A brilliant commentary by former FNB CEO, Michael Jordaan on the challenges and especially the opportunities you can grab if you are courageous enough to face the brutal reality of your business and your life. And if you do this it becomes a lot easier to make the right decision, Jordaan tells Biznews editor-in-chief Alec Hogg in this frank discussion about the immediate future and beyond Covid-19. – Stanley Karombo
With us on Rational Radio, the webinar edition is Michael Jordaan, the former chief executive of FNB. You must be watching what’s going on in the markets nowadays after Covid-19 and thinking my goodness, those investments that you made back in those years have come home for the bank.
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Now is a very good time just for a little humility. I have seen so many people become experts on things like epidemiology which is a word as an Afrikaans speaker I even struggle to pronounce – and everybody thinks there should be a lockdown. I am as con-founded as everyone else. I am particularly perplexed by how well some of the overseas markets are performing when the real economic conditions are so incredibly bad. I know that because of money printing and I can explain it in retrospect, but I think these are some of the strangest possible times that we find ourselves in and things like negative interest rates, massive printing of money and so on. It’s confounding and one need to be agile and flexible but with an adequate dose of humility when looking at what’s happening in markets.
Now your company, Montegray, is an investor in a number of other companies. It’s more than two dozen investments that you’ve got, so you must have a good understanding of the way things are happening or performing within the South African environment?
Yes, I’ve got about three to five little investments, these are all startups and they are all technology focused or there’s something about the business model that is enabled by technology and I’m fairly fortunate that most of them have done well in these tough times and in some cases progress that they struggle to make for many many years before being accelerated by this. To give you one example, there’s a company called Snapplify that offers all the textbooks that schools use in an online or electronic version that are made available for free to all schools for the rest of the year. The rapid adoption of online education is something that they struggle to get going and suddenly the crisis drops into the future. Generally investments have done very well. Rain, for example, as a data provider has seen massive demand. I am a wine producer. I own a wine farm. My wife and I offer accommodation on the farm and we actually have a lot of labourers that we are trying to keep afloat. We are equally affected by the real world. Another big challenge for all of us is just surviving the next 18 months because this thing is going to last longer than people want it to be.
I saw a quote that is going around on Twitter that is from Jack Ma who says exactly that, this is not a time for dreams, it’s not a time for ideals. This is a time for survival. Do you agree?
Particularly if you’re a startup. It’s absolutely crucial that you need to get to a cash flow positive situation – which means cutting down the burn or increasing your revenues or doing whatever you need to do. It’s going to be a very tough time. Again time for humility. I don’t know when we’re going to solve this crisis but it seems like it seems to be 12 to 18 months off. And even if we find a vaccine now, it’s not as if the economy is just going to re-start by itself. So clearly, you need to prepare for the long run and prepare to survive and that means cash flow break even. It’s going to be much tougher to get funding, you know funders are risk averse, holding back on all of that. I suppose the only bottom line is that at the end of this at the end of the Covid-19, in 18 months those companies that do survive will be stronger. If it doesn’t kill you, it makes you stronger. Some of your competitors will no longer be there. But for now, it’s not about maximising profits, it’s about near economic survival.
What sectors of the economy are unlikely to survive and unluckily to make it through this crisis?
Clearly there are some companies in some sectors that were marginal to start off with, let’s say printed daily newspapers that’s been an industry that’s been in decline for a long time. We’ve seen some magazines fail, physical retailers fail, SAA has long been a zombie airline and things like cinemas will suffer because people won’t want to get together in large groups. So too some restaurants, bars and commercial office space will suffer as people are starting to work from home. And sadly some wine farms like our own are also under pressure. It’s the marginal businesses – where there was a long-term negative trend. It’s also those that are well under capitalised, that don’t have ammo in their reserve. Of course, anything that is making the physical world an online world. It’s just accelerating, be it online shopping, online education online broking online retail, or working from home. Those businesses are going to grow rapidly but it’s going to be at the expense of old era businesses.
So what happens if you are one of the unfortunates who’re working in one of these imploding industries or businesses. What do you do?
Let’s go back to first principles? Why are you in business? Who are you serving? What are the exact product that you’re providing. What price should you be doing it? And then you make the hard decisions around those first principles. You know there may have been things that you have to do but they were just too tough to do before. Right now you don’t have that flexibility. Make the hard decisions. Often that would mean cutting costs. It could mean turning fixed costs into variable costs; as for pricing, generally you need to review it, I think it should be lower in this environment, because it’s tough out there. If all those things don’t work, you should consider changing the business model – pivoting, a basic example of a pivot would be a restaurant that is now going into food delivery. I got one startup that delivers premium wine online in South Africa, Port2Port it’s called. But they can’t deliver it here. So they opened up a business in the UK using the software that they have now. There are some growth opportunities, but you have to fundamentally reassess the business you’re in. Sometimes you can pivot that business into a new direction. And there are other cases as well where you just need to call it a day and move on to something new.
It’s interesting because I guess it’s hard if you’re part of the status quo to see the reality. It’s not difficult to understand the advice Warren Buffett over the weekend at the AGM was saying a lot of similar things to what you’re saying now. But it’s that jolt that one needs to understand reality. How do you do that if you’ve got a publishing business, you had a print publishing business. How would you explain to people there that the world has changed?
You know there’s this famous line and it’s been attributed to so many people, that says don’t waste a good crisis. It really just means that you’ve got to be authentic with the truth. Face the brutal reality of your business and your life. That’s the most difficult thing. We are all optimists and you’re hoping for the better. This is not as much a time as it is for hope as it is wonderful facing the brutal facts. And actually once you face those facts then it becomes a lot easier to make the right decisions. But by the facts that you need to do so. I’m not saying it’s easy. Sometimes these things are incredibly hard but it’s a little bit like becoming more fit. You know once you apply the discipline and you get into the routine of doing it. And things are a lot better. I feel desperately sorry for people who are not in a position to do so. People who have jobs and can’t even get to their jobs.
I do think that in three to six months time we’ll look back at this period and look at a whole lot of decisions that overall as a society was suboptimal, whether some of those businesses shouldn’t have started operating yet. I’m not saying that it’s easy for nearly anyone, even though there are options. This is for example a good time to educate yourself with new skills. There are many skills one can acquire online for no cost. Many of these resources have been made available at no cost. So, even there is an option to make some good out of this terrible scenario that is currently experiencing.
Larry Hobson asks you, he says with your involvement in online, do you have a view on how far we are from using satellite or other technology in school education in South Africa?
I have three young daughters who happen to be in three different schools and I can see how the schools have adopted technology differently – my one daughter regularly writes exams, others are doing quizzes – I think the medium is a little bit less important here, whether this is satellites or 5G or 4G or fibre or a dial-up modem. That’s just the connectivity layer. What is more important is content. Is there good educational content available up there. Yes, there actually is. A lot of it is available for free. So the role of the educator is the most important one and that will change from somebody who is a topic expert to somebody who can actually stimulate curiosity and can then help somebody through all the content that is available online for free. These are the changes that would affect 50 years before. But now suddenly many educators that have struggled with this or would it be against the principle of coming to terms with the fact that there is a whole wide world out there of online education. I’m experiencing it in my own life, and I’m seeing rapid growth through the Snapplify company that has made a move educational experts available for people this year. There is such rapid adoption and it’s positive. Human inventiveness and human ingenuity has not gone away. We will adapt to these new circumstances.
Final question for you Michael, where do these opportunities lie?
We speak about the Fourth Industrial Revolution as if it is something very far away. And yet there are so many parts of this industrial revolution that we can grasp already today. It’s often said that we as human kind don’t struggle so much believing a new idea or a new concept, it’s letting go of the old that gives us the most struggle. I would say the opportunities lie actually in letting go of old ways of doing it, old type of business practices and looking at what would be possible. And one little mind trick I’d like to impart with, don’t think of what you think will be obvious next year, or three or five years. Think of what will be obvious in the business world or the economy in 10 or 15 years time. And if it’s obvious that it’s going to happen in 15 years time, start working on it now. You may have a small business, but it will grow very fast and if you’re on the right macro trend.
Joh that’s very similar, I was reading through Daniel Ek’s quarterly report back to shareholders of Spotify and he said that there’s a 20-year trend from linear to on-demand consumption. And obviously they’re in the podcasting and the music game. But if you look across the world, he’s taken that view, a 20-year view and of course it’s happening a lot more quickly.
