Reviewing Recession Potential & Key Strategies for Surviving Economic Tsunamis
Episode #1083: In this episode of the Arete Coach Podcast, explore a world in commotion with Severin Sorensen, an Executive Coach and Host of the Arete Coach Podcast. During the episode, we dive into economic preparations by leading economists, CEOs, and the work of surviving and thriving in turbulent times by Sequoia Capital and Bain & Company.
Many have described this period in time as pre-hurricane, but what if it were an economic tsunami? How would one prepare? Continue reading (or click here to listen) to learn about the leadership and cultural themes needed now. The podcast is helpful for business owners, CEOs, key executives, executive coaches, and executive peer groups.
About Severin Sorensen
Severin Sorensen is a serial entrepreneur and lifetime learner with a passionate curiosity for people and businesses. Severin is the CEO of ePraxis LLC, a premier level retained search firm that provides executive headhunting, talent selection, and executive coaching. In addition to finding top talent, Severin has provided over 7,500+ hours of paid executive coaching to entrepreneurs, CEOs, Presidents, and C-level executives. Severin is an ICF ACSTH Certified Executive Coach, Certified Organizational Development Coach, Certified Life Coach, and Certified Positive Intelligence® Coach. Severin is the founder/producer of a new podcast, Arete Coach, that explores the art and science of executive coaching with some of the industry's best coaches.
From 2010-2018 Severin was also a Vistage Chair where he coached three CEO and key executive groups. In 2011, Severin received the "Rookie of the Year Chair Award" from Vistage. Since 2013, Severin has added international speaking for Vistage, CEO conferences, executive peer groups, and corporations on the topic of identifying and hiring difference-making top talent.
After graduate school, Severin moved to Washington, DC, where he worked on security-related economic and public policy issues that included a brief stint in The White House, as a Special Assistant to the President, for George H. Bush (POTUS 41). In 1994, Severin founded Sparta Consulting Corp., and Sparta provided world-class physical security and safety related management consulting services for public and private sector entities. From 1994-2002, Severin managed HUD's Crime Prevention Through Environmental Design technical assistance and training program. In 2005, Severin sold Sparta to Westec Interactive (Digital Witness), which was subsequently acquired by Interface Security.
Severin, a native Californian, grew up in Salt Lake City, UT and graduated with honors from the University of Utah with Economics and Political Science degrees. He completed graduate studies in economics at King's College, Cambridge University (England), where he earned a M.Phil. degree in Economics. Severin has a great love and appreciation for sports, and while overseas, Severin rowed for the King's College Boat Club, and played basketball for the Cambridge University Basketball Team (1986-87).
Reviewing recession probability
In an article titled “Recession Probability,” published June 28th in the New York Times, various economists gauged their perception of recession risk. The results show that businesses estimate that the likelihood of a recession ranges from 15% to over 50%. Severin explains that some of these higher estimates are likely from businesses and industries that are “more exposed” to events that are negatively affected by the global economy. He also adds that the increasing risk of “widening war, uncontrolled inflation, and destabilization of nation states” themes need to be examined when predicting recessions.
Insights from economic experts
After outlining the metaphor of an economic tsunami, Severin gives insight from a variety of economic experts. First, he reviews insight from Kristalina Georgieva, the IMF (International Monetary Fund) Managing Director. In Kristalina’s message on April 14th, 2022, she shares her belief that because of the forecast of the Ukraine Russia war, there will be “downgrades for 143 economies this year, accounting for 86% of the global GDP.” Next, Severin reviews insight from Mohamed El-Erain. Mohamed points to the “volatility of the market” and the seeming lack of a “credible fed policy anchor.” Third, Jamie Dimon of JP Morgan Chase, has the belief that a “hurricane is right out there down the road coming our way.” He sites oil prices, war, and inflation as key indicators.
10 factors most affecting the global economy
Severin shares 10 factors that he believes are “impacting the global economy in a largely adverse way.”
Inflation is “high in nearly all economies” and bringing it back down will likely “dislocate fortunes and create some additional havoc for individuals.
The Ukraine Russia war and other political regime disruptions.
There is an “energy conundrum with oil, gas, renewable sourcing.”
Global economic growth is slowing and there is a risk for “stagflation.”
Domestic labor challenges, including labor shortages and wage inflation.
Supply chain challenges, disruptions in supply and corporate risk mitigation, and de-globalization.
The rapid acceleration of technology, modernity, and AI.
COVID-19’s continued variants.
The cryptocurrency bubble.
A “highly volatile economy where one could make a bull case and a bear case.”
Insight from Sequoia Capital
Severin shares insight from Sequoia Capital’s “Adapting to Endure” presentation. This article was previously reviewed in-depth by the Arete Coach in an insight article titled “Adapting to Endure: An Arete Coach Review of Sequoia Capital’s May 2022 Presentation.” According to Sequoia, the current economy marks a “crucible moment” for businesses worldwide. They discuss how “capital was free, now it’s expensive,” the impact of COVID-19 mandates, federal mandates seeking to control inflation, and how the creation of “liquidity… manifested itself in bottlenecks and distortions throughout the real economy.” They also point out that the “5-year forward inflation expectations are currently at the highest level they’ve seen in decades.”
Sequoia makes several suggestions for business leaders facing potential economic troubles such as prioritizing workforces, prioritizing the controllable, managing the non-controllable, safeguarding capital, innovating, reducing costs, and informing team members and employees of changes. Furthermore, they also point out that “growth at all costs is no longer being rewarded” and instead “durable growth” in the “medium to long-term range” is more valuable.
Adaptability, speed, and choices
Based on Sequoia’s findings, it’s recommended that business leaders invest in their “adaptability, speed, and choices.” Businesses that adapt to the turbulent economy are more likely to thrive during these changing and challenging seasons. Furthermore, business leaders need to move quickly.
“According to Sequoia, companies who move the quickest, have the most runway and are most likely to avoid the death spiral.” However, it is important to note that for both adaptability and speed to be effective, business leaders must be able to make good decisions “during times of high stress.” This can be aided by “prior planning and contemplation.”
Severin shares his own experience from a previous business. He shares that “I made a mistake then. And the mistake I had continued to race forward as though my past was my future.” Instead of waiting to take action when economic tides are changing, Severin states that “we should take the slowness that occurs as a signal that something is off, that there is a shift, and we should prepare and hunker down for a difficult wave or two or three or more that could be coming our way.”
Preparing your mind, your team, and your company
To best prepare for the economic challenges ahead, Sequoia recommends that business leaders should prepare their minds, their teams, and their companies. In order to prepare their mind, business leaders must confront their reality, face their fears to prevent negative spinning, have courage, and view the potential crisis as an opportunity. To prepare their team, business leaders should start with their “why,” reaffirm mission values, showcase their leadership, align their teams, and ask for their commitment. To prepare their company, business leaders should have a “cash and a cash flow report” and understand their “financial degrees of freedom.”
Business leaders can also prepare by simplifying their business in ways that save money. Severin shares a past experience where he simplified his business, ultimately increasing their purchasing power and savings, and reducing their inventories. Other ways that business leaders can prepare their companies include: reducing subscriptions, trimming budgets, reducing headcounts, reducing operating expenses, creating savings for difficulties ahead, and raising debt “if that’s your only lifeline to survive.”
Lessons in leadership
Sequoia outlines several “lessons in leadership that can be looked at from time’s past.” Severin shares Sequoia’s 4 ideologies:
“Change is inevitable, growth is optional.” - John Maxwell
“Wishful thinking is a waste of time. Don’t sit around talking about the good old days with the hope they’ll return.” Instead, “business leaders must face reality and make strategic decisions.”
“Managing change is everyone’s job."
“If the world outside your company is changing faster than the world inside your company, the end is near.”
For leadership principles, Sequoia Capital has the 4 C’s of Communication which are: communication with conviction, confidence, and calmness.
Severin shares that Sequoia also recommends that business leaders should “be authentic and human and have a balance of optimism and realism.” To lead more effectively, Sequoia advocates for “simplicity over complexity, speed, focusing on talent, seeking alignment, and tightening up value propositions, or solving real problems.”
Words From Warren Buffett
In closing, Severin shares insight from Warren Buffett. Key takeaways from Buffett’s insights include the importance of taking action during market crashes, seeing “widespread fear” as a friend, viewing “personal fear” as an enemy, the consistent value of skills, and the importance of having “cash on hand” in preparation for the difficulties that may lie ahead.
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