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For many families, summer is full of sports. Between camps, leagues, and private coaching, summer is an excellent time for athletic kids to hone their skills and for parents to help them improve their game. This year, however, most camps and leagues are postponed, meaning kids suddenly have a lot more time on their hands. You can keep them on task and practicing regularly with a DribbleUp Smart Ball.
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Dave Cote just delivered the War and Peace of books on corporate leadership. The former Honeywell CEO’s Winning Now, Winning Later is such a rich, unusual entry in the genre because instead of running through his favorite management maxims, Cote provides a gripping, on-the-scene account of how he deployed a series of bedrock principles to transform a flailing conglomerate. The lessons come to life because the reader witnesses Cote, over 16 years ending in 2018, relentlessly putting them into practice to meet the biggest challenge in corporate America: balancing the short-term success demanded by investors with sowing the seeds for rewards that will only be harvested years hence, but are essential to achieving greatness.
Current and aspiring CEOs should pay close attention, because for Cote, many of America’s big companies are wrestling with how to invest for the future while still generating the quarterly results investors expect. “Businesses are little more than a collection of processes,” he says in the book. “And in most companies, the processes can go a long way towards becoming more efficient and effective.” For Cote, remaking those processes to get maximum results from people and assets requires achieving two seemingly conflicting things at the same time. It’s that 3D thinking that brought the big breakthroughs at Honeywell.
It’s fulfilling these “we can do both” imperatives that lifts enterprises to their full potential. And the most important is simultaneously achieving what many managers find vexing if not impossible, “making the numbers” while at the same time making the daring bets to ensure those numbers will be far higher five years from now. As his book’s title suggests, Cote swears the idea that CEOs must choose between winning now and winning later is wrong: They must find a way to do both. Thinking short- and long-term works since you need today’s profits to fund tomorrow’s hits. He shows how Honeywell succeeded in constantly improving its most lucrative existing products, from airline components to gas detection devices, to increase quarterly earnings, while simultaneously plowing billions into next-generation projects that took five or six years to harvest, then paid off big.
The book is packed with other examples of taking two actions that seem to butt heads and getting them to march arm in arm. While many companies think they need big inventories to ensure fast delivery to customers, Cote shows how it’s possible to both reduce stocks and lower shipment times by expertly managing the supply chain.
Cote also believes that companies should advance not in giant leaps but small agile steps. “It’s survival of the most flexible,” he writes. “Revolutionary change is not the key to short- or long-term performance. It’s a huge risk. Revolutions move in unintended directions. The best change is gradual change.” His goal is to stay just ahead of the market as opposed to betting heavily on future trends that may not play out, or falling behind so that only demoralizing, disruptive restructurings can save the company.
For Cote, it’s best to spread plant closures and layoffs over a number of years. Another tenet: Making lots of small targeted acquisitions is more profitable, and a lot less dangerous, than chasing the transformational whales. His contrarian thinking extends to personnel matters. Forget the “praise in public, criticize in private” maxim, says Cote. When a business head makes an inadequate plan for building his or her business, the CEO should uncork the likes of “This is unacceptable, go back and fix it”––and explain why––in front of the assembled peers to demonstrate that he’s setting a high standard.
The official publication date for Winning Now, Winning Later is June 30. But Cote gave Fortune an exclusive first look. I also interviewed him extensively to glean further insights. The overriding theme from both the book and these conversations is that this son of a rural New Hampshire gas station owner regards leadership as both highly intellectual, and highly hands-on. How many CEOs take full days, sans appointments, to think big and hatch bold new initiatives?
Yet Cote insists that “the idea you focus on strategy and outsource implementation to great people is wrong.” At Honeywell, he personally interviewed all candidates for the top 300 jobs, and for the first 90 days after making every one of its 100 acquisitions held monthly meetings to review their progress and quarterly reviews for the next year. At the same time, as one lieutenant put it, he showed the tenacity of “a big annoying bear threatening the livestock” in constantly monitoring the numbers to ensure that each business was adding sales faster than people, investing sufficiently while reaching the right balance in product enhancements and long-horizon projects, and generating strong and growing cash flow.
Winning Now, Winning Later opens by describing the deep-seated problems at Honeywell. According to Cote, the “short-termism” that plagued Honeywell is an issue many companies grapple with. The best argument that Cote’s formula can achieve the dual objectives in the book’s title is its spectacular success at Honeywell. From 2002 to 2018, Cote lifted Honeywell’s sales from $22 billion to $40 billion, took operating margins from 8% to 16%, and hiked the stock price fourfold, swelling the market cap from $20 billion to $120 billion, while spending $10 billion resolving environmental issues, including resolving asbestos claims, and fully funding the underwater pension plan. Here are five original concepts and strategies that formed the Cote blueprint.
In 1999, Cote left GE after a 25-year career, then served for two years as chief of TRW before going to Honeywell in February of 2002. Cote coveted the ultimate prize of running GE upon Jack Welch’s retirement, but departed when the legendary CEO said that Cote––then heading the appliance division––wasn’t a finalist. Had Cote gotten the nod instead of Jeff Immelt, it’s likely that GE would be a far more successful company than what it became, by constantly restructuring and shedding businesses it vastly overpaid for. The irony is that at Honeywell, Cote found some of the poor practices that he yearned to fix at GE. And it was by overhauling those crippling methods that Cote got Honeywell roaring while his alma mater sputtered.
Cote recalls that at GE, success was all about “making the quarterly numbers” at all costs. Any given year, the outfit where Cote was working would hire 1,000 people to grow sales. Then in October or November, the managers would discover that they couldn’t hit the targets for the following year without laying off 800 of the folks they just added. “Why, I wondered, hadn’t they thought ahead and only hired 200 people instead of 1,000? We didn’t think we had a choice,” he writes. The layoffs were highly disruptive and required big restructuring costs. For Cote, the better practice was what he did at Honeywell: getting his business heads and staff people to plan for the following year’s personnel and other financial commitments early in the current year, avoiding the need for this wrenching cycle of layoffs and rehiring.
At Honeywell, Cote found a mindset of what he brands “short-termism run horribly amuck.” Managers at the specialty chemicals, aerospace, automotive, and controls conglomerate would offer distributors special discounts at the end of a quarter to boost sales, a practice known as “distribution loading,” that enabled them to hit their targets. The businesses had to quickly inflate inventories to make the deliveries, but the shipping department often couldn’t keep up, creating bottlenecks and delays that antagonized customers. And businesses, wrongly guessing in advance what distributors would want, often filled warehouses with product their customers didn’t want.
Often, 25% of the revenues from aerospace, controls, and specialty chemicals businesses would come in the last week of the quarter. Instead of buying at regular prices in the early weeks, customers waited Honeywell out until the last few days, and in managers’ desperation to ramp up sales, the deals would get better as the quarter drew to a close.
To keep hitting the mark, the business heads would resort to more gimmicks such as selling good businesses to book quick profits, or securing one-time cash payments from suppliers in exchange for guaranteed future business. That locked Honeywell into deals with single vendors that forced them to overpay for components or services over long periods. To his horror, Cote learned as much as 20% of Honeywell’s reported earnings were coming from those one-time items known as “specials”: One plant manager in Louisiana even cut down trees in the forest adjoining the factory and sold the lumber to make the numbers––and received a performance reward for getting it done.
In aerospace, managers would compete for new contracts for wheels and brakes by providing the first hundred “ship sets” of those components for free. That’s standard practice in the industry. The difference was that Honeywell was capitalizing the cost of the ship sets and amortizing it over 20 years. “They did it,” says Cote, “because investors are much less alarmed by things that don’t go in the income statement.”
That wasn’t the only case of super-aggressive bookkeeping. Honeywell would capitalize R&D so that it spent the research dollars now, but spread the reported costs into the future. As a result, Honeywell’s reported profits kept rising faster than its cash flow, signaling that its facade of profitability was about to crumble. For the decade prior to Cote’s arrival, Honeywell was generating just 69¢ for every dollar in earnings, a sure sign of trouble.
It didn’t take long for trouble to strike. After Cote had served just a few months, the finance department revealed that earnings for the second half of 2002 would fall 20% below Honeywell’s forecast to Wall Street. “‘What the hell was going on?’ I asked,” writes Cote. “Their response, ‘Well, the financial goals we were trying to meet were never realistic to begin with.’” The finance chiefs brushed off managers’ complaints, telling them to “Just get it done.” Honeywell’s stock price dropped 25%, and an enraged Cote told everyone to drop the tricks––no more aggressive accounting, no more capitalizing R&D and ship sets, no more distribution loading, and no more “make the numbers” meetings hosted by the finance staff that drove all of those dysfunctional decisions.
Although the “make the numbers or bust” mindset was hammering Honeywell, Cote still believed that achieving regular quarterly gains in earnings––reaping a healthy crop today, no gimmicks allowed––was essential to success. At the same time, Honeywell would need to start investing now in new products, services, and processes, as well as international expansion, to secure its future, by planting seeds for tomorrow.
“We would have to win today and set ourselves up for tomorrow,” he says. “I realized we could do both at the same time. Short- and long-term goals are more tightly intertwined than they appeared. Short-term results would validate that we were on the right long-term path.” What’s more, he added to me in an interview, each goal reinforces rather than contradicts the other.
To get there, Cote vowed to follow three principles. The first was “Scrub accounting and business practices down to what’s real.” Second came “Invest in the future but not excessively” followed by “Grow sales while keeping fixed costs constant.” The theme was to plow current earnings into the long-horizon projects such as next-gen aircraft cockpits and new molecules for refrigeration that Honeywell was shortchanging, but not invest too much.
Honeywell would maintain sufficient quarterly earnings to demonstrate consistent progress. By expanding sales while holding the fixed costs, consisting primarily of labor, constant, Honeywell could generate the savings to keep raising its spending on both big, multiyear systems and enhancements to existing products and services and still generate the short-term returns investors expected. Those practices would get the flywheel spinning, and a “virtuous cycle” would take hold, which would allow Honeywell to generate even more cash to invest, which would lead to further performance gains.
Cote’s plan for restraining costs came in two parts. First, he immediately demanded that the four big overhead functions, finance, human resources, legal, and IT, representing about one-fifth of fixed expenses, hold their annual dollar outlays at 2003 levels, forever. “The goal was to double sales, so that overhead would fall by 50% as a share of revenues,” he told me in an interview. As it turned out, the costs of the four functions actually fell by 30% or $1 billion over 15 years, so that spending rose more like 30¢ for each dollar gain in revenues. “We used part of the savings to improve IT for all four functions, so that we needed fewer managers,” says Cote. “For every 10 managers who retired or left, we only had to replace about seven.”
In line with his conviction to achieve two seemingly conflicting things at the same time, he also demanded that the four functions demonstrate better service to their internal Honeywell customers, as determined by anonymous surveys. Cote also taught the Honeywell brass to take on broader roles, so that he could run the company with far fewer leaders. The leadership ranks over 16 years shrank from 740 to 650 even as sales almost doubled. “I did it for two reasons,” says Cote, “to save costs, but most important, because leaders create work for other leaders, and instead of focusing on markets and customers, focus on satisfying each other.”
The second initiative was an epic campaign to boost productivity in manufacturing. “If you can grow output much faster than you add costs, including for payroll and floor space,” says Cote, “you’re bound to generate the savings that both fuel new investment, and increase quarterly earnings.” In 2005, Cote dispatched a team to study Toyota’s celebrated Toyota Production System, at the automaker’s plant in Georgetown, Ky. Over the next decade, Honeywell gradually rolled out its Honeywell Operating System or HOS, largely based on the TPS practices of engaging workers to recommend and implement improvements in their factory-floor tasks that save costs and improve quality.
The initiative was so successful that Honeywell over that period increased its sales per employee by two-thirds. HOS also enabled Honeywell to keep shrinking factory space as it made more and more product. By 2018, Honeywell was producing far bigger volumes in only 70% of the plant footprint it was using in 2002.
Early in Cote’s tenure, Honeywell was manufacturing sensors in 37 small plants. Cote asked the managers to do a “white paper” exercise imagining the ideal footprint if manufacturing could be redesigned from scratch. The answer was more like 12 factories that each produced much bigger volumes. In a classic Cote “go slow to go fast” maneuver, the sensors unit spent 10 years making that blueprint a reality by packing all production into a dozen plants. “We did it laying off just a few workers a year so that we didn’t disrupt customer service,” writes Cote. “It was part of our philosophy of constant restructuring.”
Cote notes he reached his expense targets while still increasing the number of workers in manufacturing. “We started with around 60,000 in 2002,” he said in an interview. “And we hired about 20,000 or 30%-plus over 15 years. The key was that we doubled the size of the company, so the revenues grew much faster than payroll.”
Those cost-savings plans freed the cash for both short- and long-cycle investments. For Cote, the bigger challenge by far was finding the right mega-bets that would swell earnings anywhere from two to six years hence. “We were already getting lots of enhancements on existing products because people wanted to make their numbers for the quarter,” he says. “HOS enabled us to make those improvements a lot faster, but the big one was the seed planting.” He writes that prior to his arrival, Honeywell was spreading investment dollars across a broad spectrum of projects without carefully assessing their potential profitability, hoping that the more bets you made, the more would win. Cote moved to advancing fewer huge platforms that played to Honeywell’s greatest strengths, especially in aerospace, and that promised the biggest payoff.
One major hit was HFO, a new form of fluorine for industrial refrigeration. HFO was a breakthrough molecule that Honeywell developed in a quest to reduce the global warming caused by previous fluorine molecules. “That was really touch and go,” Cote told me. “It took five years, and there were two or three times when we thought it wouldn’t work.” HFO raises global warming 20% less than carbon dioxide and 1,500 times less than the previous molecule, and it has mushroomed into a highly profitable $1 billion business.
Another haymaker: Experion Orion Console, a monitoring system for oil refineries. “It’s like a jetliner cockpit for refineries,” says Cote. “It collects and processes huge amounts of data from the facility, and controls all the flows to ensure the highest possible productivity and safety.” It was Darius Adamczyk, whom Cote mentored and succeeded him as CEO, who shepherded the Experion Orion. Overall, says Cote, Honeywell now captures three-quarters of the big aerospace projects it competes for, up from half in 2002. And by the way, today’s hits are much bigger than yesterday’s.
Overall, says Cote, Honeywell’s strongest growth engine was the payoff from long-horizon projects. Of the extra $18 billion in sales generated from 2002 to 2018, $6.5 billion came from acquisitions, and the remaining $11.5 from its own products. And three-quarters of that organic growth flowed from Cote’s seed planting.
In Winning Now, Winning Later, Cote relates that in large meetings, he’d listen to the presentations and encourage everyone to talk. And when the open discussion ended, he’d request opinions on how to proceed from everyone in the room. He always asked the lowest level managers to speak first, and as they talked, he’d show no hint of agreeing or disagreeing. “If their bosses spoke first, the lower level folks would be tempted to just parrot what their bosses said,” Cote told me. “I’d never interrupt and wouldn’t express my opinion until the very end.”
For Cote, teamwork consisted not of the usual groupthink but ensuring that everyone in the room cited facts and expressed opinions. Then Cote, as leader, would make a decision and explain his reasoning. Cote wasn’t looking for widespread buy-in. “Consensus was not the goal. A good decision was the goal,” he says. However, Cote always explained his rationale, to guide the organization on how the leader wanted them to think about problems and let the people who disagree understand that he weighed their arguments and respected their viewpoint. Cote says his goal was to be right at the end of the meeting, which might be different from what he thought at the beginning. And the only way to get as close as possible to “right” was to keep participants from knowing what he thought and getting facts and opinions from everybody.
Once again, Cote thinks it’s constructive to call out a leader who presents a weak business plan so that all present understands what the boss accepts. “Organizations need to learn what is acceptable and what is not,” he told me. “If a business head presents a plan that’s not well thought through, or gives me a great story instead of results, I’ll call them to task. Everyone around the table needs to hear that the work product is not acceptable.”
His technique isn’t to personalize the problem. “I won’t call them an idiot,” says Cote. Instead, he’ll ask the executive to start over and come back with a much better proposal. “The leader will walk out thinking, ‘That wasn’t a good meeting,’” says Cote. “But it creates a good dynamic. It builds respect for you when you tell them what’s wrong. They may panic, but they’ll come back with something a hell of a lot better.” Cote adds that he would always suggest ways the executive could improve his or her plan. “I’d always say, ‘Here are four or five things you need to think about,’” he recalls. “I worked for bosses who’d give you no idea what was wrong and just say, ‘Do better.’ When your people respond to positive suggestions, their business gets better.”
During the financial crisis, Cote focused just as much on ensuring that Honeywell could roar back in the recovery as on lowering costs to preserve investment and profits. “An economist said that you’ll most likely come out of a downturn the inverse of the way you went in,” he relates in the book. “That made a tremendous amount of sense to me. If your sales fall 20% in the first six months of the recession, they’ll probably jump by 20%-plus to the same level when the economy bounces back.” Cote orchestrated his response to ensure that Honeywell could handle a huge surge in orders to capitalize during the inevitable recovery.
Cote laid off 3,000 workers, moving up reductions already planned. But for the rest of the 125,000-person workforce, he deployed furloughs to keep everyone employed at the same time his rivals were axing a big chunk of their workforces. Employees were furloughed without pay for four weeks a year. That move saved $200 million, but it wasn’t enough. Cote also reduced the 401(k) match by 50%, used HOS to keep trimming operating costs, and forced management to take some of the pain by scrapping bonuses for 2009. “We performed in line with our peers, with two big differences,” he writes. “We didn’t cut our long-term investment plans, and for the most part, we didn’t cut people. Recessions don’t have to destroy your foundation. It’s best to keep calm while everyone else is panicking.”
Cote pushed ahead with two key acquisitions: One of them, the purchase of bar code scanning specialist Metrologic, landed its leader Adamczyk. He also made special deals with suppliers to ensure that Honeywell got first priority on supplies in the recovery. “If airline hours decline 6%, you go down three levels in the supply chain for parts, and the suppliers cut their capacity by 50%,” he said in an interview. “Then when flights pick up, this avalanche of orders pours in, and you can’t get supplies.” Cote’s solution: Make advance payments to vendors in exchange for a commitment to serve Honeywell first when good times return, and guarantee big future volumes providing the suppliers give Honeywell first dibs.
The strategy proved a winner when sales took off in 2011 and 2012. His workers were ready to go, while rivals struggled to quickly rebuild their workforces and keep pace with orders, and stood in line behind Honeywell for supplies. Over those two years, its sales of aerospace parts soared 30% above pre-crisis levels, largely because the ever-agile Honeywell stole orders from its flat-footed competitors.
Believe it or not, this review only scratches the surface of this book, brimming with original strategies that actually worked. Cote swears that part of being a successful CEO is being a good teacher. Now, readers from around the globe can absorb his lessons.
As protests against police brutality and systemic racism continue across the country, Google employees are demanding that their company overhaul its relationship with law enforcement.
A petition to CEO Sundar Pichai that began circulating Wednesday calls on the company to stop selling all of its products to police and has garnered more than 1,600 signatures.
“Americans are grappling with the historical legacies of slavery and genocide that the country is built on, and have begun to identify the role of the police forces in maintaining a fundamentally white supremacist system. The demand to defund the police has been raised in city after city, as the first step in ending that system permanently,” the petition states, per Gizmodo.
The search giant is no stranger to employee dissent regarding its relationship with law enforcement and the U.S. military. In 2018, several employees resigned and more than 3,100 employees asked Pichai to end a controversial military AI program known as Project Maven. Some employees who organized the massive November 2018 walkout, which protested sexual harassment and racial inequity, later said they faced retaliation — a charge the company denied.
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“We’re disappointed to know that Google is still selling to police forces, and advertises its connection with police forces as somehow progressive, and seeks more expansive sales rather than severing ties with police and joining the millions who want to defang and defund these institutions,” the latest letter states. “Why help the institutions responsible for the knee on George Floyd’s neck to be more effective organizationally?”
Google isn’t alone in working with law enforcement or the military. Salesforce has a contract with Customs and Border Patrol (CPB). Amazon recently imposed a one-year ban on selling its facial recognition technology to police, but it had previously worked with hundreds of departments across the country.
As the Black Lives Matter protests have continued, Google pledged millions of dollars to racial justice organizations in the wake of widespread demonstrations against police brutality and racism. But in the petition, its employees are calling for more sweeping changes.
“The racist legacy of police across the United States goes all the way back to its roots, when police forces emerged to protect the wealth gotten from slavery and genocide,” the petition states. “We have a long way to go to address the full legacy of racism but to begin with — we should not be in the business of profiting from racist policing.”
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In response to the petition, Google provided the following statement to Fox News:
“We’re committed to work that makes a meaningful difference to combat systemic racism, and our employees have made over 500 product suggestions in recent weeks, which we are reviewing,” a Google spokesperson said.
Trade matches coffee drinkers with perfect coffees and educates them on where it comes from.
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The typical office breaks down somewhere along the lines of tea people, coffee people, and coffee people. Anyone who has spent time in a professional setting knows a few people who drink coffee not simply as part of a routine, but because they genuinely love coffee. Some of today’s most influential business leaders are coffee fanatics.
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Giving employees a day off may not seem like the top way for multi-billion-dollar companies to fight systemic racism. But a new trend in corporate America—the declaration of June 19, or Juneteenth, as a company holiday—makes a powerful statement, according to historians.
Juneteenth celebrates the date in 1865, more than two years after the Emancipation Proclamation, when enslaved people in Galveston, Texas learned that they had been freed through Maj. Gen. Gordon Granger’s “General Orders, Number 3.” The day is the oldest commemoration of the end of slavery in the United States, but it hasn’t been honored as a holiday or taught in history classes throughout much of the country.
Last week, Twitter and Square became the first major companies to announce they would make the day a paid holiday for their workforces. The duo were quickly followed by Fortune 500 companies like Mastercard and Target; media companies like the New York Times and Vox; and fellow Silicon Valley and tech firms like TikTok and Lyft. Some companies committed to an annual holiday, while others made the change for this year only. About 200 total companies have now pledged to honor the date with a paid holiday.
The gesture has resonance beyond its show of solidarity. The original Juneteenth proclamation was, at its core, about labor, says Tamika Nunley, an assistant professor of American history at Oberlin College who studies slavery, gender, and the Civil War. The first, most often quoted sentence of the message informs “the people of Texas” that “in accordance with a proclamation from the Executive of the United States, all slaves are free.” But the rest continues: “The connection heretofore existing between [former masters and slaves] becomes that between employer and hired labor. The freedmen are advised to remain quietly at their present homes and work for wages.” The message is meant to inform formerly enslaved people about the “new labor relationship,” Nunley says.
“There’s no other place that’s more fitting to acknowledge [Juneteenth],” says Nunley about modern-day employers.
The Juneteenth message also warns formerly enslaved people “that they will not be supported in idleness,” a message “controlling how they respond to Juneteenth,” Nunley adds. Companies, then, sending a clear signal that the day is one for celebration and not for work adds another dimension to the decision. “The order was designed to silence them—telling them to be quiet, not to be idle,” she says. “It makes the celebratory component of Juneteenth that much more important.”
Juneteenth’s closest equivalent among the holidays traditionally acknowledged by corporate America may be Labor Day, Nunley adds. The labor movement fought for the date honoring workers, which became a federal holiday in 1894. No other holiday on the American calendar specifically honors the end of slavery.
Of course, giving employees a day off for Juneteenth is only as meaningful as a company makes it through a broader commitment to racial justice. “Is it just a holiday, or is it a signifier in recognizing how systemic racism and inequity has constrained employees’ lives on all fronts?” Nunley asks.
The movement in corporate America to honor Juneteenth may contribute to more widespread recognition, including the longtime goal of a federal holiday. Almost all 50 states recognize Juneteenth as a holiday, but that doesn’t mean they provide a day off for state employees, as for other holidays. Some, including New York, have moved over the past several days to further honor the date as a paid holiday for state employees. Campaigns including “HellaJuneteenth” and the National Juneteenth Observance Foundation have long pushed for an acknowledgment from the federal government; their efforts have gained new momentum over the past few weeks.
The movement among corporate leaders to acknowledge the day’s significance to their workforces has been unprecedented. Says Nunley: “This is something entirely new for corporate America.”
5 min read
Opinions expressed by Entrepreneur contributors are their own.
The startup economy was valued at nearly $3 trillion worldwide in 2019. While it is still too early to determine where the valuation will land in 2020, the numbers are likely to look very different. The global economy is suffering, and experts predict a recession that will have lasting impacts across all industries. In past recessions, the total decrease in venture-capital investment was about 25 percent on average in 12 months, which would mean a loss of $86.4 billion in the current economic context. In the first two months of this year, venture capital deals in China alone decreased by more than 50 percent, indicating that the effects of this recession could be even greater globally.
The contagion timeline varies by region, and life in many countries is resuming some degree of normalcy. However, in Latin America, the rate of infection continues to rise. For entrepreneurs in emerging markets like Latin America, the continued rise of cases and subsequent economic impact is creating a challenging environment, and they are searching for strategies and support as they adapt to the “new normal.” Here’s a look at how company builders can help.
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Heading into this year, the startup scene in Latin America was exploding. In just three years, investment in Latin American startups increased nearly tenfold, from $500 million in 2016 to $4.6 billion last year. Part of the record growth was due to a new $5 billion Softbank Innovation Fund, which focuses exclusively on the Latin American market. However, even without Softbank’s contribution, the region experienced a record increase in funding in 2019.
Unfortunately, it didn’t take long for startups to be impacted economic shutdowns. Between Q4 2019 and Q1 2020, the number of venture deals completed in Latin America decreased by 60 percent. As the contagion’s spread continues throughout the region, short-term opportunities like cash injections from investors and startup accelerators will be harder to come by. Entrepreneurs should instead consider alternatives, like working with company builders for long-term support and funding.
Company builders, also known as “venture studios,” bring together talent, investors and experienced entrepreneurs to build out many ideas simultaneously. Their approach combines the stability of an established company with the creativity and innovation of individual startups, developing ideas through a rigorous process, and then establishing the most successful as independent companies.
In many Latin American countries, setting up a new business is complicated, often requiring extensive paperwork and many appointments to meet all the legal requirements. And although some countries are beginning to ease their restrictions, the majority still have shelter-at-home mandates in place. These restrictions further complicate the process of legally registering a new company, especially for first-time entrepreneurs. Company builders, which work with many startup ideas simultaneously, are familiar with the necessary bureaucratic processes and can help navigate them with repeatable processes and their business branding. Additionally, they can draw upon industry experience and existing infrastructures to help stabilize and launch new businesses.
Most company builders also have established relationships with people who can help navigate local legal requirements. However, legally establishing a new company is not worth much if the business has no way to fund its operations. Investors in Latin America are known for being risk-averse, making it difficult for startups with innovative ideas to raise money. In times of crisis, this tendency to stick with the tried-and-tested only increases, leaving companies with less access to funding when they need it most.
Company builders help increase funding opportunities for startups because they lower the perceived risk for investors. The company-builder model is designed to create successful companies using a structured process to generate and test ideas that build upon past attempts. As part of a company builder, entrepreneurs work on multiple startup ideas and validate them before looking for outside funding. Furthermore, many startups incubated in company builders are led by experienced entrepreneurs who have built successful businesses in the past, which can be a reassuring indicator of success for cautious investors.
In addition to bringing together seasoned entrepreneurs, company builders often partner with industry experts and large corporations. These partnerships are mutually beneficial. Corporations can keep up with the latest tech developments by working with startups, and startup founders gain access to industry insights, new market opportunities and sometimes even funding.
By incorporating more established corporations into the process of building out startup ideas, company builders create lower-risk opportunities for regional corporate investors. Currently, only 16 percent of the large companies in Latin America partner with startups, and more than 80 percent of those collaborations are short-term opportunities like hackathons.
In the current climate, larger, more established companies have realized the importance of moving their operations online in order to survive in the new remote-work environment. Forming stable, lasting partnerships with startups can help bring large businesses firmly into the digital sphere for both the short- and long-term. In addition to modernizing traditional business approaches through tech, company builders can share their expertise and teach corporations how to be agile, innovative and flexible in response to new challenges.
Related: Company Builders Are the New Accelerator Programs
Worldwide lockdown measures have revealed serious flaws in important systems in emerging markets, highlighting healthcare deficits, global supply chain weaknesses and limited financial safety nets. These deeply rooted problems will only be resolved by innovative approaches designed to create disruptive, sustainable change. With their long-term approach to generating value, company builders create the ideal environment for pursuing that change.
Apple Inc.’s head of diversity and inclusion Christie Smith is leaving the iPhone company.
Last week, Chief Executive Officer Tim Cook said Apple is launching a $100 million Racial Equity and Justice Initiative, adding to the company’s response to the police killing of George Floyd last month. Earlier this month, Cook wrote in a letter to employees and customers that society needs to do more to push equality, particularly for Black people.
“To create change, we have to reexamine our own views and actions in light of a pain that is deeply felt but too often ignored. Issues of human dignity will not abide standing on the sidelines,” Cook wrote in the letter.
Smith joined Apple in 2017 after 16 years at consultancy Deloitte. Unlike her predecessor, who reported directly to CEO Tim Cook, Smith reported to Apple’s Senior Vice President of Retail and People Deirdre O’Brien.
“Inclusion and diversity are core Apple values and we deeply believe the most diverse teams are the most innovative teams,” Apple said in an emailed statement confirming the news. “Christie Smith will be leaving Apple to spend more time with her family and we wish her well. Our Inclusion and Diversity team continues to report directly to Deirdre O’Brien on the Executive Team.”
Apple said the move was planned two months ago, though a person familiar with the matter said Smith’s last day was Tuesday.
Adobe CEO Shantanu Narayen’s virtual meeting just prior to speaking with Fortune got interrupted. The culprit? An employee’s dog. What pre-lockdown might have been an awkward moment was instead met with oohs and aahs from fellow remote attendees after Narayen asked the employee to introduce the cute canine.
When the San Jose–based software company moved its 22,000-person global workforce to working remotely in March, Narayen says the priority was employee well-being during these unprecedented global lockdowns. But Adobe has found that some employees are thriving and more productive as they revel in losing their grueling commutes. While it’s too early to commit to specific policies, Narayen says, once the crisis ends Adobe will incorporate more remote working for staff who prefer it.
“I can literally have meetings with customers and employees across four continents in the same day,” Narayen says. Prior to the pandemic, Narayen would give his Japanese clients a three-day window that he’d be in Tokyo for meetings. Now he can do those meetings virtually at any time from his California home.
Fellow tech companies like Facebook and Twitter have announced some employees can work from home permanently. But those policy changes are just a small piece in how the pandemic is changing business norms: Many existing digital transformation trends are now rapidly picking up speed, and gaining more attention from the C-suite, Narayen says.
From its cloud computing business to creativity software products such as Adobe Photoshop, Narayen sees the tech company as well positioned for this move to “all things digital.” As U.S. employers lay workers off in masses, Adobe actually reported a record quarterly revenue of $3.13 billion in its fiscal-year second quarter which ended May 29. That was a 14% year-over-year increase in revenues during a time when the U.S. is at Great Depression–era level unemployment. Adobe has nearly a $196 billion market capitalization—greater than that of IBM, Oracle, and Salesforce—and hasn’t laid off or furloughed any of its global workforce during the crisis.
The accelerating digital transformation is happening for both big and small technologies. For instance, in an environment where a deadly virus is spreading, Narayen expects to see more shifts to cloud-based e-signature services, like Adobe Sign. Adobe sees $128 billion total addressable market (a.k.a. market opportunity) in 2022 for its three core businesses of Creative Cloud ($31 billion), Document Cloud ($13 billion), and Experience Cloud ($84 billion).
Just one new way institutions are using Adobe’s products: The U.S. Census Bureau came to Adobe Experience Cloud to help modernize its digital strategy for its 2020 Census application site. And that revamp is likely to pay off: For every 1% increase in digital responses, the Census Bureau saves $55 million. And given the lockdowns, the Census Bureau could see a huge surge in online responses.
And the stay-at-home orders are speeding up the move from bricks and mortar to e-commerce. In fact, online spending topped $82.5 billion in May, up 77.8% year over year, according to Adobe Analytics. That online spending was $52 billion higher than expected for the month.
“The urgency has only increased,” Narayen says. “We won’t go back to the old norms.”
Tim Ryan, who runs the U.S. arm of global consulting and accounting powerhouse PwC, has a full house: He’s been quarantined at his home in Boston with his family, which includes six children and a dog, for nearly three months now. That’s a huge turnaround from the typical corporate grind. “For the last 25 years I’ve spent every week traveling between three to six different cities around the world,” he says.
He’s also been swept up in the calls for change in corporate America in response to the outpouring of support at Black Lives Matter protests across the country. As he wrote to the PwC community, “I cofounded the CEO Action for Diversity and Inclusion in response to the killing of unarmed Black men in the summer of 2016. Two years later, in 2018, we lost a member of our PwC community, Botham Jean, to this same kind of violence, and I witnessed the pain his family had to—and still has to—endure over the loss of their son and brother.” Ryan wrote that among other actions, PwC will be giving employees a paid week off to volunteer for nonprofits, releasing diversity stats, creating a staff-led group to advise management on advancing progress, and donating more than $1 million to charities including the NAACP, ACLU, and the Center for Policing Equity.
As he wrote in his letter to employees, “Over the past week, I have heard from thousands of people, from PwC and elsewhere, and have come to a greater understanding of the hurt, anger, and exhaustion that the constant threat of violence and oppression takes on the Black community. And while I acknowledge that it is not the job of our Black colleagues to teach the rest of us what to do, I am grateful for how many of them have stepped forward to not only share their pain, but also their ideas, with me.”
Beyond its own walls, the fact that PwC works with more than 200 major companies around the globe has given Ryan a unique view of how the nature of work is evolving in a period of unprecedented change. Fortune spoke to Ryan about innovating during a crisis, how to make offices safe, and the cost of bringing people back to the office.
This interview has been edited and condensed for clarity.
When will PwC bring employees back to the office?
When will we reopen? We want to make sure our working parents are supported, so at the very earliest, some of our offices in areas that meet our criteria for safety may open after schools reopen. It’s a whole ecosystem of making sure supports are in place so employees can come back. But not everyone will. We’re working with many clients on reimagining their work, not just ‘come back to work’ plans, but also looking at what functions can be done remotely on a permanent basis.
Talk a little bit about the cost of bringing people back to the office.
The cost of bringing people back has gone up, and that’s forcing people to reimagine work. We’ve heard estimates of $200 per head/per month to safely bring people back to the office. That’s deep cleaning, sanitizing, temperature checks, masks. If you aren’t reimagining your workplace, your margins just went to hell in a handbasket. If companies aren’t doing things to offset those costs and lost productivity [due to factors like social distancing requirements] you’re not competitive.
We are keenly aware of the challenges employees are having right now. The country is split. Some people think it’s best to keep working from home; some people think, “I can’t wait to get back.” You can’t just look at the aggregate. Everyone has different challenges, whether that’s childcare, caring for parents, their own health, worries about economic uncertainty. We can’t minimize those challenges.
PwC has developed its own contact tracing app. How does that work?
We went live this spring. The app is called Automatic Contact Tracing. Two years ago in Chicago there was a law passed around keeping hotel employees safe, and we developed a geo-tracker with a panic button. If someone needed help they’d hit a button on their phone, and right away security would know there was a problem in, say, room 202. So we have adapted that technology to help employers track who their employees may have come into contact with. Right now, if someone gets COVID, you have to shut the whole place down. Tracking allows you to notify who that person was near. I might have been in close contact with 10 people, so now instead of shutting the whole office down, just those 10 people need to quarantine. We’re in no rush to come back to the office at PwC, but when we do, the app will be a prerequisite for employees.
Which companies are going to come out of this period stronger?
Larger companies that are well capitalized going in very much have the opportunity to come out on top. You’ll see a clear segmentation when we come out of this. One CEO we work with told me recently that since March they have built out a digital strategy that before the crisis they thought would take two years. Areas where we see significant opportunity are IT, digital, security, and collaboration software. In health care, we think 50% of health will move toward telehealth. Across industries, companies are really investing in their digital salesforce, especially in places like pharma. And automation of the back office will continue—you clearly don’t need as many people to get the work done.
How has college recruiting changed this year?
At the end of March, we came out and said we would honor all 3,600 of our internships. We learned a lot in the financial crisis. Economic uncertainty is such a big fear. We’ve said publicly that layoffs would be a last resort. We have slowed hiring down, but we still did our campus recruiting this year. It just transitioned to virtual interviews. It’s going okay, but it’s too soon to tell how it really has differed from traditional face-to-face interviewing. And last week we announced that we would be extending full-time associate offers to all of our eligible graduating summer interns for employment in 2021.
What are some of the big concerns you are hearing from leaders right now?
Culture is a huge one. One of our CEOs said the other day, “We’re living off of our culture now. We’re drawing down on it. But if we’re in this period for a long time, we’re going to lose it.” If you don’t spend the time talking about your values, they will go away. In the past, many corporate values were created with physical things. But now they are having to transition this to virtual. How do they share, how do they innovate, how do they show they care?
But additionally, we’ve never been in a period where there is such low confidence around demand. Nobody knows what revenue is going to be. It’s anybody’s guess. There is a sense that work will never be done the way it was 12 weeks ago, but there’s also no way it will be like it is today. What’s going to happen is that every company at some level will reimagine how they work, how they sell, and how they interact.