whether it be a financial setback or whatever, loss of a loved one. I call those down. A disaster is like 9/11. And this podcast we’re doing today is on 9/11. And if you recall, during that one, the terrorists’ plane hit the Twin Towers, and at first we just thought it as an accident. We didn’t know what it was. And then the second one hit, and we said, “Uh oh, this is a problem.” But what it did is it pulled the country together. And the disaster was, of course, that we lost 3000 lives and a loss of a lot of property, and of course, a lot of anxiety associated with it.

So in life or in running a company, you’re going to have downturns. These are just normal cyclical things. They happen every four to five years, and they’re just as common as a common cold. When Robert talks about this Motorola one, we actually had one before that, which is just as bad, just a few years before. That was Xerox had canceled a program with us. It was a huge program. They were 20 plus percent of our sales and immediately, it hit us. I mean, they stopped us cold. I mean, that business went away instantaneously, just like the COVID virus. The Motorola hit that we took was, again, it was, you don’t expect them to happen, but you kind of do you. You hope for the best, but you plan for the worst. So, Micrel has always done that. We’ve always then been there to plan for the worst.

The way we do that is we make sure that we have enough cash on hand to last us through what it takes to recover. Even though I say three months is a minimum, we had well in excess of a year of working capital to sustain us if we couldn’t get back on our feet. Normally in a downturn, if you recall Robert, they last about a year, maybe a year and a half, is kind of a normal cycle for a downturn to last. I call it Newton’s first law of physics because when something bad happens, it’s cataclysmic, so you put a lot of resource, a lot of effort, and to recover quickly to, as opposed to a death by a thousand bee stings, as you would. So, a death by a thousand bee stings can kind of nibble away at you before you actually know you’re in trouble. Whereas in a cataclysmic one, a pandemic not withstanding, it’s a huge hit. So, you have to be ready for the big one, as you would.

Robert Barker: One of the things I was going to say that, I think that the thing that was different from Micrel, that we did a new plan, we always did a plan every quarter because we realized that the plan that we had done 90 days ago, there were so many changes to that, that we needed a new plan. And we did it every quarter. So all of the management of the company was attuned to moving quick and responding to change. And I think that helped us when we got to these big, big problems.

Ray Zinn: Yeah. But if you recall, and again, we did an annual plan in November every year, and we did a three-year forecast off of that plan. But what’s interesting, and this is a little bit of a sidetrack on our conversation, but the board of directors and the investors, they don’t like you to have a change in plan. In other words, once you submit that plan, they expect you to live by it and they don’t want you to revise it, which is kind of nonsense, because things change. So, when you do a plan, you revise it and then you implement it, the revision, and then you see how that revision went and then you’re back to the planning cycle again. But I tell you, investors and boards do not like you to change your plan. That’s kind of nonsensical. It’s an oxymoron, Robert, and we caught a lot of flack every time we changed that plan.

Robert Barker: We did.

Ray Zinn: Unless we changed it upward. Changing it upward, they didn’t care, but changing it downward, oh no, no, you can’t change it downward. It’s always got to be upward, which is kind of an oxymoron. I mean, it’s ridiculous, but-

Robert Barker: I think that being able to, by changing and knowing that the world changed quickly for us in the semiconductor world, we were just ready to respond to anything. And I just remember that when we had the Motorola thing, it was like all hands on deck and what are we going to do? How do we go through this? And we were able to actually grow through that, if you recall.

Ray Zinn: Absolutely.

Robert Barker: It was a very successful period. So I have a second one that I would like-

Ray Zinn: Before you jump on that, Robert, I remember a famous talk you gave at one of our ops meetings. It was called, who moved the cheese? Do you remember that one?

Robert Barker: I remember it very well.

Ray Zinn: Yeah. What was the real message there, who moved the cheese? It’s actually a book, right?

Robert Barker: There’s a little book for kids. The message is they’re always moving the cheese. And if you are a little mouse and you need to eat and you want to eat cheese, you have to keep searching for it because it keeps moving. It doesn’t stay in the same place. And to be successful, that’s the attitude that you have to have in life and running a business and in everything that we do.

Ray Zinn: Well, actually back in the ’50s, I think it was the ’50s, or it might’ve been the ’60s, in Galveston, the shrimp boats moved to Louisiana from Galveston. And when they left, they found that the seagulls were starving to death because they were so used to feeding off of the stuff that come off the shrimp nets from the boats that they found that they had starved to death. And it took almost two generations before those birds could feed themselves. So again, who moved the cheese, things are going to happen. I mean, the shrimp boats are going to move to Louisiana. And if you want to starve to death, you better find a way to live.

And another thing I think at Micrel that I think was unique, Robert, and you were a big help in this area, was keeping the enthusiasm, keeping the employees motivated during good times, because bad times are going to come. And we had a lot of enthusiasm at the company. We met once a week as a team and we talked and we had reports and we gave talks and we just kept everybody motivated. We walked around, talked to people even during the good times, because you want to keep them-

Robert Barker: And everybody was involved. Everybody at the company, all the senior management of the company was very involved in the whole process, in the everyday running of the company, in the planning changes that we did. And it was just the philosophy is that we’re going to get here, we’re going to stick together as a close family, and we’ll succeed and we’ll overcome the difficulties and the challenges that we face.

Ray Zinn: So, that downturn that we had with Motorola, that did get resolved within about three to six months, and we were able to get back on track. We were still profitable. Even during that downturn, we were still very profitable and we just had to make adjustments. There were some things we had to do, cut back, reduce expenses, but we made it. So, what’s your second example?

Robert Barker: My second example was the great recession of 2009. And in that time, over a six month period, this was caused outside economics. But if you’ll recall, our revenues decreased 33%, and it was either a six month period or a nine month period. And that is, it’s not a disaster, like we’re talking about where human lives are lost, but for a company, the life blood of a company is its revenue, and we knew it was going to go down. We knew all the companies in the semiconductor business had, the revenue was decreasing rapidly and we had to make a whole number of adjustments in the company to do that and to ensure profitability during that decreasing time of revenues.

Ray Zinn: Yeah. And that, again, was a very difficult time. It was a very difficult time for the industry, for the whole country. And again, you have to hope for the best, but plan for the worst. And this was just a culture. This was our culture, Robert, was to be ready for whatever came our way. And we weren’t unhappy. We weren’t down in the mouth. In fact, when that downturn happened in 2009, we were even more cheerleading, we were even more enthusiastic and more motivating and we held a few more get togethers, just to keep the enthusiasm up.

Robert Barker: We had to do a number of restructurings. We had to do change where we were doing operations, moving them from one place to another. I think we were one of the few semiconductor companies during that downturn that never lost any money.

Ray Zinn: Exactly. That’s exactly right. So what was your third one?

Robert Barker: This is a personal one, Ray. This is a personal, really it was a disaster. On the IPO, you lost part of your sight, and that could have wound up causing the company to unwind the IPO. We talked about that. And going forward, who was going to lead the company. So, that was a true, in my mind, a huge disaster.

Ray Zinn: December of 1994, yeah. Well, I didn’t lose part of my eyesight. I lost all my eyesight. I mean, I could see, but not well enough to even read or I couldn’t even drive myself. I had to make some big adjustments. And while I don’t want to refer to it as a disaster, it’s a challenge, it was an obstacle, it was a roadblock that we had to overcome. And it took a lot of me grabbing my self up by my bootstraps and saying, “Am I going to let this problem hurt the company, or am I going to just buckle up, as you would, and move forward?” My first inclination was to throw in the towel because my eyesight was 20-400, which is legally blind.

And I couldn’t really even … I didn’t know how I was going to be able to function. I wasn’t prepared to lose my eyesight. I was prepared to lose business and that sort of thing, but I wasn’t prepared to lose my eyesight. And so when that happened, wow. I mean, that caused some major readjustments, but we did it. And I did it because I learned to rely on other people, as opposed to just relying on myself. I learned that other people can help. I mean, and that really helped me become, I think, a better CEO.

Robert Barker: I think to all the listeners on this podcast, if you listen to all three of those challenges that this company went through, what you see is, and it’s just like the little thing, you’re going to get challenges. And a lot of people would call all of these things disasters. Ray didn’t call any of them a disaster, and especially the personal one. And I know you did. I remember going through when you were evaluating what was happening to you and a number of physicians said when things like this happened, usually the person just decides that, well, I’m going to just sit down and that’s going to be what I’m going to … I’m not going to do anything productive for the rest of the life. You did not do that. You were a huge inspiration to the employees of that company.

And anybody who is listening to this podcast and reading your books, an individual can do so much more than you think you can do. And that’s what makes for success as individuals, that’s what makes companies successful. And you did. Personally, Ray Zinn changed a lot because he had to change a lot. He had to run the company very differently.

One of the things that I’ll tell the listeners, at one point the CEO had to, the SEC required that all CEOs and CFOs had to read the 10 Ks and the 10 Qs and certify that. And we went through that and we jointly did that together. The things that changed that you did to run this company successfully for all the years that you ran it, you had to make tremendous number of changes, and you had to force, or not force, you had to cause the other people in the company to change the way that they work too, to help in that support of you. These things were very inspirational and they’ve changed my life. This changed my life because the way I view the world when I get up every day is different, and it’s because of Ray Zinn and my experience at Micrel.

Ray Zinn: Well, thank you, Robert. In fact, you’re getting me all choked up here, recalling back in those times. None of us want challenges or obstacles to overcome, none of us, but if you don’t have those, you never grow. If everything’s always roses, and you just have no obstacles or difficulties to overcome, you don’t grow. You don’t become the person that you really can be. And as you pointed out, Robert, the only limitation we have is ourselves. Adversity is like manure. It stinks, but it helps us grow. I mean, I’ll be honest, I don’t like disasters. I don’t like challenge. I don’t like obstacles. In a sense of the word, I’m not looking forward to them. I know they’re going to come. I know they’re going to happen. I just have to be ready for it. I’ve just got to accept it.

There’s a wonderful man once told me, “Come what may and love it.” In other words, if you can learn to love the things you hate, you’re going to be a much happier, more successful person. And I miss working with you, Robert. I really, really do.

Robert Barker: I know. And I think that the people that were at Micrel, they have taken what you’ve shown them and how you ran that company and they’ve gone on, and they’re having, I think, more successful lives and they’re building hopefully more successful companies because of the example that you provided for all of us at Micrel.

Ray Zinn: Well, thank you, Robert. And I appreciate you joining with me today on this podcast. Again, I get choked up thinking about some of those experiences that we went through, and we went through eight of them, Robert, during my tenure as a CEO for 37 years at Micrel. So, you just come what may and love it. Whatever life throws at you, you just grab it and say, “Okay.” Eat that ugly frog and let’s move forward. So, thanks for joining me on this podcast. Appreciate your being with me. And you can find out more about my podcast on my website, Tough Things First. Also, get my book, Tough Things First. It’s a bestseller from Amazon. It’s being used by six universities as a textbook. Make yourself available to get that book. And then my other book, Zen of Zinn. If you want a good philosophical book to help you live your life, that’s another good book for you to think about and to have. So again, thanks again for joining us. We look forward to seeing you next time.

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