I am not an epidemiologist —or even a doctor. I’m an architect. But it occurs to me that I have learned some things about leading during crisis that can help other executives during this unprecedented battle with the novel coronavirus. When I became CEO of HOK, one of the largest architecture and engineering firms in the world, it was on the brink of breaking apart. Too many offices were underperforming, and the profitable ones were understandably unhappy to see their profits used to prop up weak ones.
We even encountered cash flow crunches where we had to tap into our line of credit in order to make payroll. Our consultants were angry that they weren’t paid promptly, our bank accused us of being in violation of its covenants and our company culture was crumbling because we had grown so fast that our own employees didn’t understand what we were about. I was a new captain overseeing what could easily turn into a mutiny. I might have had other dreams, but I had to fix the firm.
In my book, Designing a World-Class Architecture Firm, I detail the steps we took at HOK to deal with the triple crisis we faced, steps that are just as valid today even though the crisis is caused by a virus. Here are four of them.
- Run toward trouble. This is my over-arching leadership philosophy. What does it mean? It means don’t avoid conflict, seek it out. Instead of ignoring problems, hunt them down and resolve them. I have learned that small problems inevitably become big problems and big problems become disasters if you allow them to fester. Here’s one practical example of running toward trouble. When you meet with clients, don’t just ask them “Are you happy with our progress?” Also ask them, “Are there any problems we need to resolve?” In other words, don’t just ask them if things are going well. Ask them if anything is going badly. I learned that clients would let me know if they were unhappy with some aspect of our work, but it was better if I asked first. The best client relationships are based on mutual trust and honest communication. It helps if you give them an opening for their honesty —good or bad. Having the courage to tell the uncomfortable truth is important in business. Having the courage to hear it is just as critical. How might the Coronavirus crisis be different if our government had run toward trouble rather than shying away from it? How can your firm do better?
- Create concrete consequences. When you are making a crucial change to save your firm, it’s not enough to tell your people “do this.” Instead, you must be prepared to deliver a message that is more like “do this —or else.” You must create concrete consequences for non-adopters or dramatic change often won’t happen. For example, at HOK, for years our leadership team nagged and cajoled our branch offices to do a better job of collecting their fees from clients. It didn’t work. HOK, like most design firms, used an accrual accounting system, counting fees as earned when the design work was done—not when the client paid the fee. We weren’t holding anyone responsible for bringing in the actual money! When I became Chief Operating Officer, I created a concrete consequence: fees not billed and collected in 90 days would be “unearned.” Year-end bonuses were based on fees and profits, making unearned fees a serious blow. The incentive for offices changed from just earning fees to collecting them within 90 days. Collections —and cash flow— at HOK began to improve, one step on our road to recovery. I am curious to see whether any of our nation’s governors will create concrete consequences to enforce their shelter-in-place and other public health orders.
- Invest in technology. Notice that I used the word “invest,” not “buy” technology. When I proposed to get the latest, greatest technology on board at HOK, our executive committee resisted, at first, because of the high initial cost. I argued that buying the best, most up-to-date technology is not spending money, it is investing money. After all, technology helps people be more productive— and technology is cheaper than people. We invested in technology to stitch our network of offices together beginning in the mid-1990s. In addition to upgrading our technology, we simplified it, using the same system firm-wide rather than a patchwork of different operating systems. This was crucial. We discovered this cohesive virtual network enabled people in different offices to work together as a seamless team, meaning we could select the best people for each project regardless of their location. Of course, in the face of Covid-19, the ability to work virtually has taken on new meaning and new urgency. The final step in taking advantage of technology is to innovate using the tools of your time. In other words, find new ways to utilize the technology you have. For example, I am fascinated to see that people are experimenting with using 3-D printers to print face masks and ventilator parts during this Coronavirus crisis. What other creative steps can we take to use today’s technology to solve problems?
- Build cash reserves. Keep adequate working capital in your business for opportunities—or rainy days like the coronavirus. My personal rule of thumb is to keep at least 90 days of cash on hand, so your business can weather slow periods and emerge strong at the end of the crisis. Raising cash for opportunities and emergencies is straightforward. The best way is to put aside some of each month’s profit to build a reserve fund. If you do not have cash reserves, there are only two avenues available. The first is to borrow the cash from a bank or credit union. Yes, this can be a fast way to get cash but comes with strings attached—interest obligations and bank covenants governing how you manage your business. The other alternative is to bring in a cash investor. Investors also expect a return on their money in the form of interest or dividends, or to sell their investment back at a profit in the future. HOK tried both of these latter methods and found them onerous. It took us decades of hard teamwork to get out from under these obligations. When we did, we could finally be ourselves as a firm. We could chart our own destiny. We were free. Learn from our mistakes and build a cash reserve from the start. In times like these, it just might save your firm.