How companies rebound from prolonged revenue depression is not just for a post-pandemic world.
As Silicon Valley’s longest serving CEO, Ray Zinn has led the way through major dips and explains strategies for exiting them.
Guy Smith: Hello again, and welcome to another episode of the Tough Things First Podcast, where we absorb the wisdom of Silicon Valley’s longest serving CEO, Mr. Ray Zinn. My name is Guy Smith. Happy to be host of this podcast once again, and especially for today’s topic. We have, as of the date of this recording, just started to come out of the pandemic. And for a lot of companies, they suffered through a severe revenue depression during the pandemic. I’m curious as to Ray’s experience and views as to how companies come out of prolonged revenue depression. What are the right steps in terms of rescaling their business, refilling the bank accounts, and all that stuff? First things first, hello, Ray. I hope you’re doing well today.
Ray Zinn: Well hello, Guy. I’m doing great. Glad to be back with you again.
Guy Smith: Always a joy to be with you. I learn more from you per unit time than everything else I do with my day, so it’s always fantastic. Anyway, you were in the semiconductor industry for all of your leadership tenure as a CEO. And we know that the semiconductor industry has these wild cycles, and occasionally revenues are depressed for a number of years, depending on which part of the semi industry you’re in. And plus, like any other business, you took a couple of hits along the way in terms of customers checking out and losing a fair share of your income. Let’s talk about how a company goes from being flush to being really tight on cash, and how do they rebuild themselves out of a revenue depression?
Ray Zinn: Well, that’s a good question. Actually, these cycles that we’re talking about last between a year and a half and two years, and that’s not unusual. The reason these cycles last for that length of time is that, I talk about it being Newton’s first law of economics, for one action you have in one direction. You have an equal and opposite action in the other direction. And so, the harder the economy is pushed down, the harder we work to get the economy back on its feet again. And so, if we’re not pushing real hard, it just drifts down and it takes longer to come back up. And so, we hardly even notice those, but those do happen. I mean, we have these weak cycles and they ebb and flow. They may last for two or three years, and they happened just prior to 2016. The thing was drifting down, down, down, down. It took a while for it to recover.
The harder the pressure is to go down, the harder we push to go back up. Same thing if you have a real bad headache. You’ll tend to take more aspirin, or Tylenol, or whatever to get rid of it. If it’s a slight headache, you’ll ignore it. If it’s a big headache, you may two or three just to get rid of it. This is all nature. This is just the way we react to pain, as you would. The more the pain, the more the pain killer we put into it. Same thing when you’re running a company. If you get knocked down really hard a couple of times… I lost a fourth of my revenue a couple of times, and, I mean, instantly. I mean, like within a day lost a fourth of my revenue. And so, that made us scramble really fast to get the thing reversed.
This pandemic, if we just look at the period of time, and if we look at a normal cycle, rough cycle, a difficult one, like the pandemic lasting a year and a half to two years. We are coming out of it. In other words, it’s been about a year, a little over a year, year and a couple months, since we’ve had the downturn. You, that are listening to the podcast, I’m sure are wondering what can we do? I mean, you probably figured this out when you had that big slide back in March of 2020. You began to think, “What do we do? What do we do? What do we do?” And that’s the normal way you get out of these things is you start coming up with a pivot method, some way you can pivot out of the downturn, and you already begin to do it.
I’m watching these little stores, and restaurants and so forth. They’re pivoting. Some took the time to remodel their facilities and train employees. So they took that time while the business was slow to regroup, as you would. Anyway, this is a good time to pivot, right now. I mean, we’re about a year and a couple of months from the start of the pandemic, at least, from the feeling of the start of the pandemic. Masks are coming off and we’re beginning to really starting to rock and roll again. This is not unusual, Guy, for these downturns, these really significant downturns, like we’re having with this pandemic for us to figure out how we’re going to pivot. What are we going to do to reverse course, as you would?
Guy Smith: What are the first steps out? Let’s take a scenario where business has had severely depressed revenues. They see that they now have daylight ahead of them, but they don’t have the cash in the bank, not ample excess, to begin hiring people back or to begin investing in things. How does a company pull themselves out of the muck from a prolonged down cycle, such as the pandemic?
Ray Zinn: Well, some of them have received help from the government. There has been small loans that have been given out, unemployment benefits. And so, the difficult thing has been getting people back to work. I mean, some people are not wanting to go back to work, because they make more money by staying unemployment. Because the unemployment benefit is so good that it’s hard, unless you’re going to pay them 50% more money, let’s say $20 an hour, rather than 10 or $15 an hour. They’re just not going to come back to work, and that’s going to be the struggle. Our low unemployment is forced. I mean, we’re forcing people to stay unemployed by giving them these benefits.
So the struggle for a lot of businesses are hiring people. I mean, they’re coming up with all kinds of incentives to get people to come back to work. And until the government shuts the door on this benefit, it’s going to be hard for these companies to find people. I think this is the first struggle, right now, is just finding good people.
Guy Smith: Well, are there other bumps that a business leader should be aware of when they begin to pull themselves back up by the bootstraps? I mean, money is going to be tight, but what other recovery realities of life might a CEO face as they begin to rebuild?
Ray Zinn: Well, I had one of my students contact me, what, about three days ago, I guess it is now, and he was concerned. He started a little business, a little Bitcoin service business actually, called Bitcoin Mining. He was asking me what he should do. And he began to pivot from making these little Bitcoin machines to actually servicing them. That was the way he pivoted. Some companies will pivot through having your goods available in your store to delivering goods to the home, or some other way of providing a service. The main thing is understand what your strengths are and how you can profit as we come out of this downturn. How can we best profit from this? People have a lot of pent up demand for just getting outdoors. If you have a way your business can service people who want to be outdoors than that’s going to really do well.
I know that these recreational vehicle companies, they’ve got so much business, they don’t know what to do. I mean, some of these guys are sold out for three to six months from now. The problem is, you can’t get the product. The pandemic, of course, with all the unemployment and people having to distance themselves from each other, has really slowed down the production lines. And so, there’s a lot of production issues that people are facing, just because of this having to social distance, and wear masks, and only can work so many shifts, so that has really slowed down the pipeline. And that has hurt a lot of companies.
What you can do is figure out how you can benefit from the supply shortage. There’s a massive supply shortage in semiconductors right now, all because of the same problem. Social distancing, and wearing masks, and only can work so many shifts, that has really slowed down the pipeline. There’s a huge pipeline interruption that we have to fix. So if you can figure out, in your business, how you can solve that pipeline problem, you’ll do well. It’s just a matter of pivoting and understanding what’s going to work best for your particular business.
Guy Smith: Well, I think pivoting is ultra important to some other people, because the pandemic, more or less, eliminated, or permanently reduced, certain industries. I’ve been talking recently to people in the commercial real estate market. As corporations discovered that work from home is really, really a good option for a lot of them, the commercial real estate market is in a contraction phase and they don’t see any daylight out on the horizon. So pivoting when there’s a fundamental shift in your market caused by a downturn, or by a change in your customer attitudes, is also part of the equation.
Ray Zinn: No, that’s what I just mentioned. You got to take advantage. Try to find a way to take advantage of this downturn. The commercial real estate is an example. I mean, we’re finding out, in my son’s job, that when they do go back to work, they’re figuring that they’re only going to go back to work three days out of five rather than five days out of five. And they’re going to be able to rotate offices. In other words, they don’t need as many offices, because people… Maybe you’ll be in that office for three days, and somebody else will have it for two days, or vice versa, or maybe some other way of operating your business.
The real estate market, commercial real estate market, is going to be highly impacted by this pandemic, because people have found a new way to adjust. Now, that’ll get swung back around again. I’ll give it four, maybe, five years and the real estate market will be back on its feet again. But for the next two or three years, anyway, it’s going to be tough sledding for the commercial real estate market.
Guy Smith: Yeah, probably a few other industries, as well. But it’s like any wild cycle, after the dip there’s a surge, and then things tend to level out after a couple years.
Ray Zinn: It takes about four or five years and it’ll be level back out again. The commercial real estate market will be in the tank for, probably, four or five years. It’s going to take, at least, two or three years just to even get back to somewhat form of normalcy, as they call this the new normal.
Guy Smith: And right about that time, the next disaster will happen, and we’ll go through it all again.
Ray Zinn: Absolutely, that’s the way it is. That’s what you call the ups and downs of life, Guy.
Guy Smith: Yeah. Always assume that the next disaster is waiting in the wings.
Ray Zinn: All right, Ray. Well, thank you so much. That was very insightful. I do agree that these cycles are maybe not predictable, but are to be expected. And recovering really requires being agile of mind, as well as foot, and looking for your new opportunities, or your changed opportunities, as you come out of the down cycle. For the audience, if this 10 minutes of wisdom has impressed you, by all means, go out and get Ray’s master workbook called, Tough Things First, just like this podcast. I have a degree in management. I’ve read tons of business books over the years. This is, arguably, the most informative, entertaining, but also insightful from a basis of experience and wisdom of any of the business books that I’ve ever read. I do encourage you to get that.
Also, by all means, while you’re thinking about it, hit that subscribe button, as well as the like button on whatever app you use to listen to podcasts. And also, Ray has two other books out there, Zen of Zinn and Zen of Zinn 2, both of these are little… How to phrase this? Little small soundbites of wisdom to get you through your day. It’s one of those books where you can sit down, read a couple of pages, feel enormously refreshed by the insights that are there. And then pick it up, and do the same thing tomorrow, inspirational as well as informative.
Again Ray, go ahead.
Guy Smith: I call them the golden nuggets of life.
Ray Zinn: That’s a good, good summary.
Guy Smith: So go mine some golden nuggets, and pick up my two new books, Zen of Zinn and Zen of Zinn 2. I think you’ll enjoy them.
Ray Zinn: I’m certain that they will enjoy them. Thanks again, Ray, and for everyone listening to the podcast, we’ll catch you again in another couple of weeks.
Guy Smith: Thanks again, Guy.