Q3 2020 Texas CEO Magazine - Rebooting the Texas Economy by txceomag

Q3 2020

Rebooting

the Texas Economy THE TRUE ENGINE OF ECONOMIC RECOVERY Amity Shlaes Offers a Historical Perspective

RECOMMENDATIONS FOR THE REBOUND From Gabriele Camera and Nobel Laureate Vernon L. Smith

PULLING TOGETHER

UNDER PRESSURE

Erik Larson on Churchillâ&#x20AC;&#x2122;s First Year as Prime Minister

COVID -19 didn’t stop Beverly – it made her more ESSENTIAL than ever.

Beverly Horne Events Manager | Furlough Kitchen | Dallas

S TAY SA F E , T E X A S

When the COVID-19 shutdown reached Dallas, Vestals Catering became Furlough Kitchen — and Beverly Horne became essential. Now she’s feeding furloughed employees and delivering hot meals to healthcare workers at area hospitals. It’s a different way of working — she wears a mask and gloves, practices social distancing and follows strict new hygiene procedures. But that’s how she protects herself and everyone she serves. So to Beverly and thousands of other workers across Texas, we say thank you for making yourselves essential. We’re proud to be on the job with you as our state moves toward better days ahead. See Beverly ON THE JOB at texasmutual.com/onthejob. © 2 020 Texas Mutual Insurance Company

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FEATURES

35 THE TRUE

ENGINE OF ECONOMIC RECOVERY

A Conversation with Amity Shlaes, Leading Economic Commentator and New York Times Bestselling Author

58 PULLING

TOGETHER UNDER PRESSURE

A Conversation with Erik Larson, Six-Time New York Times Bestselling Author

Q3 2020 Publisher Lauren Daugherty Editor Aaron Hierholzer

WHY WE DO WHAT WE DO

Robert Callahan

THE SHORT-TERM OUTLOOK FOR THE TEXAS ECONOMY

M. Ray Perryman, PhD

THE FIRM ECONOMIC FOUNDATION OF TEXAS

A Conversation with Glenn Hegar, Texas Comptroller of Public Accounts

BILL PERKINS WANTS TO “DIE WITH ZERO”

A Conversation with the Houston-Based Hedge Fund Manager, Poker Player, and Wild Bet Maker

HOW WILL WE RETURN TO PROSPERITY? Gabriele Camera, PhD, and Vernon L. Smith, PhD 4

Texas CEO Magazine Q3 2020

ARE CONCIERGE DOCTORS THE FUTURE OF MEDICINE? James S. Hahn, MD

Operations Tamara Trammell VP of Sales Whitney Bilyeu Graphic Design Michele Rodriguez Contributors

Wade H. Allen, Taseer Badar, Zachary Bergenholtz, Eric Bonugli, Robert Callahan, Gabriele Camera, PhD, Craig Casselberry, Rey Chavez, Bill Chinn, Coy Comontofski, Gordon Daugherty, Jason Dorsey, Elizabeth Gerbel, James S. Hahn, MD, Katie Harvey, Glenn Hegar, Modinat “Abby” Kotun, Erik Larson, James O’Gara, Bill Perkins, M. Ray Perryman, PhD, Amity Shlaes, Vernon L. Smith, PhD, Joel Trammell To subscribe to the print or digital edition of Texas CEO Magazine, please visit our website: www.texasceomagazine.com and click subscribe. POSTMASTER Please send address changes to: The American CEO, LLC dba Texas CEO Magazine 8012 Bee Caves Road Austin, TX 78746 © 2020 The American CEO, LLC dba Texas CEO Magazine. All rights reserved. The Content in this issue may not be reproduced, distributed, or otherwise used without the prior written consent of the American CEO, LLC. The various contributors own their respective Content that is published in this magazine. The beliefs, content, comments, opinions, statements and viewpoints (collectively, the “Content”) published in this issue are those of the respective contributors and we do not necessarily agree, endorse, support or verify such Content. The Content presented in this issue is for informational purposes only and is not advice of any kind. Your use of the Content is at your own risk. The Content is provided on an “AS IS” basis, without any warranties of any kind, either express or implied. Neither The American CEO, LLC nor any person associated with us makes any warranty or representation with respect to the completeness, reliability, quality, or accuracy of the Content. Without limiting the foregoing, The American CEO, LLC does not represent or warrant that the Content will be accurate, reliable, error-free, that errors will be corrected, or that the Content will otherwise meet your needs or expectations. The American CEO, LLC disclaims all warranties of any kind, whether express or implied, statutory or otherwise, including but not limited to any warranties of merchantability, non-infringement and fitness for particular purpose. The foregoing does not affect any warranties which cannot be excluded or limited under applicable law.

INSIDE 6

[INNOVATION]

TEXAS’ BIG BEND MOMENT Craig Casselberry

KGBTEXAS IS CHOOSING THE CAMPAIGNS THAT MATTER

A Conversation with Katie Harvey, CEO and Founder of KGBTexas

HOW CAN THE TEXAS OIL AND GAS INDUSTRY REBOUND? Elizabeth Gerbel

[ENTREPRENEURSHIP]

STARTUP SUCCESS:

TIME-IN! RESTARTING THE ECONOMY WON’T BE QUITE THAT SIMPLE Joel Trammell

HOW MANUFACTURING WILL SUPPORT THE REBUILDING OF THE TEXAS ECONOMY Rey Chavez

KEEPING YOUR BUSINESS SAFE—AND LEGALLY COMPLIANT— AS YOU REOPEN Modinat “Abby” Kotun

[LEADERSHIP]

RETHINKING GENERATIONS:

WHAT CEOS NEED TO KNOW FROM THE EXPERT ON LEADING AND SELLING TO MULTIPLE GENERATIONS

THE FUNDRAISING TOOLKIT Gordon Daugherty

HELPING UNDERSERVED BUSINESSES THROUGH THE COVID-19 RECOVERY Bill Chinn

A PASSION FOR FLIGHT A Conversation with Coy Comontofski, President of LIFT Aviation Company

[LEADERSHIP]

WHY WE PROVIDED FREE COVID-19 TESTING TO OUR EMPLOYEES—AND THE LESSONS WE LEARNED

[ENTREPRENEURSHIP]

HOW ONE BARBEQUE JOINT ADAPTED—AND SUCCEEDED—DURING THE PANDEMIC Zachary Bergenholtz

[LEADERSHIP]

PREPARING FOR A NEW SENSE OF BUSINESS NORMALCY Eric Bonugli

[LEADERSHIP]

COMING OUT OF THE CRISIS WITH A STRONGER, STRATEGICALLY ALIGNED STORY James O’Gara

[RESOURCES]

CRITICAL QUESTIONS FOR CHOOSING AN EXECUTIVE-LEVEL RECRUITER Wade H. Allen

Taseer Badar

Jason Dorsey

TexasCEOMagazine.com

[INNOVATION]

TEXAS’ BIG BEND MOMENT Craig Casselberry Big Bend National Park in far southwest Texas is likely reopening soon, like most of Texas. The park has national significance as the largest protected area of Chihuahuan Desert topography and ecology in the United States and includes the entire Chisos mountain range. The park protects more than 1,200 species of plants, more than 450 species of birds, 56 species of reptiles, and 75 species of mammals. The Santa Elena Canyon, carved by the Rio Grande, features steep limestone cliffs. If you haven’t seen Big Bend, to say it’s truly a Texas treasure is not hyperbole. Big Bend is one of Texas’ most iconic gems, and I mention it because it brings to mind another expansive, perhaps underappreciated Texas treasure: our boundless drive for innovation. 6

Texas CEO Magazine Q3 2020

It’s that innovative, forward-thinking spirit that, I believe, bodes well for Texas’ future beyond COVID-19.

TEXAS PLANS AHEAD. YEARS LIKE 2020 ARE WHY. Let’s face it—we live in a world that’s very different today than it was even 150 days ago.

Every state in the country will be faced with enormous budget pressure given the loss of jobs and related tax revenue, which will surely extend at least all the way through 2020. Texas will be no different. In fact, Texas sales tax revenue was down 13.2 percent in May 2020 compared to May 2019, the steepest year-over-year decline since January 2010. Sales tax is the largest source of state funding, accounting for 57 percent of all tax collections. Other tax revenue sources were also down in May, from 38 percent for motor vehicle sales and rental taxes to as much as 86 percent in hotel occupancy taxes.

However, as you heard from me in previous issues of Texas CEO Magazine, we are better positioned for recovery than most other states. Why? Precisely because we invest so heavily in the future, not only through innovation but through strong planning and the fiscal austerity required by our state constitution and—for the most part—practiced by our legislative leadership.

23 percent of Texas eighth graders are meeting that qualification within six years of high school graduation.

In fact, thanks to these factors, Texas will arguably be much better positioned not only than most other states but many other countries as well.

RECOMMENDATIONS FOR TEXAS’ ROAD AHEAD

When it comes to economic development, we play in a global arena. That context is important if we want to come out of this pandemic even stronger than we are today, on a relative basis.

1. SECURE EDUCATION AND THE FUTURE OF JOBS Texas will need innovative thinking and sustained investment in a workforce that will meet the demands of a 21st century economy and maintain our state’s prosperity.

To do so, Texas can continue doing what we normally do: Plan ahead. There are many historical examples of Texas doing just that. The Economic Stabilization Fund (our “Rainy Day Fund”) was established by constitutional amendment in 1988 following an oil and gas crisis and is now valued at almost $11 billion dollars. A good chunk of that money will be needed for the state’s next budget cycle, but it may allow us to avoid deficit spending. The Governor’s University Research Initiative (GURI) and the Cancer Prevention and Research Institute of Texas (CPRIT) are more recent examples of Texas investing in the future, attracting the brightest minds from across the globe and the most cuttingedge technologies to the state.

INNOVATION: BEYOND THE BUZZWORD What is innovation, really? A bit of a buzzword, admittedly. But innovation isn’t only about things that might immediately come to mind, like the latest app or digital technology; it is those things, of course, but it’s also about doing things differently to create an industry or transform one. Dell Technologies was built on made-to-order personal computers. The “hub and spoke” model mastered by Southwest Airlines and FedEx’s (and now Amazon’s) modern delivery system are often cited as major, impactful innovations in recent history. As Gary Hoover, founder of Bookstop and entrepreneurin-residence at UT–Austin’s School of Information, notes, these are “all new, innovative technologies, a new way of delivering or making a new technology or service.” Innovating can be large or small, and it often happens on a daily basis in a competitive, free-market, capitalist society. Why does Texas need to think big and innovate while we do it? According to the organization Texas 2036: • Our population will grow by 10 million in less than two decades and we’ll need 8 million jobs to keep pace with the growth. • In a 21st century economy, 77 percent of jobs will require a college degree or certificate, but just

• Texas ranks 49th among the 50 states in overall health system performance and last in accessibility and affordability, and healthcare has an enormous impact on our state budget.

How can Texas continue to innovate and lead in terms of public policy? Here a few thoughts.

And we need it now. A focus on accountability and outcomes will be important, as will the creation of clear pathways from high schools to community colleges to the workforce and four-year universities—with a vision of turning high schools into community colleges. The specialized needs of Corporate America and the demand for jobs will drive the tailoring of education to the needs, skills, and goals of individual students. In some cases, that means highly skilled technical education that helps our citizens fill a needed role in the workforce. The one-size-fits-all approach to education will need to evolve, just like economies. Public schools, community colleges, and industry must work together to prepare students not just for jobs, but for careers. And we must grow the number of students who attain at least a twoyear college degree, if not a diploma from a four-year university— and create opportunity for every Texan, regardless of where they grow up. Community colleges and vocational schools will play a critical role in teaching skills that students need in order to fill vital jobs in the economy, and they must continue to meet students where they are—whatever that requires. As an example, San Jacinto College in the greater Houston area teaches a welding class from 11:00 p.m. to 2:00 a.m. because, the school notes, “that’s when students are available.” Companies themselves will need to get involved directly on high school and postsecondary campuses for directed skills training; some of that is happening now and the trend will need to continue to fill the jobs required to sustain the state’s population growth. 2. CREATE A DOMESTIC VENTURE CAPITAL INDUSTRY Equity capital is critical fuel for innovation-intensive companies, and there is much more Texas needs to do to ensure an adequate supply and an efficient marketplace to create our own domestic venture industry. TexasCEOMagazine.com

According to the Texas Foundation for Innovative Communities, states have created more than 200 programs for enhancing earlystage investment. However, Texas venture funding has started to drop sharply among the states, from #3 for most of the past three decades, to #5 today, and soon to #6. A major reason for this is that Texas has always relied primarily on investment coming from out of state. However, the investment climates in those states has now improved to the point that Texas has lost its comparative advantage in attracting those funds. There are many approaches we need to explore to improve our standing in terms of venture funding. And there are many stakeholder groups we’ll need to engage to determine the best way to raise and invest funds in our state. We’ll also need to find a suitable role for public policy in support of the effort. Options might include allowing the Economic Stabilization Fund more latitude in its investments to accelerate returns, even investing alongside private investment funds to get capital into the hands of Texas small businesses. A “Texas Legacy Fund” to this end was proposed to the Legislature in 2019 and partially implemented. Expect the idea to be revisited when the 87th Legislature convenes in 2021. The same could be true of the large Texas pension funds, although the politics are tricky. Universities like the UT and Texas A&M systems—both with very large endowments—have a role to play as well to invest and spin off commercially viable enterprises and create the jobs of the future. Sources of capital like these could support certain industries. Additionally, small businesses that rely on state appropriations and tax incentives could work with state government and the private sector to create permanent sources of funding to outcompete other states. 3. ADDRESS THE COST, EFFECTIVENESS, AND ACCESSIBILITY OF HEALTHCARE Medicaid alone now accounts for almost 40 percent of the total Texas budget—yes, that’s 40 cents of every dollar Texas spends. Unfortunately, that number is growing, and it isn’t sustainable. 8

Texas CEO Magazine Q3 2020

Overall, the average annual growth in healthcare expenditures in Texas is 6.9 percent, above the national average of 6.0 percent. Addressing the cost of healthcare will be a key focus of the 87th Legislature, out of necessity. Texas will need to engage in a thorough, thoughtful conversation about how to produce the best health outcomes, put limited resources to their most effective use, and deliver healthcare more efficiently. As I mentioned, Texas ranks 49th in overall health system performance and last in accessibility and affordability. Health outcomes and access are not equal across the state, varying by geography, race, ethnicity, and income. Solutions may include a greater emphasis on improving the health of patients (as opposed to simply treating them when they are sick) and increasing competition in the system and relying more heavily on technologies such as telemedicine. Experts have noted the potential value of artificial intelligence in helping to improve diagnoses and speed treatment, thereby reducing the need for long-term care and hospital stays. — These are a few examples of where Texas can lead the future. Infrastructure is another, although we’ll need an injection of private capital given the state of the budget. And all of it needs to be measured to know how we’re doing; today, just one-third of Texas state agencies have analytic capacity. Make no mistake, economic growth is the most powerful tool for reducing poverty, reducing income inequality, and ensuring a future of shared prosperity for all Texans. Innovation is the primary currency of economic growth, and Texas has the risk takers and big thinkers to swiftly create new ideas and transform those ideas into high-growth companies. If you can get to Big Bend, go. You won’t regret it. If you can’t get there, just picture it. I like to think of it as a symbol of the expansive, future-focused spirit Texas needs at this moment. Craig Casselberry is founder and CEO of Quorum Public Affairs Inc. and a 30-year veteran of Texas policy and politics. He is a former aide to two Texas governors and has provided government and public affairs services to companies, issue coalitions, and economic developers since 1994.

SPORTING CLAY

TOURNAMENT WITH THE TEXAS RANGERS

March 13, 2021

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After the tournament is over, we’ll put away the firearms and enjoy some cocktails, beer, and barbecue. Come network, enjoy meeting some really interesting people, and have fun. If you have questions or are interested in bulk rates or sponsorships, email us at info@texasceomagazine.com and we’ll respond promptly. All participants must sign liability waivers before the event. For tickets visit texasceomagazine.com/rangers

WHY WE DO WHAT WE DO Robert Callahan

Nike, Pepsi, Nickelodeon, Spotify, Disney, MTV. Paw Patrol and Sesame Street. What do these brands and shows have in common? In the wake of the killing of George Floyd, as people took to the streets to express their outrage at that and other injustices against minorities, they all clearly communicated what they believe in.

Feature

WHEN WE START A BUSINESS, WE DO SO WITH A CLEAR UNDERSTANDING OF WHAT WE’RE DOING— YET RARELY DO WE REALLY UNDERSTAND WHY WE DO IT. Traditionally, we’ve been taught to believe that businesses should reach as broad an audience as possible. Therefore, it’s best that corporations stay out of controversial topics. Yet, despite the risk of financial loss and public backlash, the leaders of these companies decided that dignifying the lives of minorities reeling from trauma in this tumultuous time is more important than their bottom line. Why? As Simon Sinek once told a Ted Talk audience, “People don’t buy what you do; they buy why you do it. The goal is not to do business with everybody who needs what you have. The goal is to do business with people who believe what you believe.” Said another way, people are drawn to your zeal for your purpose. Seems like a no-brainer. The problem is, more often than not, when we start a business, we do so with a clear understanding of what we’re doing— yet rarely do we really understand why we do it. But if we do not understand that purpose, that why at the bottom of it all, we cannot communicate what we believe in most deeply as leaders—even when it goes against the grain of generally accepted “safe” corporate messaging. As a criminal defense attorney, I’ve handled nearly every kind of case imaginable. When people ask about my work at social gatherings (remember social gatherings?), their most common question is, “How can you represent the guilty?” I can almost set my watch to it. The truth is, most

attorneys struggle with it too. It’s a fair question, to be sure, but not the most important one that I ask myself as a lawyer. The most important question is “Why?” Each year, I have the pleasure of speaking to local college students about my work in criminal law and the struggle professionals have integrating their faith into their callings. I begin by choosing a few students at random, asking them to identify their major, what work they want to do after graduation (remember graduations?), and why they want to work in their chosen field. “I want to help people”; “I think I’ll be good at it”; “My mother does the same thing, so it feels natural”; “Financial security”— these are the most common justifications given. All of these are fine reasons, I assure them. But when I find a student with altruistic motives, I press them: “Why do you want to help people?” These students usually say that they were inspired by someone else’s kindness in their own hour of need. They often relay a twinkle-eyed sense of moral duty to change the world, found distinctively in those unacquainted with the crushing weight of student loan debt. “That’s great,” I encourage them, but still, I press: “The goal of business is to make money. Why do we care about helping people?” By this time, the students are flummoxed. Our goal, I tell them, is to get to the why behind the why behind the why. TexasCEOMagazine.com

OUR GOAL, I TELL THEM, IS TO GET TO THE WHY BEHIND THE WHY BEHIND THE WHY. ASKED ANOTHER WAY, DO YOU UNDERSTAND YOUR PURPOSE?

Asked another way, do you understand your purpose? As a lawyer, I am fueled by a historical injustice that occurred before our nation’s civil rights movement: A 33-year-old minority was arrested in secret without probable cause. He was tried without due process; no grand jury was convened to review the evidence. All the accusations against him were hearsay. No credible evidence existed. He was not provided a public defender or the option to request a jury. Though he was a civilian, he was tried in military court for treason and sedition. After a sham of a trial, he was found guilty and sentenced to death. Thereafter, he was taken by the authorities to the outskirts of town as the mob cheered. There, he was hung from a tree to send a message to everyone like him. This man was Jesus Christ of Nazareth. At the center of my faith is the pervasive, systemic failure of the justice system: the wrongful arrest, prosecution, and execution (some may even say lynching) of an innocent man. That reality has far-reaching implications for my work. The knowledge of that injustice compels me to live in such a way that recognizes that my faith has a claim not just on my private life, but on my public work and everything in between. Fair or not, as a husband, father, business partner, employer, advocate, and community leader, I am always an ambassador for the kingdom of heaven. There is no room for compartmentalization. Consequently, it is my duty to ensure that everyone who works for Callahan & King, PLLC, understands that we do not simply represent the guilty; we walk with them in one of the most traumatic seasons of their life. As Joseph G. Allegretti writes in his book The Lawyer’s Calling, 12

Texas CEO Magazine Q3 2020

attorneys who understand this purpose are not merely representatives but moral agents fully invested in their clients’ lives. As such, they gain the authority to speak into their clients’ lives in ways others cannot. We additionally gain the credibility to speak to the pervasive flaws of the justice system in ways that others cannot. This purpose does not make our work any easier. To the contrary, every frustration is amplified by the fact that we are ambassadors for another authority and have surrendered our autonomy. We’re not pushovers. Yet, our charge obliges excellence and empathy in the face of frustration. It transforms the mundane to the missioncritical. It strengthens us to endure what would otherwise be unbearable. And it unites us with those longing for that kind of advocacy. This is our purpose. I believe this analysis holds sway for every similarly minded professional looking to discern their purpose. Whether it’s a teacher pressed to answer why she chose to work in that school district, a doctor questioned about the decision to work with the people at that health clinic, or an athletic shoe company standing in solidarity with the oppressed (and thereby earning my unwavering loyalty as a consumer)—the question is not what we do, or how we do it. The most important question is why. Robert Callahan works for Callahan & King, PLLC, in Waco, Texas. He is a Baylor Law School graduate and a former prosecutor turned defender, and has practiced criminal law for 14 years in Central Texas. This summer, Robert is one of only two lawyers, statewide, distinguished by the Texas Criminal Defense Lawyers Association with the Percy Foreman Lawyer of the Year Award. Robert and his wife live in the Waco area with their three children, two chihuahuas, and a mountain of student loan debt.

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MaQro Insights + Quantitative Analysis = Investable Decisions

Modern investing requires a truly holistic approach that incorporates innovative investment management techniques, expert planning, and a truly personalized client service experience. MaQro is a 100% independent boutique, offering you an outsourced family-office experience. MaQro Insights The term global macro research refers to the study of the interconnectivity of global capital markets (including stocks, bonds, commodities, currencies, and real estate). The real objective is to understand cause-and-effect relationships across asset classes, as influenced by the economic actors in the global economy (from central banks and governments to corporations and consumers). The results are actionable MaQro Insights. Quantitative Analysis Quantitative analysis refers to measuring and mapping dynamic data points to (a) inform real-time investment decisions about buy/sell opportunities in liquid markets and (b) enhance decision making in light of longer-term private/illiquid investments. Investable Decisions Investable decisions occur when there is a fusion of MaQro Insights and quantitative analysis. With an investable decision, action can be taken with the highest probability of success. And it is through investable decisions that we at MaQro achieve our mission to protect, optimize, and grow our clientsâ&#x20AC;&#x2122; assets.

The world has changed. Has your investment strategy? Picture this: The date is January 16, 2018, and the stock market has just reached an all-time high. Unemployment is at an all-time low, and the president is on TV describing “the greatest economy ever.” From an investor’s point of view, everything is awesome, right? Wrong. (More on that in a minute.) It was on this day that a close friend of MaQro Advisors called us up and said, “Hey, I think I need to introduce you all to a friend I grew up with.” His friend was the middle-aged son of a family with a net worth of over $100 million, and he was growing concerned that the family was overexposed to the stock market. This caller knew that MaQro could generate returns without exposure to a possible bubble-boom-bust market decline in the coming years—and he wanted to see if we could help his friend. In January 2018, everything was great on the surface. Yet behind the scenes of the global macro financial landscape, the winds of negative change had begun to blow. Namely, the global central banking community had publicly projected their planned transition from years of quantitative easing to a new era of quantitative tightening for 2018 to 2020. At MaQro, we have long contended that excess central bank liquidity was the primary driver of the 2009–2018 equity bull market. And in January 2018, the central bankers were declaring an end to that era (see figure). Accordingly, MaQro Advisors was predicting an equity downturn to begin in 2018 and extend into 2019 and beyond.

Central banks’ net asset purchases were expected to go negative by summer 2019, as shown in this data from Deutsche Bank.

By December 24, 2018, the stock market had indeed experienced a notable collapse, much as we predicted. By spring of 2019 this new client entrusted MaQro with over $10 million of investable assets. We deployed in line with our low-risk, income-generating, modern investment strategy, as seen in the below example of a MaQro Portfolio Blueprint. This client now feels confident that his family’s assets are in capable hands—and are not overly vulnerable to the swings of the stock market.

Example MaQro Portfolio Blueprint.

Today, we continue to seek out non-cyclical, market-cycle-agnostic investment strategies for our valued clients. By fusing MaQro insights with quantitative analysis, we make the investments that protect and grow our clients’ assets, no matter the state of the global financial landscape.

KGBTexas IS CHOOSING THE

CAMPAIGNS THAT MATTER As CEO of KGBTexas Communications, Katie Harvey has grown her full-service marketing and communications agency from its humble origins 26 years ago as a boutique public relations firm to one of the largest woman-owned communication agencies in Texas, with more than 40 employees and offices in San Antonio and Houston. And as Katie told us in this interview, her agency focuses on projects that have true consequence in the communities they serve—and that motivate her and her team to hit the ground running every day.

How did you get into the PR, marketing, and advertising business? Was it something you always wanted to do? Not exactly. Now that I have a son that’s about to go off to college, I can’t imagine thinking you know what you want to do for the rest of your life at that age! But I grew up in a very small farming town outside of Waco, Texas, with two very entrepreneurial and supportive parents. It was a household of possibilities. When I went to school, I majored in advertising, but it was my psychology minor that really drew me to marketing and PR. I was fascinated by what motivates people’s behavior and what drives them to connect with a certain brand or product. That longstanding interest in psychology is what ultimately landed me in this industry. It was really cemented when I was lucky enough to work with NFL Hall of Famer Earl Campbell on marketing and PR for his football camp while I was still in college. You started KGBTexas quite early after college. What drove you to do that rather than, say, get a job at an agency? Was it that entrepreneurial thing you got from your parents? Yes. I was 24 and working for an athletic shoe company, which is an extremely competitive industry, with behemoth brands like Nike and Adidas. I was traveling about 250,000 to 300,000 miles a year, and I just 16

Texas CEO Magazine Q3 2020

got tired of that. I thought, “I can do this on my own.” I went to my boss and told her I was starting off on my own—and that I’d love for her to come on board as a client. She was wonderful enough to encourage me and became a client, and she has remained my biggest cheerleader over the last 26 years. From there, I leased a small office. I’m not the kind of person who can work well from home, although in our new COVID norm, I’ve become much more open-minded to the flexibility. I needed a place to go. So, I got up every day and just chipped away at my to-do list, started building relationships with clients. I was focused on PR initially, but then those clients needed help with advertising or placing media. We were very hungry and always figured out a way to make it happen. That’s one of our four pillars at KGBTexas, being entrepreneurial. One of the biggest gifts in my career has been that I never worked in an agency, so I never had a preconceived notion of how things were supposed to work. We’re different from a lot of agencies in that we’re entrepreneurial problem solvers for our clients. That’s allowed us to build really longstanding relationships with brands. We’ve been with IBC Bank for over 20 years, Walmart for close to 15. Because we’ve been entrepreneurial in our approach, they consider us a valuable extension of their communications department.

IT WAS MY PSYCHOLOGY MINOR THAT REALLY DREW ME TO MARKETING AND PR. I WAS FASCINATED BY WHAT MOTIVATES PEOPLE’S BEHAVIOR AND WHAT DRIVES THEM TO CONNECT WITH A CERTAIN BRAND OR PRODUCT. You’ve clearly worked with many organizations at this point. What’s the most common misstep you see them making when it comes to PR, marketing, or advertising? The biggest mistake I see is trying to connect with customers by pushing products and services. Gone are the days when a brand could tell a person what they need to do or how they need to feel. People have really taken ownership of their relationships with brands. Yet I see so many companies and CEOs who want to talk about themselves and their products and services—when really they should be talking about how their brand enhances someone’s life. Does it build a community? Does it power someone’s dreams? Does it drive human interaction? You have to think beyond pushing products and services. What should CEOs and executives be looking out for in 2020 or beyond in the PR, marketing, and advertising space? What trends are you following? Certainly, none of us would have been looking out for a pandemic to disrupt our lives this year. Businesses have had to quickly adapt, including their approach to communications. We’ve seen that our “new normal” is fluid, and our communications plans and messaging strategies will have to be fluid as well. It may feel a little like building the plane as we fly it, but that adaptability will be critical now. Also, there was a growing focus on corporate social responsibility before the pandemic hit, and now it is front and center. There are whole career tracks being built around corporate social responsibility, and customers will strongly consider a company’s approach to social responsibility when they evaluate whether they’re going to do business with a brand. They will look well beyond the rampant “we’re in this together” messaging and expect, if not demand, more depth. The brands that can continue to innovate and adapt will not only survive this marathon of a financial recovery, but will ultimately be successful on the other side. 18

Texas CEO Magazine Q3 2020

What do you look for when you’re hiring someone, whether at the executive level or down from that? Do you have a philosophy around recruiting? Absolutely. We’ve refined a process that helps us find people who embrace the four pillars of our organization. The first pillar is to “be bold.” That means we want people who are bold in their ideas, bold in their thinking, bold in their actions. The second is to “be entrepreneurial,” as I stated earlier. We really do approach work differently, from a very nimble, problemsolving perspective. We don’t think of ourselves as an agency, but rather as a business partner. Everything we do is steeped in strategy, so that’s our third pillar. We have to “be strategic” and we want people who can strategically solve problems for our clients. The fourth pillar is the most important one: In order to be successful here, you have to “be curious.” You can’t do what’s right for a client if you’re not rooted in curiosity. You can’t be blind to what’s going on, either in their industry or within their regions or in the United States and the world at large. You’ve got to read the paper (or several) every morning—even if it’s digital—do your research and be thinking about the client all the time. You have to understand and care about the world they’re operating in. So those are the four things we screen for when we hire people, on all levels. I can tell pretty quickly whether someone is going to thrive in this company or not. This is an agency and an industry where you have to be comfortable with change. Things change all the time, especially now. You’re not working in a couple of mediums like radio, television, print, and billboards. You’re constantly trying to outrun algorithms. You’ve got new platforms popping up overnight. Exactly. You have to run really, really fast in this industry now. Some people thrive on that constant change and for some people it’s overwhelming. The other thing we look for is people who want to be affiliated with an organization that works on projects that have consequence in the community. That’s really the filter we use for ourselves and our client relationships. It sounds like you’re pretty exclusive with who you take on. That’s accurate. We turn away at least one out of every three opportunities that comes to us. A few years ago, we looked at our client roster and asked, “What are we good at? And what are we not good at?” The common denominator was that our best projects and clients were things that matter in the community, projects that myself and the rest of this group can get up, get out of bed, and be motivated to go to work on. We don’t work on brands or projects that are purely transactional. We may work on brands that don’t necessarily seem to have a consequence in the community, but when you dig into their corporate social responsibility or some of the other things they do, they truly are. Those are the brands we get behind and can really move the needle for.

OUR BEST PROJECTS AND CLIENTS WERE THINGS THAT MATTER IN THE COMMUNITY, PROJECTS THAT MYSELF AND THE REST OF THIS GROUP CAN GET UP, GET OUT OF BED, AND BE MOTIVATED TO GO TO WORK ON. KGBTexas is a bilingual agency. How did that come about? Given the geographic region of our offices, we need to be reflective of the cultural makeup of our communities. I was very lucky because at one point there was a very large Hispanic agency headquartered in San Antonio. When that agency closed its doors, I was able to bring over several people who worked on national brands doing Hispanic and General marketing. At one point, at least half of the people in our San Antonio office had worked together in that organization. They have been instrumental in ensuring that we reflect our communities. Ultimately, I see running a bilingual agency as an opportunity, not a challenge. It’s a must-have, not

only to be bilingual, but to be multicultural. I think my teams in both the San Antonio and Houston offices have very deep insight on how to successfully do that for brands. I wanted to ask about the big bond you helped pass in San Antonio in 2017. What was working on that project like? Under Mayor Julián Castro, we worked on the 2012 bond, as well as another ballot initiative called Pre-K 4 SA, which was the city’s pre-K initiative. When the 2017 bond came along under Mayor Ivy Taylor, she asked if we would work on this project. I, of course, was honored to do so. And it again aligned with what we do—it was transformative and necessary to provide infrastructure to welcome the one million more people we expect by the year 2040. It was the largest proposed bond in the history of San Antonio, $850 million. One day, we were doing a tour of one of the projects that would be funded by the bond. It was a Saturday, so my kids were with me. It was really hot that day, and they were complaining: “Mom, why do we have to be here? It’s hot, we’re bored.” And I said, “Here’s why I want you to be here. At some point in your lives, you’re going to walk your kids down to this river and it’s going to be the most beautiful thing you’ve ever seen. You’re going to be able to tell them that 20 years ago, you were here and it was nothing but full of trash and overgrown.’” That’s why we do the things we do, and those are the kinds of projects I want this company to be involved in. TexasCEOMagazine.com

IF SOMEONE REACHES OUT AND WANTS TO TALK TO ME, NO MATTER WHO IT IS, I MAKE A POINT TO TAKE THEM UP ON IT. I think we’ve become a go-to for consequential projects and initiatives, whether it’s the Harris County Flood Control District or San Antonio Economic Development Foundation, the bond, VIA Metropolitan Transit, our airport authority here, or CPS Energy. We have been involved in some pretty significant ones and not only here. We worked on a liquified natural gas export terminal in Brownsville that was very Bobsignificant Barker from an economic development standpoint. We have worked on major projects in the Dallas–Fort Worth area, as well as Austin and of course Houston, where we have an office. We touch things all over the state, and for some clients across the country. You’ve been in San Antonio for a while now. What changes have you seen in that time? San Antonio is changing dramatically right now. We’ve gone from being a community that many people didn’t feel was very progressive or innovative to being a community that is thriving in so many fields—cybersecurity, bioscience, advanced manufacturing, and so on. In some cases, we’re beating Austin in attracting those types of jobs. We’re also in Houston, which is such a vibrant international community. Again, we’ve been very lucky in focusing on projects of consequence there as well. Is it a challenge to lead a company that’s split between two cities? I’m fortunate because I have a leadership team that I trust wholeheartedly and who are incredible leaders in and of themselves. I am a leader who believes in surrounding myself with people who are brighter and smarter than me and letting them do their jobs. At this point, it really is like a family. Everybody on the team has their strengths and weaknesses, but I trust them to make the right decisions, no matter which office they are in. One of the biggest joys of my job now is watching this team succeed and watching them grow their clients’ business. It’s kind of like being a parent, being so proud and beaming with so much pride at the team you have around you. When you boil it down to, what is my ultimate responsibility as CEO? I see my real role as making decisions that continue to employ my team members and enable them to support their families. I think that’s a significant responsibility. What influenced your personal leadership style? My first taste of it came from working under the boss I mentioned before. She was a great leader. Once I started KGBTexas, when I was 24, I’d never had anyone report to me before. I would always ask myself, “How would I want to be treated?” I would close my eyes and just think about that: “How would I want my boss to treat me?” And that’s what guided my leadership process. 20

Texas CEO Magazine Q3 2020

Now, as we continue to grow, I strive to be a servant leader. I strive to be the one to ask, “What can I do for you? How can I help you? What do you need from me, from a support standpoint?” That goes beyond my current employees, too. A lot of people along the way have been extremely influential in shaping my leadership style, and I feel an enormous sense of responsibility to give back. If someone reaches out and wants to talk to me, no matter who it is, I make a point to take them up on it. I get kids in high school and college who want to ask me questions or talk about business. I think you have to be willing to give that hand back and help them along, to be extremely involved in the community that’s blessed your life. But my ultimate mentor and influencer is God. I feel strongly that He put me in this role to glorify His name through the work that we do as a company and the impact we have on our communities. I look to Him to guide my leadership decisions every day. If one of those less experienced people said to you “One day, I want to be a CEO or start my own company,” what would you tell them? What would your advice be? I’d say, “Be fearless.” When I started this agency, I was too young and too inexperienced to even think about the possibility of a failure. When you’re young and don’t have a big mortgage or kids, you can be like, “Hell yeah, that sounds like a great idea.” I’d say to follow that fearlessness. I’d also say to look for mentors early on. I was fortunate to find mentors who helped me learn from their experiences and answered all my questions. They were very open to me—and they opened doors for me. One dear friend of mine was the chairman of the San Antonio Chamber of Commerce, and he appointed me as vice chairman when I was 26 years old. I didn’t know what I was doing at first, but it opened so many doors for me. It was just a small and simple gesture, but I’m forever grateful. Lastly, and most importantly, choose a life partner who is strong enough on their own to support your dreams. I am so fortunate that I’m married to a man who has always been my biggest cheerleader. He’s always been there for me yet he has also taught me balance in my life and that while I’m a CEO at work, it’s OK to not be in control of everything at home. I’m very blessed. What do you think is the least understood facet of the CEO role? I think women make great CEOs and great leaders, and I don’t see that recognized too often. Many of us have the experience of juggling family and work, and many of us—not just women, but parents—also bring a nurturing instinct that can add another layer to how you lead and how you make decisions. Because it’s not all about the bottom line. It’s not all about beating out your competition. Don’t get me wrong, you do have to be fiscally responsible and competitive. But I think women leaders are often especially good at taking care of employees, asking how they are—and really caring how they are. I think that’s imperative to effective leadership, and I don’t think it’s discussed enough.

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TIME-IN! RESTARTING

THE ECONOMY WON’T BE QUITE THAT SIMPLE Joel Trammell As I have watched the country “reopen” from the drastic shutdowns of March 2020, I’ve often been reminded of the Harlem Globetrotters. Meadowlark Lemon—a.k.a. the Globetrotters’ “Clown Prince”—had a certain routine he did. Early in the game, just as someone threw him the ball, he would pause and call time-out for no reason. The defense would walk to the bench, then suddenly Meadowlark would call time-in and go make a layup. As the ref ran over, angrily blowing his whistle, Meadowlark would say, “What? I called time-out—I can call time-in!” I think that’s the perfect analogy for what’s currently happening in our economy. We had a big time-out called in the early days of COVID-19, and now we seem to think we can call time-in and go right back to normal. But as we restart the economy, things are going to be different from before. Take travel: If five people in a family were going to go on a vacation but now one doesn’t feel comfortable going because of the virus, that family might not make the trip at all. Or take a business conference: If one of the hosts or sponsors feels uncomfortable about an in-person event, it’s unlikely to happen at all. Getting back to 100 percent is going to require almost 100 percent of the population being comfortable with face-to-face interactions. And that’s just not likely to happen unless we have a successful vaccine. Until then, the fear that has reigned during the pandemic will cause significantly decreased economic activity, no matter what is happening with COVID-19 at any particular time. In addition, many people remain concerned about a second wave and about what will happen in winter, when the regular flu season could compound the effects of COVID-19 and cause the issue of hospital capacity to rear its head again. As business leaders, we must all realize that this is a marathon, not a sprint. And we’re not going to sprint back to 100 percent in most industries anytime soon.

As we move ahead, we must also consider the second- and third-order effects of the pandemic and the shutdown. In the early days, we saw some of these effects, such as the sudden shortage of toilet paper, driven not only by panic buying but by people using 30 or 40 percent more toilet paper through the home supply chain than through the commercial supply chain, via offices, schools, and businesses. We saw something similar in the meat supply chain, which like many others was perfected for just-in-time delivery—but was unprepared for the redundancy and resilience required in the spring of 2020. We are likely to see many more such effects propagate through the economy, and we may not be able to predict or prepare for many of them beforehand. For example, a business owner looking at a list of receivables might assume that the big companies will certainly pay their bills. But in this new reality, do they really know? We have already seen many large enterprises declare bankruptcy. Many more are talking about it. And every time there is a bankruptcy, there is a whole host of vendors who aren’t getting paid. Bankruptcies and events like them will continue to ripple through the economy in ways we can’t easily predict. And unlike past recessions I’ve been through as CEO, the current situation touches almost every player in the economy. This means that the ripple effects are much wider and much deeper than before. How should we cope with this reality? We must prepare our businesses for a marathon over the next 24 months, assuming that we will be doing business at a decreased level. I certainly think—as others in this issue express—that Texas will have a leg up in the recovery compared to some other economies. Nevertheless, CEOs cannot count on a fast, V-shaped recovery. We may have called time-in for now, but it will be some time yet before we get back to normal—whatever normal looks like then.

Joel Trammell is the owner of Texas CEO Magazine and CEO of Khorus Software. He is a veteran entrepreneur and CEO who has served as chief executive of public and private companies.

Texas CEO Magazine Q3 2020

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THE SHORT-TERM OUTLOOK FOR THE TEXAS ECONOMY M. Ray Perryman, PhD

The inevitable result of measures to “flatten the curve” and prevent a major spike in COVID-19 infections has been a strong shock to the economy. Many factors will determine the ultimate effects of the coronavirus on the economy, most of which are highly uncertain at present. The outcomes of reopening the economy and the capacity of businesses to resume normal activities are among myriad phenomena that will play a significant role.

Our most recent Texas economic forecast from The Perryman Group, an economic and financial research firm based in Waco, which has been studying the Texas economy for more than four decades, calls for a significant drop in business activity for 2020, but a return to growth next year. Measures taken to slow the spread of COVID-19 have had substantial negative effects, including causing downturns in key export industries such as oil and natural gas. However, the state is well positioned to return to growth once social distancing requirements can be relaxed and the economy fully reopens. The Perryman Group’s most recent short-term projections for the national economy indicate a decline in real gross product at a -5.47 percent rate in 2020, representing a loss of more than $1.0 trillion. For 2021, real gross product is forecast to grow by $973.7 billion, a 5.40 percent rate. Job losses are forecast to total more than 9.818 million on an annualized basis in 2020 (a 6.49 percent decline), with 5.19 24

Texas CEO Magazine Q3 2020

percent growth expected in 2021. These job and output losses are reported on an annualized basis; thus, many more individuals are being affected for a portion of the year (as an example, an annualized job can be three individuals who are each unemployed for four months) and the annualized loss in gross product is much larger at present.

RECOVERY FROM THE COVID-19 PANDEMIC Massive layoffs and a sharp increase in unemployment have led to ubiquitous comparisons of the current downturn and the Great Depression. However, prior to the Great Depression, there were massive structural problems in the economy, and policy responses were less well understood. The major harm of the Great Depression was not that joblessness spiked above 30 percent; it was, rather, that it remained there for almost a decade. Unlike the Great Depression, the dot-com debacle, the savings and loan mess of the 1980s, or the more recent

Feature scrambled to avoid having to take delivery of oil at a time when storage capacity would be largely exhausted. The price decline is due to the combination of

(1) plummeting demand as economies and industries around the world shut down due to COVID-19 and

(2) rising supply, with threats of even more due to the collapse of talks earlier this year among major global oil producers who sought to bring discipline to the market.

The most recent agreement by OPEC+, the United States, and other nations, which came only after initial efforts failed and the market endured further turmoil, is not sufficient to rebalance markets due to the unprecedented effects on demand of shutting down huge segments of the world economy. It is, however, an important step to keep the supply overhang from getting as big as it would otherwise (as this is being written, prices have been restored to the mid-$30s per barrel).

Great Recession, there is not an overarching major problem in the existing economic structure (such as an overheated market ripe for a crash). A combination of unique and unprecedented issues is causing slowing, but as they are dealt with, we forecast that growth will pick up. In fact, while The Perryman Group expects economic patterns for the next couple of years to be very different from the firmâ&#x20AC;&#x2122;s projections prior to the outbreak, there is not yet evidence that the long-term outlook for the Texas economy should be modified.

OIL MARKET TURMOIL In Texas, the oil situation is especially significant to the economy. At the beginning of this year, oil prices were trending in the upper $50s per barrel. As demand dropped in response to COVID-19 restrictions, spot prices fell to a fraction of that level and futures prices actually became negative at times as contracts neared maturity and traders

Although production costs are down sharply in Texas, they are not yet at a level that can maintain viability at recent prices. As a result, the situation is leading to significant disruptions in the Permian Basin and the stateâ&#x20AC;&#x2122;s other production areas. The industry has engaged in a rapid shutdown of drilling activity, which ripples through an enormous supply chain and supporting retail and service enterprises in the affected communities and the rest of the state. Banks with large energy company loan portfolios are being strained, and midstream and downstream investments are being deferred. We are seeing these dramatic adverse effects on oil-producing areas, but the fallout from the situation involves all regions of Texas. As the economy begins to recover from COVID-19 restrictions and travel prohibitions, oil markets can normalize expeditiously. Prices are already trending toward more normal levels and should recover to sustainable levels for West Texas producers (where costs were falling notably for years before the pandemic) in the next few months.

THIS IS NOT THE 1980S With the oil market in disarray, comparisons are also being drawn to the horrific events of the 1980s. While such discussions are both natural and inevitable, they are also misplaced and incorrect. Here are five major reasons why.

1. The first key difference is the sheer speed of the downturn. The prior decline began in early 1982 and did not reach its nadir until a rapid fall in 1986. TexasCEOMagazine.com

percent). Note that job losses are expected to be concentrated in the spring and summer months with 2. Second, the 1980s debacle occurred amid some improvement through the year, so reported losses a savings and loan and real estate crisis and at some points in time will be even higher. While job ill-conceived reversals in tax policy that led to massive losses are currently high and millions of Texans have failures throughout the financial system. These took filed initial claims for unemployment since March, years to repair. That situation was further complicated many will return as social distancing requirements are by the complex geopolitics of the Cold War. In contrast, increasingly relaxed. the 2020 pandemic arose as the country was enjoying In addition, expected economic growth for 2020 has the longest expansion in history with no major been foregone. When compared to baseline projections structural dislocations. before the pandemic, real gross product losses for 3. The 1980s downturn also came on the the year reach $206.3 billion, with more than 1.1 heels of the 1970s embargo and energy crisis, million fewer annualized jobs in Texas relative to prewhich brought major cutbacks in energy usage and COVID-19 expectations. sluggish demand. By contrast, the current situation The industries likely to see the largest drops in the arose as a manufacturing boom in emerging countries was driving solid global increases in consumption (and, numbers of jobs include accommodation and food services, retail trade, manufacturing, and mining unlike the 1980s, there is no export ban on domestic (which is primarily oil and natural gas in Texas). crude oil).

4. Back then, production and known reserves had been declining for decades and the future of the industry was in doubt. â&#x20AC;&#x153;Peak oilâ&#x20AC;? was a common mantra. Presently, reserves are expanding, technology is evolving rapidly, costs are falling, production is twice its prior peak, and there are centuries of supply.

5. Finally, the oil industry in the 1980s was heavily financed by institutional debt, leaving little flexibility to weather setbacks (a drop of $1 per barrel in 1982 sent the sector reeling). The recent expansion was fueled by infusions of private equity in the aftermath of the mortgage meltdown and the Great Recession; thus, it is more resilient.

This time, it unfolded in a matter of weeks.

The near-term situation in oil markets is undeniably severe, but it is a temporary aberration stemming from an unprecedented health issue. As the economy reopens, demand for oil will rise and markets will normalize. This is not the 1980s.

THE TEXAS ECONOMIC OUTLOOK For 2020, The Perryman Group estimates that the Texas economy will experience significant losses due to COVID-19 and the associated disruptions in the oil market. Real gross product is expected to decline by $133.8 billion relative to 2019 levels (a 7.60 percent loss), while total employment on an annualized basis is likely to drop by almost 861,000 (down 6.48 26

Texas CEO Magazine Q3 2020

For 2021, a notable improvement is projected. Gains in real gross product are forecast to be $154.4 billion (a 9.50 percent increase), while the number of jobs rises by almost 685,000 (up 5.51 percent). It is expected to take two to five years to return to the level of business activity the state would otherwise have experienced in the absence of COVID-19 and the related measures to prevent a spike in infections. â&#x20AC;&#x201D; Texas is facing not only COVID-19 issues, but also a notable contraction in the energy sector. The state economy is declining steeply at the time of this writing but is projected to return to growth later this year (although, as noted, the year-over-year numbers are expected to be down considerably). Because the underlying economy was strong prior to this situation, it is likely to be more of a pause than a fundamental change, particularly if safe and effective measures to resume activity are successful. There will certainly be some lasting behavioral shifts, but long-term potential remains impressive. Dr. M. Ray Perryman is President and CEO of The Perryman Group (www.perrymangroup.com), an economic and financial analysis firm that has served the needs of over 2,500 clients over the past four decades, including more than half of the Fortune 100, twothirds of the Global 25, and ten US cabinet departments.

S T

Each week on Ask a CEO, we explore a challenge of one of the least understood jobs in business—that of the CEO. Over the last few months we’ve focused on topics related to leadership and decision making during crisis.

Some topics we’ve covered: • SUSTAINING THE CULTURE DURING CRISIS • PREPARING YOUR BUSINESS FOR A CRISIS • REOPENING THE ECONOMY • PUBLIC COMMUNICATION DURING TIMES OF UNCERTAINTY

Do you have a topic you’d like to hear discussed? Or a question about an issue you’re facing? Let us know at ask@texasceomagazine.com. SUBSCRIBE NOW on Apple Podcasts or Google Podcasts.

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HOW

MANUFACTURING WILL SUPPORT THE REBUILDING OF THE

TEXAS ECONOMY Rey Chavez

The extent of COVID-19’s impact on businesses and local communities is still unknown. Although there is uncertainty, we do know that the business community will have to adapt and find creative solutions to remain agile in an ever-changing business environment. The manufacturing sector is no exception. The pandemic has forced manufacturing industry leaders to rethink the way they do business, and forced us to establish new processes as we work toward recovery. We are bound to learn new lessons, and our economic resilience will be determined by how quickly we can implement new practices that protect our industry and jumpstart operations. It is time to evaluate the past to create a successful future.

In 2019, there was an influx of new manufacturers to San Antonio and the surrounding areas, along with an expansion of existing companies, creating over 3,550 new jobs in the region. That expansion led to manufacturers employing more than 880,900 Texans and the state winning Business Facilities’ 2019 State of the Year Award, a recognition Texas has won in four separate instances.

In order to regain and even surpass that level of success postpandemic, it is imperative that leaders begin to recognize the need to diversify risk throughout the industry. This can be done by considering the following four pillars: re-shoring, product development, employee wellness, and building an educated workforce. Let’s briefly look at each of them.

Texas was also the number-one exporting state in the nation, exporting approximately $247 billion in manufactured goods. Last year, the average salary in the manufacturing sector was more than $85,000, 50 percent higher than other non-farm Texas workers. Texas’ success in manufacturing has been undeniably noticeable, making our industry a critical engine for the state’s economy.

Traditionally, Texas has received many of the materials required for manufacturing processes from China and other regions throughout the world. The COVID-19 pandemic has raised the visibility of vulnerabilities in the critical supply chain of US-based products. As our economy moves toward recovery, re-shoring will be one of the fastest and most efficient ways to strengthen local economies and the broader US economy.

Texas CEO Magazine Q3 2020

RE-SHORING

Re-shoring will also help balance trade deficits. By investing in re-shoring, we can also grow local clusters of the manufacturing industry across communities. Strengthening the local presence of manufacturing within our communities will bring back critical jobs that will help us combat rising unemployment among individuals who have recently lost their jobs. By finding a healthy balance between international trade and local production, the manufacturing industry can alleviate the effects of an economic downturn.

normal. This includes developing employee programming focused on preventative care to ensure a healthy workforce. Healthy individuals have a better chance of fighting off illnesses such as COVID-19 and staying in the workforce. While changes in operation may vary among manufacturers, the most basic measures should be enforced, such as increased handwashing and social distancing when applicable. It’s wise to have employees and employers work together to develop these new procedures, so everyone in the company is heard and understood. In order to recruit and retain top talent, a focus on employee health and wellbeing is critical.

AS LEADERS IN THIS INDUSTRY, WE MUST GROW AND INSTILL A PASSION FOR MANUFACTURING IN OUR YOUTH.

PRODUCT DEVELOPMENT In addition to re-shoring, a renewed investment in product development is another way manufacturers can diversify risk. Throughout the global health crisis, many manufacturers began producing products that were in high demand, allowing them to remain financially stable and to keep many of their current staff employed. During the peak of the crisis, we learned that manufacturers’ supply and consumer demand for traditional products began to shift. Manufacturers found ways to lessen the effects of the economic downturn by expanding their business lines and retooling their operations. The San Antonio Manufacturers Association (SAMA), where I currently serve as CEO, saw several success stories of best practices, including plastics manufacturer members who began to produce face masks and shields for healthcare workers and first responders. A flag-manufacturing company temporarily shifted from their staple products to create face masks for those on the frontlines. Coupled with their traditional products, some manufacturers may choose to continue producing the products they began to make during the crisis. The variation in products and adaptation to operations has required the workforce to be nimble and has provided opportunities to upskill and reskill employees.

EMPLOYEE WELLNESS A commitment to the health and wellness of current and future employees is more important than ever. While the Texas economy and businesses have started to reopen, a new set of processes must be put in place to ensure employee health and safety. As we move toward recovery, the business community will have to evaluate employee benefits and wellness programs as they adapt to the new

BUILDING AN EDUCATED WORKFORCE Building an educated workforce is essential in closing the skills gap and ensuring that qualified workers will be able to fill employment opportunities generated through re-shoring and economic development activities for recovery. The industry has been working to provide numerous types of education and job training opportunities for individuals interested in manufacturing. COVID-19 has indirectly provided an opportunity for us as an industry to identify pressure points and gaps within our industry skillsets. As individuals affected by COVID-19 look for new careers, manufacturers will need to look for ways to preserve talent while providing opportunities for career advancement. Robust education and job training programs can mitigate losses in the workforce through stackable credentials and transferable skillsets. As leaders in this industry, we must grow and instill a passion for manufacturing in our youth. The possibilities in manufacturing will become clearer as technology advances. It is essential to pique students’ interest in the STEM fields early on and involve them in hands-on learning through internships and apprenticeship programs. The future of manufacturing depends on recruiting a new generation and rethinking modern manufacturing careers. — By addressing these four pillars and working toward diversifying risk, we will be able to advance toward a newer, healthier standard. Manufacturing will continue to play a key role in economic growth. It is essential to not only remain vigilant during this time of recovery, but to use this time to foster creative solutions.

Reynaldo (Rey) Chavez currently serves as president and CEO of the San Antonio Manufacturers Association, assuming the position in March of 2010. He has served in numerous leadership positions and has an extensive background in the United States Air Force. Upon retirement, Rey has worked with a variety of organizations to better their operations. Currently, Rey is involved in professional and community organizations such as the Society for Human Resource Management and the Boy Scouts of America.

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KEEPING YOUR

BUSINESS SAFE— AND LEGALLY COMPLIANT—

AS YOU REOPEN Modinat “Abby” Kotun

In recent months, many business leaders have been laser-focused on the financial health of their businesses. But as Texas attempts to reopen the economy, leaders must also remain focused on the health and safety of their employees. This means taking steps to keep the workplace safe for everyone who enters it, which in turn reduces the employer’s potential liability down the road. Here are five steps to aid in reopening your business as Texas gets back to work.

1. KEEP IT CLEAN

2. KEEP IT HEALTHY

First off, get and keep the workplace clean. It’s wise to assign a team and a point person who can take the lead on keeping a clean work environment. They should begin by reviewing available resources and complete an assessment of the workplace and the hazards present. The below guidelines are mostly advisory but can be both useful in reducing the potential for spread of COVID-19 in your workplace and helpful in proving your business implemented these standards if necessary in the future.

Once the workplace is clean and a plan is in place for keeping it that way, next look to decrease the likelihood of bringing infected people into the work environment. As most of us now know, infected persons—even asymptomatic ones—can spread COVID-19 by breathing, coughing, sneezing, or otherwise releasing droplets into the air and onto surfaces.

• Texas Department of State Health Services web page on “Opening the State of Texas”: bit.ly/tex-dshs

• Occupational Safety and Health Administration’s Guidance on Preparing Workplaces for COVID-19: bit.ly/osha-guidance

• Centers for Disease Control and Prevention’s “Cleaning and Disinfecting Your Facility”: bit.ly/cdc-guidance1

Texas CEO Magazine Q3 2020

In April, the Equal Employment Opportunity Commission issued new guidance on the Americans with Disabilities Act, stating that employers “may take steps to determine if employees entering the workplace have COVID-19 because an individual with the virus will pose a direct threat to the health of others.” For that reason, businesses are now allowed and even encouraged to take certain steps that would otherwise be advised against. The simplest way to reduce person-to-person spread is to encourage any employee experiencing COVID-19 symptoms to stay home. Additionally,

employers may want to consider safeguards like reliable COVID-19 tests, requiring doctors’ notes certifying employees’ fitness to return to work, and screening for symptoms with questionnaires or temperature checks. COVID-19 TESTING An employer may choose to administer COVID-19 tests for employees before they return to the workplace or even more frequently. This option may, however, be cost prohibitive and time consuming and testing is certainly not required, especially where other safeguards may be sufficient. QUESTIONNAIRES Before employees enter the workplace or come into contact with coworkers or customers, consider having them respond to a COVID-19 questionnaire. Depending on an employee’s responses, the company can determine whether an employee may report to work or should remain away from the workplace in order to quarantine or recover from the illness. Questions can include:

1. Have you been diagnosed with COVID-19?

2. Have you had close contact with any person who has been diagnosed with COVID-19?

3. Have you had the following symptoms in the last 14 days?

• Fever or chills • Cough • Shortness of breath or difficulty breathing • Fatigue • Muscle or body aches • Headache • New loss of taste or smell • Sore throat • Congestion or runny nose • Nausea or vomiting • Diarrhea 4. Have you returned from traveling internationally in the last 14 days? 5. Has a healthcare provider or government official ordered or advised you to self-quarantine due to COVID-19 exposure? TEMPERATURE CHECKS Temperature checks are permissible under current EEOC and CDC guidance. When implementing such checks, consider the following:

THE SIMPLEST WAY TO REDUCE PERSON-TOPERSON SPREAD IS TO ENCOURAGE ANY EMPLOYEE EXPERIENCING COVID-19 SYMPTOMS TO STAY HOME.

• If a trained medical professional is available, allow them to conduct the testing. • Use a forehead-scanning thermometer to reduce contact between the temperature taker and the employee. • Ensure that the temperature taker is equipped with personal protective equipment (PPE). SOCIAL DISTANCING AND PPE Consider implementing policies encouraging continued social distancing and include examples of what this means in your TexasCEOMagazine.com

AS YOU DOCUMENT, ENSURE THAT MEDICAL RECORDS ARE KEPT SEPARATE FROM THE EMPLOYEE’S GENERAL PERSONNEL FILE, AS REQUIRED BY THE ADA. workplace. This could mean not sharing offices, continuing to hold meetings virtually even when employees are in the office, staggering workdays and work times, and discouraging carpooling to sites for work purposes. Also, encourage mask use in certain spaces and circumstances. Employers are permitted to require masks in the workplace; consider providing them and other PPE. With all of the above safeguards, ensure that you are not violating local orders. For example, Dallas County does not allow an employer to require a negative COVID-19 test or a doctor’s note as a condition of returning to work. Also, be mindful of the Americans with Disabilities Act, which requires providing a reasonable accommodation where an employee has a disability unless doing so would be an undue hardship. This could mean providing PPE of a different material where there is an allergy, allowing for more frequent breaks where a person requires it based on their medical condition, or allowing a person to work from home. In any case, engage in a back-and-forth conversation—known as the “interactive process”—to determine the scope of their limitations and suggested accommodations.

3. MIND THE HUMAN SIDE As your employees return to work, keep in mind that they too have experienced the global pandemic that took many lives, which may lead to fear and anxiety. Communicating the scope of the safeguards the company has implemented goes a long way in helping to alleviate their concerns. Moreover, your employees’ lives are possibly still disrupted at home. They may have children out of school with limited childcare options; they may be dealing with a new or exacerbated disability; or they may have a spouse who is now out of work. Under the Families First Coronavirus Response Act (FFCRA), which applies to all employers with fewer than 500 employees but does not apply to furloughed employees, employees may be eligible for emergency leave to care for a child whose school or childcare provider is unavailable due to COVID-19-related reasons. When confronted with your employees’ requests in this regard, keep in mind that leave may be a potential solution, whether unpaid leave or paid leave under the FFCRA or other leave programs you may provide. 34

Texas CEO Magazine Q3 2020

4. DOCUMENT, DOCUMENT, DOCUMENT Employers should be careful to document the entire process of returning employees to work, whether that’s rehiring a furloughed employee or bringing current employees back to the physical office. This documentation could be key in defending against potential litigation down the road, such as a tort liability for employee exposure or discrimination claims. Some items you will want to fully document include: • Written offers to return to work and employees’ responses • Accommodation requests and proof that you engaged in the interactive process • Performance issues that support subsequent adverse employment actions • Analysis of hazards in the workplace and what you’ve done to safeguard against them Also, as you document, ensure that medical records are kept separate from the employee’s general personnel file, as required by the ADA.

4. ASK: “WHAT SHOULD STICK?” Finally, I encourage Texas business leaders to consider what worked well through the first few months of the pandemic. There’s no need to strive to return to doing things exactly as you did before. In a lot of cases, some of the changes could stick around, increasing not only employee safety but also boosting employee morale and lowering costs. Some of those changes might include: • Minimized travel. Have you found you can get by just as well with lower levels of employee travel? • Remote work. Have people been able to be productive and fulfilled working from home? Can they continue to do so, even if only some of the time? • Use of virtual calls and conferences. Has your team grown skilled at videoconferencing to the extent that it can be used to replace some in-person meetings going forward? — It’s safe to say that few of us have been through a workplace disruption as all-encompassing as the one we’ve seen in 2020. As we make our way toward a full recovery, use these guidelines to ensure that you’re keeping your potential liability down and your people safe. Based in Houston, Modinat “Abby” Kotun is an associate in the Labor and Employment Group of Reed Smith LLP. Abby is board certified in labor and employment law and represents clients in a wide variety of labor and employment matters, including general employment counseling; defense of discrimination charges and lawsuits; and trade secret, unfair competition, and wage and hour litigation.

A CONVERSATION WITH AMITY SHLAES

In recent months, you’ve likely heard many comparisons between the current crisis and the Great Depression of the 1930s. Amity Shlaes, a New York Times bestselling author and leading economic commentator, has written extensively about that era—so we asked her if the comparison is warranted.

THE TRUE ENGINE

OF ECONOMIC RECOVERY

WHAT MAKES A DEPRESSION A DEPRESSION IS A SERIES OF POOR POLICY DECISIONS.

In this discussion with Texas CEO Magazine owner Joel Trammell, Shlaes talks about the parallels between the current moment, the 1930s, and the Great Society of the 1960s, which is the topic of her latest book, Great Society: A New History. What might these turbulent passages of American history tell us about now? As it turns out, one lesson is clear: The driver of economic recovery is unlikely to be top-down planning policy, no matter how magnanimous its intentions may be. In The Forgotten Man, you chronicled many of the failed government interventions of the 1930s. Now you’ve written a follow-up that takes on the Great Society of the 1960s, another era when the federal government attempted to correct problems in society. Can you tell us about your background and what interests you in these topics? I’m interested in how

economies work. I am a humanist by training, but my adult life has been a study of economies—what makes them grow and what makes them flounder. Over and over again, I’ve found that the way a country’s economy is set up explains a great deal about that country. If you’re trying to figure out why a country is the way it is, the economy will often tell you more than the religion or the culture or the history. I got my start looking at politics and policy—that is, writing articles and journalism regarding politics, much of it on the topic of communist East Europe. I saw the great truth about communism: the economics doesn’t work. In the 1990s, I had the honor to sit on the editorial board of the Wall Street Journal, and it was in that role that I came to interview Governor Bush when he was thinking of running for president back in the day. I’d later work for him for a bit in Dallas at the George W. Bush Presidential Center. 36

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For ten years, I served as a columnist, first at the Financial Times and Bloomberg. All the while, I was writing books. Eventually, the books took over. In the latter part of my life I’ve also become a nonprofit person. I now lead a nonprofit whose work is conveying the legacy of a president who was principally economic, Calvin Coolidge. That is the Calvin Coolidge Presidential Foundation. We’re hearing the word depression thrown around a lot these past few months. Obviously, there’s no clear definition of a depression, but do you see any parallels between where we are now and what this country went through in the 1930s? We’ve lost tens of millions of jobs at this point.

Well, the obvious parallel is the high unemployment. But a single high jobs number does not a depression make. The reason we remember the Great Depression was because it lasted 10 years, not because we had a bad job number in one or two snapshots in time. During the Great Depression, we had double-digit unemployment for 10 years. We’ve had high unemployment at other points in the United States’ history where we did not see a sustained depression follow that appalling data point. An example would be in the early 1920s, when unemployment went over 15 percent—and then went away. It was more like a panic, not a great depression. What makes a depression a depression is a series of poor policy decisions. Even if you have a deflationary spiral, where banks fail and money evaporates, you’re unlikely to see 10 years of double-digit unemployment unless, as we saw in the 1930s, you follow that spiral with a lot of bad fiscal and regulatory policy. In other words, poor employment policy, which discourages work; wasteful

spending policy; intrusive efforts to reshape business by government. In the 1930s, there was a global decision to turn against markets and toward government and regulation. Government, whether “socialist” or just “kindly,” was where the salvation was expected to come from. And that shift toward government really was quite a deterrent to business, even in the United States. Recovery from the Great Depression didn’t come for many years. The stock market did not return to its 1929 level until the 1950s. We can study why that is and try not to offer up the same bad policies again.

Can you explain some of the measures that kept recovery away back then? Sure. For one, we pushed labor prices way up in the 1930s. If you look at a chart of labor costs in the United States in the 20th century, you’ll see something perverse, which is that during the Great Depression, labor prices were really high. Why was that? How can we make employing people more expensive when businesses are struggling?

Part of the reason for that was strong labor law. The Wagner Act, which is much stronger than our current labor law, put upward pressure on wages, and employers had to pay a lot. They compensated and rehired fewer people. Today they would move a factory to Texas! But this was before the TaftHartley law gave us the “right to work” principle. Laws like the Wagner Act are a key reason the 1930s were so bad. In fact, the labor price was even higher than they knew because they weren’t accustomed to deflation. Businesses set a labor price—or agreed to one pressed on them by unions— without realizing that the money they committed to paying would cost them more when they had to pay it. We also introduced weird policy at that time that tried to manage agriculture.

GENERALLY SPEAKING, GOVERNMENT INTERVENTION IN THE 1930S DID NOT CREATE LONG-TERM, SERIOUS ECONOMIC GROWTH.

We helped the farmer in some ways, but in other ways we hurt the farmer. The Agricultural Adjustment Act of 1933 encouraged farmers to destroy their crops so prices would go up. There are some wonderful stories about how Lyndon Johnson as a young man working for the New Deal had to teach farmers how to destroy their crops. The mules didn’t want to step all over the crops; they had been trained not to step on the plants, so it really upset the animals to stomp all over them. It’s still an open question whether we managed farming right through the creation of the Agricultural Adjustment Administration that we had for a while. A lot of Texans would say it didn’t help their kind of farm; others would say it was good. Either way, it was a massive intervention. What is clearer is that the corollary agency for industry, the National Recovery Administration, killed businesses by overregulating them on the basis of spurious principles.

Generally speaking, government intervention in the 1930s did not create long-term, serious economic growth. Once in a while, New Deal intervention would rescue someone who didn’t have food, but we should separate humanitarian action from economic action. Humanitarian action can always be warranted and it’s not that expensive. But pretending that an intervention is economically logical just because it’s humanitarian can be dangerous. When government helps one person, it often ends up hurting someone else. That other person is the forgotten man of the title of my book. That’s the big problem. We’re certainly seeing lots of those interventions right now. We are. In all

states, the administration is giving businesses money to stay open. That’s

nice, but that money comes from somewhere, right? Eventually we’ll have to pay for that through taxes or inflation. Authorities are also ordering some businesses closed that don’t even need to close. The government is a poor manager of economies. That’s what the 1930s show, and if we forgot, we are seeing it again now. I think most businesspeople would strongly agree that the more the government gets engaged in the business side of things, picking winners and losers, the worse they do. Another thing is that stimuli have a long record of not doing what they’re supposed to. People don’t always spend their stimulus money like they’re supposed to. [The economist] Joel Slemrod has studied this extensively.

What’s happening now also recalls in some ways the 1960s Great Society, which my most recent book is about. Some of the efforts now are very similar to the efforts then, when government tried to help people economically by creating jobs through the poverty program. It was a Texas governor, John Connally, who pushed back on many Great Society measures because he felt that Texans weren’t behind them. He told Johnson’s chief of staff that people in Texas thought the War on Poverty was “a big boondog.” You can hear him say it. Connally was a colorful guy. Even Lyndon Johnson was scared of him. He was a real bully—and a real kind of angel, because he had been in the car with President Kennedy at the assassination. In any case, he was one of those people you couldn’t challenge.

Feature Connally didn’t like the minimum wages that Washington set for Texas. He told Johnson that Washington’s idea of pay rates was too high. A paraphrase of Connally: People come do business in Texas because Texas is cheaper than New York or Ohio. If you make us pay this minimum wage, we won’t be growing as fast as we can. It was just another example of massive intervention out of idealism. There was an economic commentator of the 1930s, Benjamin Anderson, who made a big impression on me. He was the chief economist of Chase [National Bank], and he said that government fails because it plays God, but it doesn’t see that it fails. When it fails playing God, it just “plays God yet more vigorously.” I really liked that. You can see that repeat dynamic again today. That is certainly a theme throughout your work. In The Forgotten Man, you show how there wasn’t a grand, well-thought-out plan behind FDR’s actions. It was, “Let’s do this, let’s do that, let’s see what we can get away with.” I see some of that in the actions that have been taken recently. We’re running off to write a 2,000-page bill without being sure what’s in it. “But we have to do something!” is the cry, right?

We want the appearance of “doing something.” That’s partly driven by economics philosophy, which says that you have to do something. Activity is good, so you stimulate people. The evidence suggests that that argument isn’t always borne out by the evidence. Sometimes when you do nothing, that is good. When authorities pull back, they leave businesses space to create things. That is, if you get out of the way of the economy and don’t crowd out the business, you might get a better outcome in terms of employment growth and social advancement. But we’ve been taught that you need to shock. You see now even so-called TexasCEOMagazine.com

conservative market advocates arguing for massive spending to get the economy going again. History suggests that there are other ways to get the economy going again that are not shocking it into life through spending. How do we avoid that this time? Or can we? At this point, we’ve

TEXAS IS ALSO USED TO BEING WIPED OUT. TEXAS HAS SEEN BANKS FAIL AND INDUSTRY DISAPPEAR AND THEN FOUND ITS WAY TO RECOVERY.

already made a monetary error. The bill for that will come; we just don’t know in what form. But one thing is that we should take care not to force wages up beyond what employers want to pay. We should also be careful not to trample all over property rights, which usually comes after overspending. The attack on the rich, which was a big emphasis of the 1930s, proved counterproductive because the rich were generally the ones who created jobs. The COVID crisis is an international event that had very little to do with the rich. It has to do with globalization, and with the fact that life deals you blows sometimes. History suggests that blaming the rich is not a way to help the poor. Calvin Coolidge said, “Don’t expect to help the weak by pulling down the strong.” I liked that a lot. It’s true now: Blaming the rich for a virus doesn’t reduce the damage of the virus.

It’s unfortunate that some people can’t protect themselves as easily as others from bad situations, but the way to fix that is not to go after the rich; rather, the way to fix it is to create more opportunity for those who aren’t currently able to protect themselves. The COVID crisis has already shown us how the government is often wrong. The authorities said, “You don’t have to wear a mask,” so nobody wore a mask. Then they decided a mask was really important and they mandated a mask. They said ventilators were the answer, but it turned out that ventilators in some kinds of pneumonia have an even worse record than other treatments when it comes to saving people with this disease. 38

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It’s important to understand that the private sector is going to pull us out of the current health situation. They’re the ones who are going to invent the alternative to ventilators, or the vaccine. We need to respect innovators, not vilify them. If there’s a silver lining to COVID, it will be that the American people have slightly more appreciation for what pharma does, because pharma is going to find a solution to this problem, as it did to HIV. I do expect some of the innovation in medical treatment of COVID to come out of Texas, if it hasn’t already. It’s a very innovative state. It’s also a state that has a tradition of supplying economic growth, and that’s what is going to make us better. Yes. Hopefully we’re going to be allowed to do that at full speed sooner rather than later.

It’s clear that the faster we allow science and innovators to work—in Texas or elsewhere—the faster we’ll get back to a normal life and the better we’ll be able to prepare ourselves for future medical challenges. One big opportunity area now is the development of antibiotics, which the FDA has made difficult. That’s another silver lining here, that we’re taking a second look at regulation and the cost of it, including medical regulation and drug regulation. Another big one is less litigation. Holidays from litigation are really important because disasters like this one are not about whose fault it is. Nobody knows whose fault it is. Nobody knows why it came, and it’s a sorrowful path to make it all a blame game two years later.

Litigation is certainly a concern for CEOs as they restart their companies. If they bring workers back and they get sick, are they going to be sued? If they can limit liability in those cases, that would have a huge impact. Right. Little

things can make a big difference, and that’s one of them. You’ve already had some meaningful tort reform, and should know that other states admire you for it.

Texas has obviously suffered less during this pandemic than other states, and hopefully that means we can recover quickly. Do you think that Texas will recover differently than the rest of the country, or is this just so universal that we’re stuck together? We do think of ourselves as our own separate country a lot of the time. Texas resembles Bavaria. It is

its own country within a country, and we can all see that a mile away. I’ve lived there before, as I mentioned, and have a child who attended university in Texas. He is a Longhorn.

Just by virtue of being late in the spread of the disease geographically, Texas is going to be able to better make decisions if the virus spreads there. We don’t know that much about COVID, but one thing we know is that the more you know about it, the easier it is to avoid. People are also spread out in Texas. Unlike New York, most of its population isn’t centered in a port city, riding public transport cheek by jowl. That’s not to vilify New York, of course. A lot of Texans like to spend time in New York. New Yorkers and Texans have more in common than they admit—they both like fun and adventure. But part of New York’s charm is its density, and that, along with its policy decisions, has made the situation rougher there. Texas is also used to being wiped out. Texas has seen banks fail and industry disappear and then found its way to recovery. Energy prices affect Texas. But, all things being equal, Texas is a resilient state, which makes it likely to recover faster than some other places.

Working for a better tomorrow, together You don’t have to face business challenges on your own. In times of uncertainty, you’re going to need every available resource. Lean on the ones that have the experience and resiliency to help weather the storm. Insperity’s mission has always been to help businesses succeed so communities prosper. That means focusing on the people, providing support and finding the best path forward. Because, with perseverance and hope, we will get through this.

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Back to the Basics of Business Performance A time of crisis is the right time to double-down on the fundamentals of your business. You can now use Khorus to do so—entirely free of charge. Since March 2020, nearly every business in the United States has faced unprecedented adversity. Due to the fallout of the deadly COVID-19 pandemic—including the shutting down of entire sectors of the economy— many businesses have closed. Many more will close. This tragic period of lost lives and lost livelihoods is an extremely difficult time to be a leader.

measuring what’s most important across every division of the organization. For each department, ask: What is our mission? Whom do we serve, and how do we serve them? Ask your head of marketing: What is a good marketing department? What does it do, and how do you measure that? Ask the head of every other department—from finance to HR—the same.

Over the past few months, you’ve probably taken several important steps as a CEO: You’ve determined whether this is an existential crisis to your business, preserved cash as much as possible, and done your best to communicate candidly to your employees, customers, and shareholders.

By the end of this exercise, you will know precisely what each department needs to focus on, and how this aligns with company priorities. Have each department share its priorities broadly, particularly the few key metrics by which it measures success. Doing so will create a fresh sense of alignment across the entire organization. Everyone will understand what matters most for themselves and each of their peers.

But a time of adversity is also a critical time for CEOs to reexamine the fundamentals of their business. Recessions, downturns, and other setbacks can become opportunities to redefine the essentials of success—for your company, and for yourself as a CEO. In many ways, the current economic situation is different from previous recessions. But as you work to preserve and grow your company through whatever comes next, we at Khorus encourage you to use this opportunity to return to the fundamentals of your business using a simple framework: Align, Engage, Predict. Align Every company should have clear shared priorities. But to the company facing adversity, clear shared priorities are an absolutely non-negotiable requirement. As you feel out this new reality in 2020 and beyond, you must align your entire team around a crystal-clear game plan. That starts with reexamining the mission and vision of the company to make sure these still capture the essence of the business, and to ensure that you haven’t missed a fundamental change in the market. From there, it’s time to begin

Engage Next, the executive team and CEO must engage the entire organization around the newly refreshed mission, vision, and game plan. The primary tool here is consistent, abundant communication. To remain engaged even as they feel uncertain about the future, the entire workforce needs to hear from the CEO consistently about the top-level priorities of the company. And each manager in the company should work with employees to set specific, near-term goals that allow each person to engage in the broader success of the company. The Engage step also demands transparency. You may not be able to promise that you will never lay people off, but you can promise to be honest with them about how the business is performing. If you consistently communicate about the successes and the struggles in the business, people will not be shocked or feel betrayed should something like a layoff happen. This type of transparency is key to keeping people engaged in the mission.

Predict Finally, the CEO needs to constantly keep their eyes on the road ahead. That is never truer than in a period of adversity, when circumstances can change rapidly. Each week, the CEO must revisit the business fundamentals with executives, asking each to predict whether key metrics will be hit. Asking people to predict an outcome— rating the likelihood of meeting a certain revenue number, launch date, or other measurement—results in far more insight than asking for historical data. As CEO, your concern is not what’s already happened, but whether the organization will predictably meet its commitments. — This core process of Align, Engage, Predict powers Khorus—an enterprise CEO platform that functions as the CEO’s central system for running the business. As COVID-19 ravages lives and the economy, we have decided to make Khorus free to CEOs at companies of all sizes, from here on out. This is not some watereddown version of Khorus, either, but our full-featured enterprise-class software—no strings attached. You will be able to: • align every member of the team around corporate priorities, • engage them with goals of their own, and • have everyone predict key outcomes each week. In these difficult times, every company should be focused on aligning, engaging, and predicting the performance of their organization. They will now be able to do that free of charge.

Visit khorus.com today to get started. No contracts. No credit card. Fully featured.

[LEADERSHIP]

RETHINKING GENERATIONS: WHAT CEOS NEED TO KNOW FROM THE EXPERT ON LEADING AND SELLING TO MULTIPLE GENERATIONS Jason Dorsey

WHAT WE FOUND SHOWED US WHAT LEADERS NEEDED TO KNOW ABOUT GENERATIONS AT A STRATEGIC LEVEL TO BE MORE EFFECTIVE AND MAKE BETTER DECISIONS.

For the first time, Texas CEOs face a daunting task: leading, communicating with, motivating, and engaging five different generations of employees, trendsetters, and customers. This has never happened before, and it is creating all kinds of challenges. Solving these challenges was important before the pandemic. Doing so now has become absolutely critical in a newly remote-work landscape alongside the emergence of unexpected purchasing habits that vary dramatically by generation. As President and Lead Researcher at The Center for Generational Kinetics (CGK), I—along with my cofounder and our CEO, Dr. Denise Villa—am on a mission to separate myth from truth about generations. Our goal is to educate leaders so they can make fast, accurate, and more effective decisions that drive measurable results. This mission is not easy because of the tremendous amount of misinformation about generations— including how to accurately define a generation. TexasCEOMagazine.com

THE OLD GENERATIONAL MYTHS ARE JUST THAT—MYTHS We’ve all heard the stories and seen the memes about Millennials being lazy and not working, yet prior to COVID-19, Millennials were the largest generation in the US workforce. In fact, for many of our 700 corporate clients, Millennials are also the largest generation in management roles. At the same time, myths about generations affect not just the youngest employees and customers, but also the most experienced ones. Ironically, the “OK, Boomer” retort used so frequently on social media discounts the fact that Baby Boomers invented much of the technology that younger generations now rely on to poke fun at them. All too often, people overlook or don’t talk enough about Gen X, yet so often, Gen X is the glue of the workforce. In fact, Gen X is now at a difficult life stage, where they are often taking care of their kids, helping their parents, and trying to make key career decisions. Next up: Gen Z. They don’t remember 9/11 and think Millennials are old, and our research shows that they value employer stability and benefits. In a way, they are most similar to . . . Baby Boomers. And on and on it goes.

REPLACING GUESSES WITH RESEARCH As a Millennial myself, I got into my work with CEOs because I was frustrated by the lack of actual research into generations to help leaders make the right decisions. Thirteen years ago, Dr. Villa and I founded CGK to solve this research challenge with a focus on behavioral insights into each generation. We chose to focus on research and insights because CEOs didn’t need more data—what they needed was to know

1. why the data they have is important, and

2. what actions to take based on that data.

In my work speaking to and advising CEOs, boards, investors, and founders, I found a lot of data and cheap generational 42

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headlines, but no actual research. By adding the missing generational “why” to a company’s data, we could unlock tremendous value and give them a competitive advantage. A CEO of a financial services firm might know their own client numbers inside and out, or a CHRO would know the recruiting and retention stats every month, but there was no research on why sales went up or down, or why employee retention varied so much by generation. My partner and I went on a mission to fix that for companies around the world. What we uncovered was surprising and has led to research for clients on four continents, and to me speaking to leaders from over 100 countries. We’ve now led more than 65 generational studies that uncover and explore the hidden behavioral drivers of each generation. The studies account for not just birth year, but also gender, geography, ethnicity, and many more factors— such as education level, household income, specific job roles, industries, and customers’ experiences. What we found opened our eyes to how to serve CEOs best, and showed us what leaders needed to know about generations at a strategic level to be more effective and make better decisions.

5 KEY INSIGHTS FOR UNDERSTANDING GENERATIONS—AND DRIVING RESULTS To help you lead multiple generations at this pivotal time, I want to share five key insights that any leader can use to start rethinking generations now—and that will help you drive measurable results: 1) Generations are not boxes that each of us fit neatly inside. Too often, speakers and experts present generations as a series of boxes based on people’s birth years. That is not accurate. It’s important to reframe generations not as boxes but rather as research-based clues we can use to faster connect with, influence, and drive results with different age groups. These clues can be incredibly powerful and predictive—which is why we use them to develop sales and employment strategies for clients—but generations still only give you clues, not a definitive guide. 2) Every generation brings value as employees, customers, trendsetters, and community members. Every. Single. One. No generation is more or less important

than the others. The spotlight tends to shine brightest on whichever new generation is emerging, which is reasonable because the new generation is often the least understood and researched. The new mindset and behaviors they bring create both challenges as well as tremendous opportunities for leaders who adapt to engage them using data. That’s why people have focused on Millennials so much in the past ten or fifteen years, but also why at CGK we are now extensively focusing on Gen Z, including in our new book, Zconomy: How Gen Z Will Change the Future of Business—and What to Do About It. 3) When talking about generations within your organization, it’s important to not talk about a single generation in a vacuum. Always talk about a generation in the context of other generations. As a strategic advisor to CEOs, this is a costly mistake I frequently see leaders make. Rather than talking only about Millennials, Gen Z, or any other one generation by itself, always bring a multigenerational perspective. If you’re going to talk about a characteristic of one generational group, then you should talk about that characteristic as it pertains to the other groups as well, as part of a larger conversation. At CGK, we call this Generational Context™. It’s incredibly important for every generation to feel valued and included as part of the conversation, innovation, and solution. 4) Geography has a massive role in shaping generations, and in how we research and understand them—and this is not talked about enough. As strategists for companies, we view generations as a group of people born about the same time and raised in about the same place. The importance of geography on shaping generations is rarely discussed, but it is critical to accurately understand how to lead, market, and sell to different generations. Within our great state of Texas, leaders will see differences in the same generation based on the part of the state the person is from and whether they were raised in an urban or rural environment. They will also see intragenerational differences between native Texans and people born and raised outside Texas. And, of course, those members of the generation will be different from people who live elsewhere in the United States. Even in our work in Europe, Asia, and other countries of the Americas, we have to look at generations based on the region to understand them and find the hidden drivers that lead to the outcomes our clients want to create. 5) You stay in the same generation, but as you get older, you pass through different life stages. This insight is easy to overlook, but it enables leaders to better appreciate generational change and new norms. For example, the term “Millennials” is too often applied to all young people today, yet the youngest Millennials are 25 years old, and the oldest are around age 40! Gen Z, the generation after Millennials, are now the emerging workers, consumers, and trendsetters—and they’re very different from Millennials. Our research shows that Gen Z does not remember 9/11, that many don’t remember a time before smartphones, and that their expectations for work, education, communication, and life will

create a new normal as they gain more influence. In the same way that Baby Boomers were once teenagers, Millennials have aged up and are often now the parents of children today. What can you do with these five insights about generations? — In my work speaking to and advising CEOs, I’ve found that the best approach is to start with these five insights and then dive deeper into what you need to know about each generation. The best starting place for an executive team is to create an accurate generational snapshot of their organization. This process involves creating a pie chart that shows the percentage of each generation in your workforce or customer base. A generational snapshot is usually eye-opening, as many leaders don’t have a generational view of their current employees and customers. With this generational snapshot, you can then create strategies, address challenges, and find opportunities to drive results in the organization. The snapshot will also help you see what is—and is not—working to attract and retain different generations of employees and customers. Going deeper, you can then explore key performance drivers by generation, such as sales and marketing results, as well as retention and engagement information you’re already collecting but may not be viewing by generation. Using this as an initial approach, you can start to separate myth from truth using your own data and then add expert insight to bring a results-driven approach to leading and driving results across generations.

NOW MORE THAN EVER, CEOS MUST UNLOCK THE POTENTIAL OF EVERY GENERATION Intentionally seeking to unlock the talent, perspective, and energy of each generation drives better performance without adding cost. To be clear, this is not about catering to or coddling a specific generation—we have a lot of data showing that doesn’t work. Instead, this is about recognizing that there are generational differences, and that what works for one may not work for another. In our work with clients around the world, we repeatedly see that CEOs who learn how to understand, engage, and lead multiple generations have a distinct advantage in driving trust, communication, innovation, sales—and most importantly, results. This has never been more important or urgent than in our current business climate, where unlocking the potential of every generation is a necessity for delivering results through uncertainty. And, as a Millennial, I want to thank you for bringing your own generational lens to this article. Thank you for being interested in rethinking not just my own generation but every generation. We all add value when you’re open to seeing it. Jason Dorsey works with CEOs and leaders to solve generational challenges and drive growth. He is a global keynote speaker, researcher, and strategic advisor. Jason has served on public and private company boards, cofounded The Center for Generational Kinetics, and received over 1,000 standing ovations. Learn more at JasonDorsey.com or check out his new book, Zconomy: How Gen Z Will Change the Future of Business—and What to Do About It.

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TEXAS COMPTROLLER GLENN HEGAR ON TEXAS’ FIRM ECONOMIC FOUNDATION In early April, long before we had all the data in on the economic impact of COVID-19, Texas Comptroller of Public Accounts Glenn Hegar stated unequivocally that Texas was in a recession. At the time, many others were shying away from the word. Hegar, on the other hand, warned that the only question was how deep and long the recession would be. But don’t take the overseer of the Texas treasury as a doom-andgloom type. While acknowledging the “double headwinds” of the pandemic and a slump in oil

and gas, Hegar’s belief in a Texas recession is tempered by a steady optimism in the state’s economic underpinnings. In this conversation, the comptroller discusses the constitutional duties inherent in his role, the pandemic’s effect on Texas’ tax revenue and budget, and his confidence that Texas can and will recover. Let’s start with the basics. Can you explain what the comptroller actually does? Sure. In my office, we have

3,000 employees in roughly 26 different divisions, with a wide range of responsibilities and duties. I typically describe my job by listing my three constitutional responsibilities. The first responsibility is ensuring that the 14 million payments made 44

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by the State of Texas are issued on time. That covers all the various state agencies, and it’s roughly a $126 billion budget, all flowing through the state treasury. It’s my responsibility to oversee that, including all payments to employees, vendors, and other parties. Second, we handle tax collections on behalf of the state. This is a little unique. In most states, you have two different divisions, one doing the expense side and another doing the revenue collection. In Texas, we like to do things different, so our comptroller’s office handles tax-revenue collection as well. My third responsibility is revenue forecasting. On the second Monday in January on odd years, one day before the legislative session starts, I have

Feature a constitutional responsibility to tell the legislature how much money we think will come into the state treasury. That allows them to set the two-year state budget that will start later in September of that year. The comptroller’s office has a wide range of other responsibilities, but those are the essential functions of the agency, our constitutional duties. How have things changed regarding that first responsibility in recent months? Have you been expected to cut back on expenses? We were

watching COVID-19 closely before it was officially a pandemic. At that same time, Saudi Arabia and Russia couldn’t make an agreement for OPEC cuts, when Saudi Arabia increased its production. Given these two events, it seemed pretty evident that Texas was going to have some type of contraction, either regionally or statewide. We didn’t know that we were moving into social distancing, but pretty quickly I started advocating to leadership— the governor, lieutenant governor, and speaker—that state agencies reduce their expenditures. While I don’t have the authority to tell state agencies to reduce expenditures, advocating to leadership is one tool in our toolbox. And in speeches and on calls with members of the state house and senate, I said we were likely going into a recession, though we didn’t know how deep or long it would be. We also, of course, looked to reduce our expenses in our own agency. I instructed my staff that we were going to do a strategic freeze on hires, freeze pay increases, and review all our IT projects. I knew from past experience in the legislature that it’s better to start early and

move quickly in reevaluating your expenditures in these situations. At the federal level, we talk about “discretionary spending,” or the part of the budget that is optional and set by appropriations bills, as opposed to mandatory spending. Are there categories of expenses like that at the state level? There are certain dollars

that are discretionary, and state agencies can reduce their budget. For example, we looked at expenditures out of Texas’ economic stabilization fund, or “Rainy Day Fund.” Fortunately, we have a healthy balance in that fund, but we wanted to see whether we could retain some of those funds that the legislature made large appropriations on last session. Some of those were more discretionary expenses, things like [Hurricane] Harvey–related repairs. We do have non-discretionary spending. When looking at what we could cut, we had to automatically exclude Medicaid, which is an entitlement, and public education, which is a constitutional right. Historically those two are “held harmless” [guaranteed to receive previously allocated funding]. After those, you have roughly a third of the state expenses left and for most agencies, those costs are people. So you can, like we did, freeze hiring and pay increases. But the question becomes, how do you reduce your expenditures without having to let people go? Right, most businesses deal with that same situation. Turning to that second responsibility of tax collections, how were we doing on bringing in revenue back in January and February? Were we tracking normally, or had you already seen an indication that things were slowing down? Based on the revenue estimate I’d updated for the legislature last fall, we were

tracking slightly ahead in revenue collections. The treasury was doing well. Strong job gains had been continuing in the state of Texas—in February, we added about 50,000 jobs. We had noticed some mild weakness in sales tax collections from the mining sector—oil and gas. In that sector, we knew that for the next two years, we’d have to rework a significant amount of financing, as private equity and banks didn’t want to lend as much as in the past. But oil and gas revenues from the production side continued to be healthy— maintaining if not slightly growing. The question for the Texas economy at that point was whether the slowing in the mining sector would have a ripple effect into manufacturing or other sectors. We didn’t know we were going to have the double headwinds of lower prices and production in the mining sector and also the COVID-19 pandemic. But prior to those two events in March, the economy was right on pace. Texas had been outpacing the national average economically. You’ve released some updates on the tax revenue coming into the state since COVID hit. How significantly have tax revenues been down? Sales taxes are the biggest portion of the Texas state budget and account for 57 percent of all state tax collections. All revenue streams are important, but for the State of Texas, sales tax is the one that significantly determines the health of the state budget. That’s why you see a focus on it. When we released numbers at the end of April, I wanted to be very clear that these only reflected part of the slowdown. That’s because we essentially have a one-month lag in reporting, so those numbers reflected revenue for March, when most businesses continued to operate for the first three weeks of the month. TexasCEOMagazine.com

When we released new numbers on June 1, those reflected April sales-tax collections, and we did see much more of an impact there. Sales tax was down 13.2 percent compared to May of 2019. That’s the steepest year-over-year decline since January of 2010. There were significant drops in other revenue streams. Motor vehicle sales and rental taxes were down 38 percent, which was a little improvement compared to the numbers released in April, but not significantly. Motor fuels taxes were down 30 percent, and that was our deepest decline since 1989. Natural gas and oil production were down significantly, roughly 75 percent each. And our revenue from hotel occupancy tax was down 86 percent, the steepest drop we’ve had on record since 1982. Hotel occupancy taxes are not a large portion of the state budget by percentage, but it shows you the significant impact in that industry. Alcoholic beverage taxes were also down 76 percent, the steepest drop since 1980. A large portion of that revenue comes from mixed beverages, so having restaurants and bars closed through April had a big impact, even though people could still go to the liquor store or the grocery store to buy wine and beer. You said that this was the biggest drop in sales tax collections since 2010, even though the recession began in 2008. Why was the revenue drop so

Texas Comptroller Glenn Hegar visiting SpaceX in McGregor, Texas, in 2017

Texas CEO Magazine Q3 2020

significant at that point? The great financial crisis of 2008 had an immediate impact in several types of taxes—for example, car sales. But overall, the ripple effect took a lot longer. There was about a six-month delay before we started seeing an impact in sales tax receipts, and then it actually got worse several months later, in Fiscal 2010.

Feature We did look back at those historical events even in early March of this year, but once it became clear that this was a pandemic, we started saying that this would look different. There wasn’t going to be a long lag in the sales-tax decline this time, since so many industry sectors were literally shut down. One really striking example is that previously we had something like 2.3 million people passing through our airports in the United States every day, but at the low point of the shutdown, we only had something like 90,000 a day. That kind of remarkable closing down told us that we’d see the impact on sales-tax collections immediately. No six-month lag, with another nine months before we got to the bottom of the trough, as we had after the 2008 recession. Are you seeing a significant increase in businesses not filing their taxes, or not being able to file their taxes?

We had a lot of discussions about that, especially with the restaurant industry. Nobody writes a business plan that includes shutting down for several days, much less several weeks. No one does stress-tests like that. Under a disaster declaration, I can give a 90-day referral on payment of those taxes. The disaster declaration came down on March 13, but we asked businesses to file the return if they could, because they are holding those taxpayer funds in trust for the State of Texas. If they can’t, then we work with them on a case-by-case basis. We’ve been working down the list of businesses who have not filed to remind them and to let them know that if they’re having trouble, we can work with them on a payment agreement. For major companies that are not having cash flow issues, we generally do not allow for postponements.

We don’t want larger, solvent businesses using the state as a float, and in essence asking for shortterm loans. But we are sensitive to those businesses we do need to work with. We’ve obviously had an uptick in those situations compared to January and February. Let’s move to the hundred-billiondollar question. What do you think your new budget estimate is going to look like? You have a while before you have to make a prediction, but do you think this is likely to have a singledigit impact on the budget? Double digit? The current two-year budget cycle ends August of next year, so we have roughly 14 months left on this budget. If you look at the current budget cycle, hopefully the impact is in the single digits, yes. It comes down to when we see an economic recovery. Of course, we don’t know what’s going to happen in the fall. Is the economy going to continue to be shut down to some degree? And as I remind people, Texas accounts for 19 percent of the entire nation’s exports, so we’re tied to what happens in the global economy. Supply-chain issues in other countries have an impact here. When the next legislative session begins next January, when they will put the next two-year budget together, we will hopefully know more about how slowly or quickly we’ll see a recovery. COVID-19 and the shutdowns will have an impact on the budget of course, but we don’t yet know whether that’s a double-digit or single-digit number.

We need a few more months of data at this point. Some other states that are supposed to have already put together their budgets for the new fiscal year have asked for continuing resolutions so the state can stay funded for the next few

months while they look at the new data to make a better prediction. We’re about at the point where we can see where the trend lies. What have we not talked about that you’d like to communicate to the CEOs of Texas? While I do think that, yes, the next legislative session is going to be rough, Texas’ economic foundation is strong. Listening to some of the calls with treasurers from across the nation—I can tell you that we’re in a lot better shape than some of them are. We’re going to be able to come out of this, I hope, a little quicker than some of the other states, even though we face the two strong headwinds of the pandemic and the downturn in oil. I can tell you that it was a hell of a lot more fun doing my job in January and February. I know most CEOs in Texas feel the same way. But there is reason to be hopeful.

Texas entered this with a stronger economic foundation than most other states and nations. We’re blessed in that respect. From a price standpoint, Texas is more affordable than most other states, as we know. Our population is growing. We have a younger workforce than most other states, and there’s a commitment from leadership to continue to do what we need to do in order to continue building up a strong workforce—through public education, higher education, and other programs. I’m having a lot of discussions with policymakers about what the state needs to focus on in this shifting work environment to ensure that businesses can continue to thrive here in Texas. Ultimately, we’re all working to get Texas back to fully doing business, and to make Texas even more competitive than it has been in the past. TexasCEOMagazine.com

Trial Attorney and Landman Jonathan Grammer on the Two Causes of Business Failure With two offices in Texas and one in Oklahoma, Grammer Law Group specializes in drilling title opinions, acquisitions, and divestitures. Ask founder Jonathan Grammer what it takes to get the economy back on track and he’ll most likely tell you, provided you’re prepared to spend an hour or two. “Conversation is worth taking one’s time,” Grammer finds. “It’s best done outdoors, sitting down—getting to know one another. That’s a big problem in business right now. There’s simply too much technology between us all right now. I think it makes it harder to honestly get business relationships going as well as we used to. “I was fortunate in the beginning stages of my career, almost twenty years ago, to have received the best piece of advice of my life. A mentor told me that there are only two things that cause businesses to fail: debt and fear. I’ve never come so close to grips with that advice as I did during the beginning of the COVID-19 pandemic this spring. Unfortunately, I’ve seen too many people of late who are being taken down by both. “Fear is not an indication that something is dangerous. It is an indication that something is not fully understood. Most people fear the economy not coming back because they don’t fully understand why economies—or businesses, for that matter—fail.” Name a sector of the energy market in 2020 and Grammer is there. On any given day he may be meeting with surveyors at a solar farm development that supplies power to the oil patch in Southeastern New Mexico for his company Grammer Land & Exploration Corp. That company negotiates energy transactions for solar, wind, and oil and gas exploration. Or you may find him checking fences on one of his company’s many agricultural properties in Kansas for Grammer Farms Corp. He may also be meeting with oil and gas clients represented by his law firm, Grammer Law Group, based in Austin, Texas. Grammer also maintains offices in Dripping Springs, Amarillo, and Oklahoma City. “Our personnel fluctuates with the energy markets, but for the most part our companies are able to sustain themselves with a core group of about ten to fifteen people, mostly attorneys,” he says. “As Americans, we are all more likely to suffer a layoff from a large corporation than we are to starve as a result of the efforts of our own hands. Yet so many people never make an attempt to start something for themselves. They fear it not because it is dangerous, but because they don’t understand it. At least that was the advice my mentor gave to me. A mentor who also happened to be my mother. You cannot tell the story of anything I’ve done, or anything that I have yet to do, without talking about my mother.” Grammer’s mother, renowned Austin artist Dianne Grammer, was found dead in the family’s Westlake Hills home in 2011 from a sudden heart attack. “I can’t take credit for any of my accomplishments, nor do I believe any of us really can,” says Grammer. “Each of us can trace the source of our passion, our drive, back to somebody who influenced us. For some it is a teacher, for others perhaps it is an employer or even our own children. For me it was my mother.

She was my Sam Houston at San Jacinto, out in front of a cavalry charge, setting the path for our family. She taught me that there were two kinds of people in life: those who have the world move them around and those who move the world around. And she said I needed to decide which I wanted to be. “Per her advice, with every passing year after I graduated law school, I’ve really put a lot of thought and energy into not being afraid of attempting new ideas. So long as our companies could move forward under current cash flow and not acquire debt, there weren’t many areas of energy, natural resources, or the law we weren’t at least willing to consider getting into.” When asked about his goals for the coming months and years, Grammer replies, “I’d really like to do as much as I can to get more people interested in the energy business as a whole, rather than just one facet of the business. Green energy and conventional hydrocarbons and geothermal need to learn to depend on each other more, rather than competing. In the coming years, we are going to need to rely on all of them to sustain a growing population.” Jonathan R. Grammer is a trial attorney, landman, and founder of Grammer Law Group. He has represented independent oil and gas companies as both a landman and attorney in seven states in nearly six dozen lawsuits and effectuated over half a million acres of producing and non-producing transactions and partnership formations for both independents and majors. Mr. Grammer has also made jury arguments and been a featured lecturer on oil and gas in Texas, Oklahoma, California, Illinois, North Carolina, and Washington, DC.

Get in Touch with Grammer Law Group: (512) 297-4995

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BILL PERKINS WANTS TO

“DIE WITH ZERO”

Feature

Wise people sock money away throughout their lives, accumulating a big old nest egg for retirement—right? Bill Perkins wants to update that paradigm, as he explains in Die with Zero, hitting bookstores this July. The Houston-based hedge fund manager, poker player, and wild bet maker proposes a new philosophy based not in the hope of future enjoyment, but in prioritizing life experiences now. We asked Perkins how he developed the ideas behind Die with Zero and about the connections between investing and poker.

Why don’t we start with what drew you to investing in the first place. Did you know from an early age what you wanted to do? I

grew up in the 80s, when Wall Street and the stock market were very prominent in popular culture. I was attracted to it. I went to school for electrical engineering, but I knew I didn’t want to do that for a living. I wanted to learn it, but it didn’t seem like an exciting lifestyle. So, I realized early on that the things I wanted to learn and the things I wanted to do were two different things. When it came to what I wanted to do, I decided to go into something that would allow me to leverage my time and do all the other things I wanted to do. Finance and trading fit that bill very, very well. When did you begin to develop your “die with zero” philosophy? Did that hit you very early in life? Snippets of it hit me at

different times. When I was an up-and-coming peon on Wall Street, working as a screen clerk on the commodity exchange, I was just happy to be in the business. New York City has a lot of rich people roaming around, and I would notice them. As a delusional kid, I would think, “That’s great that he’s rich, but he got rich too late. What is he going to do with all his money now that he’s old?” Of course, those people were basically my age now. [Laughs] Because 50 is really old. That’s the thought of a 21-,

22-year-old, right? I couldn’t imagine someone that age wanting to do the things I wanted to do then, in my early 20s. If I take away the ageist bias of my younger self, I see that there’s a neutral concept that was correct: There’s a season for everything. I may have had the age wrong, but there is a period of life at which the utility of the dollar starts to decline. So, I realized early on that there’s a period where you want to enjoy your funds, where you’re at maximum health and can have the most fun. That idea still stands, regardless of my delusion around when that period was. That seed developed into the philosophy I talk about in the book. What are some of the most memorable things you’ve done as a result of your “die with zero” philosophy? I do take extra-special effort to create memories with family and friends. A recent example is my mother’s eightieth birthday. We have some Scottish blood in our veins, and I decided we were going to take the whole family to Edinburgh to celebrate. She was born on Christmas, so it will be Christmas in Edinburgh, and then we’re going to a castle in the Scottish countryside to do a little tour of our ancestral home. My thinking now is, “I’m not going to get that many more moments with my family, especially with my mom.” This is a phase in my life where typically I would have other obligations between my career and kids and all that, and if I’d been on autopilot, I would’ve TexasCEOMagazine.com

YOU CAN’T PUSH EVERY SINGLE EXPERIENCE TO RETIREMENT, WHENEVER THAT IS, WHETHER AT AGE 60, 65, OR 70. said, “Ah, we’ll do something next year, whenever we can all make it work.” Now I take each chance to create a memory a lot more seriously.

whether at age 60, 65, or 70. There are things you will not get the same amount of enjoyment from at different periods in your life.

That idea is somewhat against the prevailing culture. A lot of us think of a life structure where you work for so many years and then retire. You think

You don’t see that many 65-yearolds out there on WaveRunners or heli-skiing, for example. It may be for health reasons and it may just be that their attitude has changed, but it’s just not the time for that type of experience anymore. There’s a time to get your glowsticks and go raving all night, and there’s a time to walk the Spanish Steps in Rome after the orchestra. In many cases, previous generations missed out on certain experiences because they didn’t calculate their ability to enjoy them as time moves forward. They needed to bring certain experiences forward in life and put certain experiences later in life. When you start to do that, how you save and how you spend changes.

that’s the wrong way to look at it? This

is not a “Go light your money on fire” type of philosophy. Clearly— especially in times like we’ve been through recently—it’s important to have a safety net. The “die with zero” philosophy does not mean “live with zero.” What we don’t recommend is doing anything on autopilot, whether that be spending or saving. Deliberate living is the key. “Die with zero” is about looking at the rest of your life, from where you are now to the grave, and saying, “At each stage, what experiences do I want to have, and at what age?” A cornerstone of the book and the philosophy is that you can’t push every single experience to retirement, whenever that is, 52

Texas CEO Magazine Q3 2020

Part of it, too, was that the previous generation didn’t expect to live as long. We’re only a hundred years on from a time when average lifespans

were significantly shorter. Just making it through the next week was a good thing. That’s very true. There was also a culture of uncertainty, a fear of everything being gone at any moment. That caused some people to over-save, to play insurance agents for themselves, basically. Women’s earning power was also not as strong back then, so there was more concern about what would happen if the man lost his income. Right. The concept was “You work for X many years, and all your fun is packed into the period from retirement on.” That idea has passed on to current generations. Now I’m coming along and saying, “That’s not optimal for getting the most out of life.” I’m not telling people how to live or what to do. I’m saying that if you stay on autopilot and think you’ll save your big experiences for retirement, you’re not getting the most out of life.

I’m hoping that people take a look at Die with Zero when it comes out and think about how it applies to their life no matter what resources they have. I want to help people get off autopilot

Feature and live more fully, and to save the only thing they have: their time. With much of the world in partial lockdown recently, have you been able to create any memories of the kind you talk about? I’ve been fortunate to have

more time with my daughters—to their dismay—and have considered that time a blessing. It’s usually near impossible to get that much time with teenagers. I’ve also connected with extended family in group Zoom chats, some of whom I hadn’t spoken to in a while. Walking and hikes and enjoying nature have been my most common activity. On the negative side, I had completely lost control of my diet and eating habits for a while. It was fun, but I’m paying the price now. For a lot of us, the pandemic has actually shown us that we’ve been taking our own time for granted. This wasn’t the most ideal way for it to happen, but as the saying goes, you don’t know what you got till it’s gone. The restrictions around COVID-19 have awoken many people to the fact that they may have been putting their lives on hold due to autopilot. A lot of people have been jarred awake to realize that en masse. Let’s talk about some of the similarities between two activities you’ve spent a lot of time on: investing and poker. Both of them require you to make decisions with incomplete information. How do you deal with the inevitable bad runs? People ask me, “What makes a good trader?” For me, there’s a certain psychology about it—you have to be very stoic about things. You don’t see a boxer get mad because he got punched a couple of times in a ring. It’s part of the job if you’re going to be a boxer. You actually need to like getting punched in the face because it happens so many times.

It’s the same thing with trading. There are studies out there showing that most people need five to seven positive events to make up for one negative event, but traders aren’t like that. If we needed all those positive events to make up for a loss, we couldn’t operate. The best traders who ever existed have a win rate of maybe 60/40. So that typical emotional calculus won’t work. No trader could be that accurate. I’ve always had that ability to be emotionless about losses, to realize they’re part of the job. That’s a great lesson for CEOs as well that I don’t hear talked much about. As CEO, all the problems inevitably show up on your doorstep, and the successes are few and pass quickly. A good CEO doesn’t need those five to seven pats on the back for every one bad turn. If they did, they’d get depressed pretty quickly.

When you’re running a business, you look around and see all the successes. But that’s just survivor bias. In every industry, there are tons of heaps in the ash bin. Even the companies that are successful, they have so many bad days—it’s constantly fighting fires, dealing with the competition, internal issues, your own issues as a leader. You must have the disposition to deal with that.

In your book, it sounds like when you made the move from the Northeast to Texas, that you had the same limited view of Texas that most Northeasterners have—it’s all flat, barren plains and the people are all a certain type.

When I moved to Houston, I didn’t have much hesitation. When I was younger, ambition overruled everything, and I saw opportunity there. But I was shocked at how different Texas was from my preconceived notions, how diverse it was. Getting to Dallas and North Texas, going to Austin, traveling around the state—it was a really great thing. First of all, with the money I saved, I felt like I stole something. I lived in a pizza oven in New York, and all my money went to rent and cost of living. But the people in Texas were also very friendly, and even then, Houston was the growing, cosmopolitan city it still is. I came to love Texas pretty quickly. People still have those preconceived notions, though. Legendary stories die hard. Texas has that Wild West background and culture and imagery that’s very powerful. That’s actually pretty great, right, but it does come with those preconceived notions that just aren’t accurate anymore. Have you seen the poker world change

FOR A LOT OF US, THE PANDEMIC HAS ACTUALLY SHOWN US THAT WE’VE BEEN TAKING OUR OWN TIME FOR GRANTED.

since you started? Now we’ve got kids playing 50 hands a minute online, and by 25 they’ve seen everything. The poker world has become much more analytical, and that knowledge is diffusing through the poker community. Before, it was a few wizards running simulations and working through the math, but now most players think through those strategies. The shift from seeing poker as a game of chance to a game of skill has invited many, many people to study the game. TexasCEOMagazine.com

NOW THAT POKER IS SEEN AS A SKILL, MORE PEOPLE WANT TO LEARN AND GET BETTER AT IT.

Now that poker is seen as a skill, more people want to learn and get better at it. I’d say the average poker player is getting better and better. Do you see a lot of people going from poker to investing? Do you think poker can be a good training ground? I think

the biggest thing is that poker players understand expected value and odds and risk-reward calculations. A lot of the things they do—discipline, bankroll management, etc.—it’s basically trading. So, yes, you can learn some of that stuff playing poker. It’s easier for a professional poker player to move into trading and investing than it is for an investor or a trader to move into poker. How has your approach to the game changed over your career? As you made more money, did it become less interesting? In the early days, I wasn’t

as interested in learning the skill of poker as much as having fun. But as time went on, I realized that this is an expensive hobby. I said “Let me get some skills before I sit down and vaporize a hundred buy-ins.” I wanted to put some discipline in it. 54

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A lot of business professionals are in relaxation mode when they play poker, but with a professional, it’s a job. They’re taking it as seriously as you did your last board meeting or acquisition. That disconnect can be costly. I’m not at pro level, but I am putting more effort and time in to increase my skills and knowledge. You’re known for making prop bets— interesting novelty wagers. What’s your favorite one? I think the best one was the Staples brothers, when I bet on whether they could reach the same weight as each other within a year. That meant that Jaime Staples had to lose a bunch of weight, and his brother had to gain some. I think that was my favorite prop bet just because it was so inspirational. They did a video blog and it had this huge ripple effect of inspiring other people to get in shape. People thought, “If he can do it, I can do it.” People did other challenges for themselves, whether it was losing weight or stopping smoking or something else. It showed other people that you can see these outstanding, lasting benefits

in your life if you take it one step at a time and maintain discipline. You’ve given a lot of money away, some of it publicly. What is your approach to philanthropy? At the end of the

day, using my resources to make a positive impact is important to me, whether it’s the Dave Thomas Foundation with adoption, Save the Children, hurricane relief, education and scholarships, refugee programs, or anything else. To me, the most important thing is that these resources get deployed efficiently and solve real problems. But I am one individual, and I won’t do anything great alone. I have this saying, “Nobody does anything great alone.” Even Jesus had disciples. I do some public giving to get other people aware and inspired, so they donate too or bring something to bear other than money to help solve the problem. I like to see people jumping in and supporting these issues, retweeting things or discussing them at dinner. You never know how far that ripple is going to go.

HOW CAN THE TEXAS OIL AND GAS INDUSTRY REBOUND? Elizabeth Gerbel

On Monday, April 20, 2020, the world watched the price of a barrel of oil drop below $0 for the first time ever. In fact, prices reached a staggering $-37 per barrel, sending shockwaves through an economy that was already hurting due to COVID-19. Currently, the oil and gas industry is still struggling to find the necessary footing to mount a strong recovery. That recovery will come, but it will require an understanding of how the historic April collapse happenedâ&#x20AC;&#x201D; and how technology and efficiency will play a key role in the industryâ&#x20AC;&#x2122;s economic recovery. Fluctuations in the oil and gas industry are inevitable, but in the face of current economic conditions, rebounding and rebuilding calls for dedicated leaders capable of strategizing and executing on their visions.

HOW DID WE GET TO $-37 A BARREL? The disastrous day of April 20 is most simply explained by Economics 101: supply and demand. Saudi Arabia, Russia, and officials at OPEC had been embroiled in a price war for several weeks before COVID-19 was officially declared a pandemic. Their disagreements over pricing and production led to a pronounced glut in supply that was already poised to cause oil prices to fall. When the world went into quarantine to slow the spread of COVID-19, the shutdown created a drastic reduction in demand for oil. So, in classic market fashion, low demand combined with high supply to create low prices. Uncertainty around when quarantine might come to an end made the situation even worse. In addition to oil prices trading at historically low numbers, the industry had “overbought” the market, leading to significant storage issues. When you buy a barrel of oil, you are actually buying a contract promising that the oil will be delivered at a later date. When the market is overbought, people have contracted to have oil delivered, but there is no place to store the oil when it arrives. This overbought market then leads to wells being turned off—or “shut in,” in industry parlance—for future production. Thus, too much oil being pre-purchased on the market with nowhere for it to go meant that prices would eventually crumble. This chain of events wreaked havoc on midstream and upstream companies across Texas, causing companies to scramble and, in some cases, resort to layoffs. And unfortunately, things are not as simple as shutting down a well because a company needs to slow production for a moment and then flipping it back on. Once a well is reopened after it’s been shut in, it may not produce at the original levels, causing companies to invest more money just to get production back online. All this means is that the industry is now faced with (a) a surplus due to overproduction earlier in the year and (b) a reduction in production due to lowered demand during the COVID-19 pandemic. It’s a unique double-edged sword that’s kept prices significantly low, and people uncertain what to do next.

HOW CAN OIL AND GAS COMPANIES CREATE A NEW FUTURE? For an oil-and-gas rebound to happen, the economy must continue to open back up, and demand needs to increase. Moreover, storage capacity for purchased oil must become available again, even if demand decreases again in the future. Additionally, OPEC and leading oil-producing companies need to reach an understanding regarding production and pricing. In my opinion, based on nearly two decades in the energy industry, oil prices need to reach the mid-$40-per-barrel range for an average well to be profitable. To increase our chances of a strong recovery and to improve the health of oil and gas companies’ bottom lines, industry leaders can take the following steps: 56

Texas CEO Magazine Q3 2020

EMBRACE TECHNOLOGY Digital technologies are transforming almost every industry’s operational landscape, and the oil and gas industry is no exception. Increasingly, technology solutions are boosting productivity, cutting costs, and streamlining everyday backoffice work. Industry leaders must embrace these developments, including finding ways to automate invoicing, meter reading, POP statements, and other processes that manage crucial files and metadata for their companies. Automated processes that leverage machine learning and artificial intelligence provide leaders with easier access to data analytics, empowering them to make sound decisions. To ensure companies optimize new software, decision makers must analyze their business at the core, identify gaps and pain points, and focus on distinguishing between critical items and “nice to haves.” The result is improved processes, greater insight, and more efficiency—and a new way of doing business, one that impacts the company’s strategy, culture, and vision. Since the best technology solutions will be unique for every company, it is vital that leaders consider their options and future roadmap, selecting only what is needed to recover and grow their business. INVEST IN SERVICES The old way of operating is not sufficient to survive, let alone thrive, in the oil and gas industry. To take the idea of new technology and solutions to greater heights, industry leaders must procure both high-quality cloud hosting and cybersecurity services. Your field agents and operational staff need stable and secure methods for obtaining the same information no matter where they are working. And your company needs protection from hackers, viruses, spam email, and other digital difficulties. Embracing these services will save you precious time and money spent trying to recover from the issues that come along with digital transformation. PRIORITIZE EFFICIENCY Only select Texas oil and gas companies have survived the recent economic downturn without cost-cutting and layoffs. It is no surprise that those few companies were already lean and operated efficiently, which prepared them for combating such a crisis. Prioritizing efficiency means leveraging human capital appropriately and filling in the gaps in your essential processes where human intervention is not needed. These goals can be achieved by—again—leveraging the right technology and services. — Economic downturns and industry changes are inevitable, but investing in scalable technology solutions, eliminating inefficient manual tasks, and utilizing technology services will reduce debts, increase cashflow, and allow your company to become a leader in the rejuvenated Texas energy marketplace. Elizabeth A. Gerbel founded EAG Services in 2003 with a vision to establish a unique consulting organization, one with deep industry knowledge to effectively partner with oil and gas clients and provide superior and costeffective services. In 2017, Elizabeth extended the EAG brand by launching EAG 1Source, a full-service Advisory Services, IT, and Business Process Outsourcing firm.  Elizabeth has twenty-plus years of upstream and midstream Accounting, Land Management, Production Management, and custom IT solution design experience working with Fortune 500 and midsize E&P independents.

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UNDER PRESSURE

Erik Larson on his latest book, The Splendid and the Vile: A Saga of Churchill, Family, and Defiance During the Blitz

Photo by Nina Subin

PULLING TOGETHER

Feature We’re all familiar with Winston Churchill the wartime bulldog, cigar in mouth and bon mot on tongue. But few have rendered the man and his leadership with the intimacy and gripping drama of Erik Larson’s latest book, The Splendid and the Vile. In it, the six-time New York Times bestselling author pulls back the curtain on Churchill’s first year as prime minister, a year that coincided with the devastating German Air Campaign of 1940–1941. Rather than focus on the broad sweep of history, Larson’s book homes in on the day-to-day experience of a rapidly escalating war, as lived by Churchill, his close circle of family and advisors, and the average citizen of Great Britain. That was a time very different from our own. But, as Larson discusses in this interview, there are parallels to the crises of today, not least of which is the necessity of people pulling together under a period of immense pressure. Though the particulars don’t match—we’re now called to stay home for our country, for example—this pivotal year of Churchill’s career holds plenty of lessons for the leader of 2020. Many Americans don’t know much about the British governmental system. Can you tell us how Churchill first obtained the prime minister position? Churchill became prime minister on May 10, 1940. He was one of a couple of candidates who were proposed to King George VI. At that point, it was the king who decided who became prime minister, but the king tended to go along with what Parliament wanted. At the time, there had been a political rebellion in the House of Commons against Neville Chamberlain, who was prime minister prior to Churchill. Chamberlain was a very staid guy and had been deemed not quite up to the task of waging war with Hitler. His nicknames were “the Coroner” and “the Old Umbrella.” Churchill,

on the other hand, was very popular with the public at that point. There were those in Parliament who felt Churchill would be a difficult character as prime minister—he was full of energy that was directed, as one minister said, “in all different directions at once.” But he was deeply popular with the public, and the rebels in Parliament thought he had the chops to take on a World War. Ultimately, the king agreed. The king did have grave misgivings about Churchill initially, but not so grave as to attempt to override parliamentary leaders. Churchill was clearly thought to be the best guy on hand. And Churchill certainly believed that Churchill was the best guy on hand. That’s absolutely true. Churchill

was a hero in the eyes of the public but also a hero in his own eyes. The important thing to know about Churchill becoming prime minister is that despite the circumstances of the day—he assumed the office on the day that Hitler invaded the Low Countries—he felt that this was the highest achievement of his life. He had worked his entire career for this, and he was delighted. Yes, this World War had just become very, very hot, but now he was the boss. He made himself defense minister, in fact. Churchill understood strategically that the Americans were key to long-term success in the war effort. How did he develop that understanding? Churchill had done a lecture tour in the United States, and in fact had been hit by a car and seriously injured in New York City. But he did recognize from the very start of his career as prime minister that Britain could not win this thing on its own. Britain could fight to a draw, perhaps, but he knew it could not win without the help of the United States. So, he always acted with one eye on what America would think, with the idea of eventually reeling in Roosevelt. He was like a global fly fisherman, very adept at getting that fly in front of Roosevelt. It didn’t ultimately work until the bombing of Pearl Harbor. I don’t think most Americans today understand how strong the antiwar sentiment was in the United States at that time. The prevailing opinion was that we should avoid the war at all cost, right? America was profoundly anti-involvement. We did not want to get involved with World War II—though of course nobody called it “World War II” at that point. Roosevelt understood the depth of this antipathy toward TexasCEOMagazine.com

involvement, and that made his position very, very tricky. I don’t think Churchill fully appreciated that. A lot of British people couldn’t understand why Roosevelt couldn’t just pull the plug and get into the war. As Churchill came to realize more and more how tricky Roosevelt’s situation was, his own tactics became more subtle. It was a very interesting courtship. Once Churchill takes over, he’s almost immediately dealing with the fall of France and a potential invasion of the British Isles. For many at the time, such an invasion would have been previously unthinkable. Many contemporary readers don’t recognize how major an event it was that France fell. It completely changed Britain’s strategic assumptions. After the fall, German bombers could reach London and other cities in a matter of minutes. As most citizens in London and along the coast knew, invasion was a very real prospect. Many were certain it would happen within days of France falling. It was then that the German Air Campaign of 1940–1941 began—I generally prefer that term to “the Blitz,” since the campaign unfolded in phases. The initial approach was to conduct raids by day, but that proved to be disastrous for the Germans. German bombers could only fly to Britain with a significant escort of their own fighters. The escorts had a 90-minute range, and the bombers could not fly beyond that. Without the protection of their escorts, they were toast; the RAF [Britain’s Royal Air Force] was very effective at shooting down bombers. There was, I think, a sense of hubris on Hermann Göring’s 60

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part; he thought his air force was hot stuff and a lot better at dealing with the British than it actually was. The British had tremendous intelligence as to Luftwaffe activities, maneuvers, and orders

THE MAIN PARALLEL BETWEEN THE TWO SITUATIONS IS THAT WE ALL HAVE TO PULL TOGETHER.

someone else probably should have been defense minister—but he did understand from the very beginning that all strategic assumptions had changed after France fell. He knew that the only way to prevent invasion was to prevent the Luftwaffe from gaining air superiority over the Channel. And the only way to prevent that was to train as many pilots as possible and make and deploy as many fighters as possible. Ramping up that capability was possibly the most brilliant thing he did.

because of Bletchley Park and Ultra intelligence. The more significant problem was being able to act with any immediacy on what they learned. The British coastal radar systems were very good, so they knew exactly when bombers were leaving the coast of France. But even then, the fighters had to be directed to meet the approaching aircraft, and this required visual contact during the daytime.

In that first year, he hired his friend Max Aitken—Lord Beaverbrook—and put him in charge of a brand new ministry, the Ministry of Aircraft Production. Now, Beaverbrook was a newspaper baron and widely reviled in Whitehall, the seat of British government. But Churchill also understood that this guy could galvanize a business. Beaverbrook had taken the Daily Express, a dying paper, and overseen an incredible sevenfold expansion of its circulation against significant odds.

Once the Germans realized they couldn’t keep up daytime bombing raids without losing all their aircraft, they went strictly to nighttime bombing. That’s when everything changed once again. Without the need for escorts, German bombers had a much longer range—and the RAF couldn’t find them in the dark. British radar would spot these incoming flotillas of aircraft, but by the time the word got to command centers, the planes were in a very different location.

Beaverbrook had never made an airplane in his life, but Churchill saw him as a force that would shake up the aircraft industry and increase fighter production. That turned out to be absolutely true. It was quite a significant move in that first year. Churchill was particularly good at choosing close advisors who would tell him what the ground truth was and not just give him a lot of happy talk. His advisors would also shake things up in the ministries around them.

Churchill certainly understood the importance of maintaining dominance in the air, right? Churchill wasn’t a particularly good tactician—

One of the striking things in the book is your illustration of how life continued somewhat normally—or under a new normal—

Feature as the Blitz was occurring. Why didn’t more people leave London once the German air campaign began? There was an initial flight from London, and many people who could leave did. But there were significant industries and government operations in London. A lot of those industries and government operations were vital to the war effort. And people had to make a living—there was no chance of working remotely by the Internet like many have been doing through the current pandemic. One interesting dynamic of the COVID-19 pandemic is the public’s extensive access to information; in many cases, we know as much about what’s happening as world leaders do. During the Blitz, however, the government was the primary source of information. To what degree did Churchill filter the information that British people got during his first year of leadership? Churchill certainly had access to the most fine-grained intelligence. It came to him in his secret box, and he generally did not reveal that to anybody; to do so would risk tipping off the Germans that he had that intelligence. The public did have access to information from a very vibrant, scrappy press, however, and the press was not totally controlled by Churchill. He could require that the press not talk about particular subjects, such as the sinking of the Lancastria, in which at least 4,000 people died. Churchill barred reporting on that, though it came out eventually. But overall, the press was very lively and active at that time, so the public was aware of most of what was going on. Churchill also had access to tremendous amounts of information from Home Intelligence, which

collected information on public morale. They gathered all kinds of information, including things like conversations at bookstores. Hundreds of different sources went into the weekly Home Intelligence reports about public mood. Through that, Churchill could gauge how the public was feeling about things and how they were reacting to his speeches and so forth. One thing Churchill knew was that if he was to tell people things that contradicted their own experience on the street, it would be very destructive to trust and morale. Whether he intuited this or learned it over time, he knew to tell the public what the public already knew. How did his popularity with the public ebb and flow throughout his first year? In this first year, his popularity with the public was very high, though his popularity with Parliament did ebb and flow. Almost a year to the day of his appointment, there was a brief rebellious flare-up in Parliament, as had happened with Chamberlain before. Churchill deftly turned those debates into a vote of confidence, which prevented parliamentary leaders from criticizing him without real consequences. Ultimately, the rebels conceded that they were not challenging his leadership overall but just wanted to make certain points against him. It was a brilliant ploy on Churchill’s part. His speeches also had a good deal to do with his consistent popularity with the public. We all know about Churchill’s terrific phrases. “Never has so much been owed by so many to so few.” Those are great rhetorical rapiers. But to me the real brilliance in how he spoke was in how he structured his speeches.

He would give people a sober assessment of what was going on. He would not pull punches. But then he would come back with real grounds for optimism. Not happy talk, not made-up stuff, but real grounds for optimism. And then would come some great flourish, which sometimes literally got people leaping out of their chairs and running into the streets to help fight the Nazi scourge. For Churchill, it was very important to acknowledge that the public could take bad news, and that’s how he proceeded. The Splendid and the Vile focuses on day-to-day life. One surprising aspect is that many notable figures, including Churchill’s family, are roaming about the streets of London during the air campaign, going to the theater and nightclubs and so on. In today’s environment, it seems almost unthinkable that these public figures wouldn’t be highly protected at all times. One of my favorite little facts in the book is that one day Anthony Eden was walking through Hyde Park and he decided to take a nap on a park bench. He slept there for an hour. This is one of the most senior men in the British Empire, one of the most recognizable men in the world, and he just decides to take a nap on a park bench in Hyde Park. Mary Churchill is another terrific historical character and I was very blessed to have access to her diary. At the time I was given permission, I was one of only a couple of people who had been allowed to actually see it, for which I’ll be forever grateful. Honestly, I think she makes the book. The beauty of Mary Churchill is that she gives us an unfolding view on how morale and perceptions of the war evolved over that year. The book starts on May 10, 1940, when she TexasCEOMagazine.com

is 17 years old. She’s a very smart, astute observer of her father and the world around her. She is thrilled when he becomes prime minister because she understands that this is the thing her father has always wanted. But the family decides to keep her in the countryside at the prime ministerial country home, Chequers, for her own safety. She wanted to be part of the action, to do what she could to take on the Germans. One of her great regrets was that because she was a woman, she could not fly a fighter plane or bomber. But at the same time, Mary Churchill was a 17-year-old girl who wanted to have fun, and she did. She went to RAF dances. There are references in her diary to snogging in the hayloft and other stuff—life did go on. Yes, London was being bombed to hell, but out in the countryside, fun was fun. If the RAF held a dance, by God, she was going to go. Later, she starts working for the Women’s Voluntary Service and next thing you know, she’s running an anti-aircraft battery in Hyde Park. That’s a terrific metaphor for how people coped with the Blitz. Instead of becoming cowering, terrified people, they became actually emboldened as it went along. The year 2020 is one of those that historians will want to write about a century from now. But I feel sorry for future historians, since most of us don’t keep diaries like Mary Churchill’s. I consider that question from time to time, and feel lucky to have had access to these incredibly rich, detailed diaries. I couldn’t have written this book without them. But I do think that people are keeping diaries about this grave moment; it’s more that historians are going to 62

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have different sources. For better or worse, we’re going to have the entire Twitter account of these events. The National Archives is keeping a huge trove of tweets. From a writer’s perspective, Twitter is going to be incredibly valuable down the road because of the immediacy it provides. You’ve got people witnessing things and writing about them in real time. It’s more abrupt and less literary than a diary, but it’s still a tremendous flow of information. Future historians will also have the added benefit of video, from cell phones and Zoom interviews and all that. But having lived this, it’s not going to be me writing about it. You’ve been in New York, the initial epicenter of the pandemic in this country. Have you seen any similarities between that city during lockdown and London during the Blitz? Ironically, the right thing to do in this case is exactly the opposite of what Churchill tried to inspire the public in London to do during the air campaign. Right now, we want to rouse people to stay at home. That’s the best thing you can do for your country during a pandemic, and it’s very different from what people felt about London during the Blitz. Especially after it became clear that the Germans had given up daytime raids, life really went back to normal during the day. People got out and went to lunch and attended concerts at Trafalgar Square and so forth, then returned to a state of real fear and anxiety at night. The main parallel between the two situations is that we all have to pull together. Everybody’s got to do their part, and in this case that means wearing a mask and staying in to the extent you can. One weird thing is that, for whatever reason,

people have flocked to this book for solace over the past several months. To me, this is something of a mystery, because if you’re turning to a time of mass death and chaos for solace, it says something pretty telling about today. But I also get it, because this pandemic is a time when we do all have to pull together. Looking at how the British people pulled together and survived that intense year was why I did this book in the first place. It wasn’t that I was interested in Churchill; I was interested in how people dealt with the German Air Campaign on a daily basis. As I mentioned in my Author’s Note to the book, that interest came from an epiphany I had when I moved to New York; I saw what 9/11 meant for New Yorkers versus the rest of the world. There was this sense of having your home city violated by an attack, and seeing everything up close and vivid. My original plan was to find a typical London family in the historical record and write about their experience of the Blitz. Eventually, I thought, “Wait a minute, why not write about the quintessential London family—Churchill’s?” For some reason, nobody had looked at this intimate side of Churchill, his family and his advisors, during this period. So I knew I would be able to say something new. Despite that fact, I did run into this very intimidating wall of Churchill scholarship. There’s more stuff written about Churchill than probably anybody else on the planet except possibly Hitler. Do you know what your next subject is? At the moment, I don’t know what I’m doing next. I’m looking. Between books is always the worst time in my career. I just want to get started on the next project.

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Texas CEO Magazine Q3 2020

[ENTREPRENEURSHIP]

INVESTOR MEETINGS IN A VIRTUAL WORLD Whether investors are actively writing checks or not, meetings between founders and investors should, and will, continue in the era of social distancing. But what does a successful investor meeting look like in a virtual world, and what can a founder do to ensure the best meeting possible? Here are a few factors to consider. NUMBER OF PRESENTERS Many in-person meetings with investors involve two cofounders who tag-team the presentation and discussion. But in a virtual world, that adds complexity, and this should be considered before the meeting. The lack of body language cues and the delayed audio stream from the videoconference dramatically increase the odds that the founders will trip over each other during interactions. Especially for the first meeting, having a single founder (likely the CEO) take the meeting solo is by far the least risky in this regard. AUDIO & VIDEO QUALITY If your audio or video stream get glitchy, it will greatly impact the overall quality of the interaction. If you subscribe to the most basic data package with your Internet provider, upgrade it. You can probably double your bandwidth for an extra $20 per month. If you have a cheap webcam or headset, replace it. LOCATION If you have a home office, great. If not, your couch or outdoor porch are not good settings. Situate yourself with the camera as level with your face as possible (i.e., not on your lap looking up at your face) and think about what’s behind you. A blank wall or a wall with a piece of artwork is great. A collage of party photos from your college days isn’t, and a window behind you turns you into a silhouette. Finally, try to pick a location where background noise is minimized. ATTIRE Dress like you would if you were meeting the investor at their office, or possibly one minor step more formal than that. And go through your normal morning grooming routine, as if you were going to meet them in their office. Look like Tuesday morning much more than Saturday morning after a hard night of partying. PRESENTING AND DEMONSTRATING In the event that you have a chance to present some of your pitch deck or do a short product demo, prepare and practice ahead of time with a cofounder. Know exactly where the share buttons and related collaboration functions are for your chosen videoconferencing service. And in case the investor wants to use their favorite service, do a practice with it ahead of time. If you fumble basic presentation and collaboration tasks, it will have a negative effect on the overall quality of the interaction. One final note: At all costs, do not read from a script during your presentation. It is OK to have some cheat notes to help remember important factoids and things like that. But reading from a script will be obvious, will take your visual focus away from the camera, and will generally not be natural or exciting.

Tool 1: The elevator pitch

There’s a reason it’s referred to as an elevator pitch; it’s meant to be a succinct description of the venture that can be delivered on a short elevator ride with a potential investor. It must be expressed in a few sentences so that it takes no more than 15 to 20 seconds to deliver. And that might even be a little generous. I have a mantra about effective elevator pitches. They only need to accomplish one thing: They need to generate enough interest with the recipient to cause them to ask a question—any question. With that, you might get an additional two to three minutes to expand further and hopefully generate enough additional interest for a full-blown conversation. It doesn’t matter if that extended conversation happens right away or at a later time.

TWO SENTENCES WILL DO IT A lot of startup founders overthink their elevator pitch. They feel like it must close the deal by incorporating anything and everything of possible interest for a variety of audiences. The opposite is true. Too much information actually makes it less interesting for some audiences and causes the pitch to surpass a normal human’s attention span. Coming up with something short and compelling is actually much harder than coming up with something more broad and complete. It reminds me of Mark Twain’s quote: “I apologize for such a long letter—I didn’t have time to write a short one.” A strong elevator pitch only requires two sentences, which should answer these two questions: What does the company do? My Capital Factory colleague Mikey Trafton teaches startups to simplify their approach to this sentence using the following format: “We help (customers) solve (problem) for (benefit).” An alternative format I sometimes use is “We created (a product) for (target customers) so they can gain (result).” Easy, right? Actually, it is much harder than most people think, because they are burdened by all of the knowledge they possess. Simplifying a complex project into a couple of phrases requires dramatic focus on what will be interesting to an outsider and what they most need to know to understand the problem being solved. So what? Beyond the simple purpose of the venture, you have to describe why it’s important. Why should someone TexasCEOMagazine.com

care about what you’re doing? The second sentence must complement the first sentence that describes what you do, and it should be compelling enough to give the other person no choice but to ask a question. Try making a bold claim or bragging about some results you’ve achieved. To help identify the most compelling options for your elevator pitch, try using my “so what?” test. After reciting the elevator pitch to yourself, imagine that someone responds, “So what? Why should I care?” Your answer to this question might belong in the elevator pitch. I regularly hear elevator pitches that have too much “what” and not enough “so what.”

KEEP IT SIMPLE AND CONVERSATIONAL

You can write down your elevator pitch, but remember that how we write is often different from how we speak. Simplified language goes a long way toward making a short, prepared speech feel like a spontaneous conversation. You want your elevator pitch to sound natural, in the conversational sense. And like any business conversation, what you say should be clear, convincing, and relevant to the specific person you’re talking to. You can also try to quantify your claims with numbers or factoids. They help certain claims sink in better and often help facilitate the desired question. But remember to keep it simple: Don’t just list a bunch of figures. Focus on one or two crucial and impressive numbers.

TIME FOR A TEST DRIVE After working in an isolated environment, it’s time to take your elevator pitch on a test drive so you can refine it. Recite it to 20 people who don’t have much prior knowledge of your idea or your company. Ask them to react with the first question that comes to mind, but don’t answer their question right away. Instead, next ask them to tell you what they think your company does from only hearing the elevator pitch. Are you getting the questions you want? Are they in the right ballpark with regard to their guess about what you do? If not, make changes to your elevator pitch until you’re satisfied. Texas CEO Magazine Q3 2020

In the old days, we actually wrote out a 20- to 30-page business plan document. Today, a tool called a pitch deck serves as a summarized and visual version of a business plan. It is in the form of a slide presentation and will become the single most valuable communication tool to use with audiences of all types. You will rely on it for multiple purposes. You’ll use it for presentations to investors; and if you ever decide to pitch at a formal pitching event, you’ll obviously need one. You can also use it as a supporting visual backdrop for sit-down conversations with investors.

THE ABSOLUTE MOST IMPORTANT ASPECT OF AN EFFECTIVE PITCH DECK IS THE STORYLINE THAT SERVES AS THE FOUNDATION.

Don’t use complicated industry or technical jargon in your elevator pitch; keep your vocabulary around an eighth-grade level. You want to pique their interest, not glaze their eyes. Even if your potential investor is an industry professional, you should be able to discuss your venture in clear, simple language. Otherwise, it may seem that you are focused on the mechanics of the problem rather than a meaningful fix. Think like a layperson, not an expert.

Tool 2: The pitch deck

The absolute most important aspect of an effective pitch deck is the storyline that serves as the foundation. Second most important is the flow (topic order) and content. Formatting is also important, but if the priormentioned ingredients aren’t right, formatting alone won’t save you.

FOUNDATION

A great pitch deck takes the audience on a journey. It should be like a story—compelling and with a beginning, middle, and end. After hearing the story, you want the audience to be interested in more information, to ask more questions, and to draw certain desired conclusions. Those desired conclusions should be identified ahead of time so they can serve as the foundation for your pitch deck; you’ll build your story backward from these. Before worrying about the order of the slides and certainly before typing words onto the slides, first decide what you want the audience to conclude regarding your venture. That’s your foundation, and both the content and flow of your pitch deck should be optimized to support it. What sort of things might you want the audience to conclude? Below are some examples that might apply to your venture:

• This company’s market opportunity is HUGE.

• That’s a really innovative solution for a really nasty problem.

• These founders are total badass ninjas.

• Wow, they’ve already got some unbelievable traction.

What is most exciting about your business plan from an investor’s perspective, and what conclusions are you hoping they will draw? As you tell your story using your pitch deck, you should put extra emphasis on the sections that specifically correspond to those same topics. This means extra slides, extra content, and extra time spent on those sections to help ensure the desired conclusion is reached.

FLOW The sequence of topics in your pitch must support the objective of creating a compelling story. There are multiple ways any given story can be told, but for fundraising purposes, there is a common pitch deck flow that active investors are used to seeing. Rather than cover that detail here, you can find it in an article titled “Pitch Deck Flow” on my Shockwave Innovations website (shockwaveinnovations.com).

Tool 3: The financial projection model You might include financial projections in the pitch deck, but there you will typically want to show a high-level summary of your projections focused on revenue growth. Investors also want to know that you’ve projected your financial future in more detail and that you understand the underpinnings of your projection model. In fact, I initially ignore the actual numbers that result from the projection model. Instead, I first want to see if the founder actually understands how the model works and which metrics provide the most leverage. If someone else put together your financial model using your input, make sure they explain every last detail, and make sure to experiment with the various knobs and levers within the model to understand their effects. You will be quizzed deeply by some investors. And you don’t get credit for just having a financial model; you have to understand and defend it. Startups in the pre-seed funding stage don’t need a sophisticated financial model and don’t need to project out more than about 18 months. The focus should be on the projected profit and loss (P&L) because it shows both revenue growth and the expected net loss over time. With each subsequent funding stage, the model needs a longer projection, more detail, more input variables to experiment with, and generally more sophistication. A Series A funding round will project out three years and probably also require a cash flow projection, since net loss and cash consumption often deviate from each other. Remember that financial results are derived from operational outcomes. For example, a startup with a self-service business model might encourage their website visitors to download a freemium version of their product and then nurture those users in a way that convinces a subset of them to upgrade

to the paid version of the product. Operational metrics like monthly website visitors, the ratio of freemium downloads, and conversion rates to the paid version are critical for this company and, therefore, should be incorporated as inputs in the financial projection model. Believe me when I predict that you will become an absolute ninja with your operational and financial model as a result of the fundraising process. — Your elevator pitch, pitch deck, and financial model will serve as foundational fundraising tools, and that’s why I covered each of them in so much detail. Beyond that, you will almost certainly develop additional tools to best support your campaign. One example is a monthly update template for allowing interested investors to monitor your progress and, thereby, keep them warm. If you send those updates like clockwork every month and give an honest picture of the company’s accomplishments and issues, you’ll also earn needed respect and credibility with investors. Another example is a onepage executive summary of your company and investment opportunity (called a onepager). You will find numerous templates to consider and might find that it is the best piece of collateral to send an inquiring investor rather than your whole pitch deck. Remember, you want to present your pitch deck in person whenever possible. If you follow the various recommendations and best practices that we have covered so far, you will be better prepared than 90 percent of the hundreds of startup founders I work with every year. Strategy set? Check. Battle plans ready? Check. Tools sharpened? Check. Great—in the next issue of Texas CEO Magazine we will emerge from the strategy, planning, and preparation phases and dive into the actual fundraising campaign. Gordon Daugherty is a seasoned business executive, entrepreneur, startup advisor, investor, and the bestselling author of Startup Success: Funding the Early Stages of Your Venture. A proud native Texan, Gordon graduated from Baylor University. He has vast experience with early-stage fundraising from both sides of the table, making more than 200 investments and raising more than $80 million in growth and venture capital as a company executive, fund manager, board director, and active advisor.

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We’re looking for stories of exceptional leadership in 2020. Do you know a leader who met the challenges of this year in an exemplary way? We’d like to honor them in our Q4 issue. A worldwide pandemic. A rapid economic downturn. A reckoning with racial injustice. These are a few of the events of 2020 that have changed the way Texas CEOs lead their teams and run their businesses. In our next issue, we want to spotlight a select few of those stories. If you know of a leader in Texas who deserves recognition for a courageous, compassionate, innovative, or insightful response to recent crises, we want to hear about them. Email us at 2020@texasceomagazine.com with the leader’s name, the name of their organization, and a brief description of how they led exceptionally through crisis.

HELPING

UNDERSERVED BUSINESSES THROUGH THE COVID-19

RECOVERY Bill Chinn

Recovery from the economic hardships of the COVID-19 pandemic isnâ&#x20AC;&#x2122;t going to be easy for anyone, but it will be especially hard for entrepreneurs and small business owners in underserved communities. Often minority-owned, these businesses are essential to supporting their local communities as well as the overall economy. As we continue to experience the fallout of the pandemic, small businesses of all kinds should be aware of the help available to them, whether through community resources or assistance from local governments.

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Mounting evidence suggests that ethnic and racial minority groups have been harder hit by the virus than other groups. Healthcare costs around infection can be significant, as can the loss of work hours, so it is likely that minority-owned businesses are going to feel these economic effects most acutely. It will take significant resources, both material and informational, for this sector to rebound from the pandemic. I currently serve as CEO of the DEC Network, a Dallas/Fort Worth–based nonprofit, membership-based business incubator for entrepreneurs, small business owners, and startups. Approximately 64 percent of our membership is made up of minority business owners and entrepreneurs. Anecdotally, as we talk to our members, we’re hearing a lot of stories about businesses in underserved communities that missed the Small Business Administration and Paycheck Protection Program loans for a variety of reasons that don’t necessarily apply to businesses in other communities. Frequently, these business owners do their banking out of a personal account, aren’t incorporated, and sometimes don’t have payroll to meet—it might be just the entrepreneur and a spouse building the business. These are a few of the reasons why a large percentage of underserved businesses did not qualify for the loans. But it’s not just the PPP loans and other SBA relief programs that many underserved businesses don’t qualify for. History shows that these communities are often broadly left out of government reform programs, from Reconstruction after the Civil War to the New Deal after the Great Depression to the reform act after the 2008 recession. While it’s great that the federal government made PPP loans available as quickly as they did, the speed with which businesses needed to apply created a kind of chaos that disproportionately affected underserved business owners. They are the ones who are less likely to have attorneys or accountants or a whole host of other resources to depend on. When you have a first-come, first-served system like with the SBA loans, the first to be served are often the businesses that have support and guidance from many different sources. This means that underserved businesses often fall behind. This pandemic recovery needs to be more balanced and nuanced than the rapidly deployed emergency loans through the SBA and CARES Act allowed for. We’re now beginning to see a lot of local county and city governments, chambers of commerce, businesses, and private donors filling in the gaps. Many entities that were missed by the federal money are the most important ones to support with both money and information. They’re the ones who provide employment and economic stability to the underserved communities. The pandemic is going to have a ripple effect in these areas for a very long time. In recent months, the DEC Network has implemented several programs to help small business owners and entrepreneurs through the pandemic. It’s our responsibility to respond in a way that reflects what our population looks like, which means we have prioritized allocating resources to the minority- and woman-owned small businesses that we have seen missing out on relief. Following are some of our largest efforts; if you run a small business in North Texas, please be in touch: 70

Texas CEO Magazine Q3 2020

THE REVIVE DALLAS SMALL BUSINESS RELIEF FUND. The DEC Network developed this fund to get money to those well-deserving businesses in underserved areas that need this material help. The fund began taking applications in June to help primarily minorityand woman-owned businesses that the SBA loans were unable to help. We’re proud that the fund has been supported by the Dallas Regional Chamber, the North Dallas Chamber of Commerce, the Dallas Black Chamber of Commerce, and the Greater Dallas Hispanic Chamber of Commerce. THE FAST START MENTORING PROGRAM. Many younger or less experienced small business owners don’t have experience navigating global crises like the current pandemic. However, many other entrepreneurs have been in business long enough to have survived challenges like 9/11 and the 2008 recession and know exactly what it takes to get through a rapidly changing landscape like the one we’re facing today with COVID-19. The Fast Start Mentoring Program brings these two together. Since developing and launching the program over the past few months, an astounding number of both mentors and mentees have signed up. The mentorship process can be amazingly helpful. — If you’re a small business owner elsewhere in Texas, here are some other tips to use as the recovery continues: USE THE LET’S GROW NORTH TEXAS BUSINESS PLATFORM. This platform offers timely, actionable resources to the entrepreneurial community affected by COVID-19. See its resource hub, including guides, virtual events, lists of funding sources, online tools, and a weekly community resources newsletter. WORK OUT YOUR RECOVERY PLAN WITH A MENTOR. Whether you use our Fast Start Mentoring Program or not, find a more seasoned entrepreneur and work with them on a 30-, 60-, 90-day recovery plan. There are a lot of folks sitting on the sidelines with crisis management experience who want to help with those plans and provide guidance to help your small business survive. STAY ABREAST OF NEW PROGRAMS. A lot of aid is coming in the next few months. Stay aware of what new resources are out there and apply quickly. One good way to do that is to: TAKE ADVANTAGE OF YOUR LOCAL CHAMBER OF COMMERCE. These organizations are made up of people doing their best to develop local business and strengthen the community, and they offer many resources, from online tools to virtual networking. While banks and the federal government have done a good job helping small businesses under the circumstances, more help is needed. Now we have a chance to go back, using community leaders and local funds, and best spend that money by finding underserved businesses that were missed in the first pass. We still have a lot of work ahead of us, but it is heartening to see an unprecedented level of collaboration to help these often-ignored businesses. Bill Chinn is CEO of the DEC Network. He previously served as president at Big Brothers Big Sisters Lone Star, as a senior vice president at GameStop, and as an adjunct professor of entrepreneurship at Southern Methodist University.

Your company can’t afford mediocre managers. Especially now.

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Our 1-day certification training workshop gives your people managers a consistent management framework. Save time. Put our tools, techniques, and templates to use right away for better, faster results. Solve problems. We learn about your team and customize the training to address your unique challenges. Follow through. We’ll help each manager build a 6-week roadmap—and follow up to keep them accountable. Schedule your team’s training by Aug. 31, 2020, and receive a 70% discount on groups of five or more:

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Raffaella Sadun, Nicholas Bloom, and John Van Reenen, “Why Do We Undervalue Competent Management?,” Harvard Business Review, https://hbr.org/2017/09/why-do-we-undervalue-competent-management.

[CULTURE BUILDING]

A CONVERSATION WITH COY COMONTOFSKI, PRESIDENT OF LIFT AVIATION COMPANY

A PASSION FOR FLIGHT

What CEO doesn’t dread the time-consuming routine of commercial air travel, made especially troublesome in the era of COVID-19? The obvious solution is flying private, but the prospect of owning or leasing a private aircraft can be daunting. Coy Comontofski and LIFT Aviation Company are on a mission to change that. We talked to Comontofski, a lifelong flying fanatic, about what CEOs should consider when contemplating leasing, buying, or selling a private aircraft—and about how the pandemic is affecting the aviation industry at large. When you were a kid, did you know you wanted to be in aviation? I knew I wanted to be a pilot when I was three years old. My grandfather—to me he was “Papa C”—was a decorated World War II pilot who flew supply and troop support missions over “the Hump” [a treacherous path over the Himalayas]. After the war and the Berlin Airlift, he worked as a test pilot refurbishing surplus aircraft into civilian and commercial use, and that’s when the airline industry started really taking off. Later, he worked as a corporate pilot for Jim’s Restaurants, which was booming at that time in Texas. This was back in the early 1980s. At three years old, Papa C let me “copilot” his Commander 690 twin turboprop airplane with him on a trip from Houston to San Antonio. I remember it like it was yesterday—the smell of the jet fuel, the sounds, not being able to see over the dash in the cockpit, everything. I loved it instantly and flew with him every time I had the opportunity until he retired. While attending the University of Texas, I worked as a DJ on Sixth Street, and made a pretty good living for a college kid. I still had a love of aviation, and I used the extra money from DJing to learn to fly at the Robert Mueller Municipal Airport. I paid $38 an hour, with fuel, to train in a Cessna 152; the instructor was only $20 an hour. I joined the University Flying Club and earned my pilot’s license at the age of 19. Upon graduating from UT with a B.S. in Economics, I decided that my path forward would be to combine my studies with my passion for flying. I had a few different options at that point. I could’ve chosen the route of becoming a commercial airline pilot, but I’m pretty free-spirited and didn’t necessarily want to be in a large corporate setting. I have a lot of respect for airline pilots, but it is not my cup of tea. They fly similar routes on a day-to-day basis, and many of the pilots I had the opportunity to visit with told me it can become monotonous. What appealed to me a lot more was getting into the aviation business itself. Determined to begin my adventure, I began calling the marketing and sales departments of all the big aircraft manufacturers: Cessna, Commander, Mooney, Beechcraft, you name it. If they would take my call, I’d tell them, “Look, I’m a 22-year-old pilot with a degree focused on economics and business—how do I get into aircraft sales

with your organization?” They all had a similar response: Keep flying as much as you possibly can, get as many hours as possible, and learn to sell to a high-end clientele. What are those benchmarks like? How many hours of flying does a beginner have, and so on? You can earn your private pilot certificate in as little as 40 hours, though I’d bet the national average is closer to 60 hours. The private certificate allows you to fly in fair weather; it’s commonly known as your “license to learn.” It can take another 50 to 60 hours for the instrument rating, which allows for flying through visible moisture, clouds. At 250 hours a pilot can earn a commercial rating and then, finally, begin earning a wage while flying. At 500 hours, in the professional pilot world you’re still green and almost unmarketable for a professional flying position. In my opinion, a person really becomes marketable to work as a commercial pilot around 750 to 1,000 hours. This would be as a contract pilot or copilot. How many hours do you have now? I don’t have my logbook with me today, but I have somewhere between 5,500 and 5,600 hours. That’s like a doctorate in flying. Let’s go back to your first job. How’d you get a foot in the door of the industry? I focused on the advice I received from those aircraft manufacturers. I had the degree and my pilot’s license; now I needed experience—both in flying and in selling high-dollar assets to high-net-worth individuals. A friend of mine worked for a local Ford dealership, and he gave me a shot by hiring me. By my third month, I had sold 30 cars and trucks in 31 days and made my first big paycheck. That was an “aha” moment—I saw that I could do well financially in that business. Before long, I was in charge of the entire Internet department. I found a way to work efficiently selling cars as a “non-car-salesman-like car salesman”—as I dubbed myself. I would listen to people’s needs and simply align those needs to features and benefits. It’s a skill I use to this day. In my mid-20s, the allure of the car-dealership paychecks sidetracked me for a while, but I kept flying as a hobby, averaging 25 to 50 hours a year. Next, I took a position with D. R. Horton as a mortgage broker. I loved that idea because I would gain the experience financing those large-ticket items and gain exposure to high-net-worth people. My region was Hawaii and the Northeast, where property values were TexasCEOMagazine.com

much higher. It was the logical next step. I did really well in the mortgage industry, but again, it wasn’t the dream. This was around 2007, and all signs were showing that the bubble was about to burst in that industry. And did it ever! So, once again, I used the money I was making to fund my dream of becoming an aviation professional. When I felt the squeeze in the mortgage industry, I earned the instrument rating, commercial rating, flight instructor certificate, instrument instructor certificate, and multi-engine instructor certificate. Once I had those certifications, I quit the corporate world and started instructing as my full-time job. Overnight, I went from earning well into the six-figures to earning less than $18,000 a year before taxes. Mind you, this is flying about 100 hours a month—which is a lot of flying. It was a grueling workload, talking and teaching concepts all day, trying to mentor students to make good decisions, and keeping myself and the students safe in the process. I began attending aviation trade shows with a manila envelope full of resumes. I’d hand them out to anybody I could and let them know that Coy Comontofski was going to get a job in aviation come hell or high water.

efforts for airworthiness and FAA compliance, making sure discrepancies—what we call “squawks” in the industry—are corrected. Because safety is our top priority, we’ve been accident-free since our inception—no scuffs whatsoever with our management. We also coordinate everything from database updates to washing and staging the aircraft between flights to making sure it’s stocked with snacks and drinks. If you peeked into one of the airplanes we manage, it’s always staged the same, with a high standard level of maintenance and readiness. For aircraft owners, LIFT can provide a pilot solution, and I personally fly many of our owners in various aircraft ranging from Cirrus up to the jets. Once it was a dream, but now it’s a reality, and this is one of the best parts of my job. Earning a wage to provide a pilot service to aircraft owners, at the level they expect, just feels incredible every time. Now, LIFT can only provide pilot services to owners using their own planes; we cannot and will not provide pilot services when assisting owners who dry-lease their aircraft.

ONE OF THE MOST IMPORTANT THINGS ABOUT US IS THAT WE’RE A GOLDEN RULE BUSINESS. WE TREAT FOLKS LIKE OUR OWN FAMILY, NO MATTER WHO THEY ARE.

Finally, in 2009, I was hired as the Austin representative of a Dallas-based fractional aircraft sales and management company. I began flying airplane owners, learning how to give that white-glove treatment to high-net-worth, sometimes semi-famous people in Cirrus SR22s. It’s an intimate setting, flying folks in a small aircraft like the Cirrus. You can hear the passengers over the headset, so you might as well talk to them. I learned a lot about their likes and dislikes, and I wanted to create something big based on their feedback. For that company, I did everything from selling and marketing to managing aircraft maintenance to scrubbing bugs off the leading edges of the wings and windshield. Because this was my dream, I put my heart and soul into trying to make the company better, but it became apparent I had hit a ceiling in growing someone else’s company. By February of 2013, I was ready to create my own, and LIFT Aviation Company was born. Can you explain exactly what LIFT does? LIFT is an aircraft management company and sales/leasing broker. One of the most important things about us is that we’re a Golden Rule business. We treat folks like our own family, no matter who they are. As an aircraft management company, we’re essentially a “property manager” for airplanes. We coordinate the 74

Texas CEO Magazine Q3 2020

What does it mean to dry-lease an aircraft? “Dry leasing” is when an owner leases the aircraft directly to another user without a crew. “Dry,” in legal terms, has nothing to do with fuel; it means that owners or managers must not provide the pilot or flight crew. Under a dry lease arrangement, the owner of the aircraft gives up their operational control, and the user, or lessee, becomes the direct operator. This means the lessee is responsible for supplying and coordinating directly with their pilot, or if they meet the highest level of insurance requirements, possibly even flying the aircraft themselves. The topic of dry leasing can be touchy, as there are cases where owners and their management companies do not fully understand how to accomplish an FAA-conforming dry lease scenario. At LIFT, we know the pitfalls and have deep legal guidance on this topic from one of the best aviation law firms in the country, so we specialize in assisting owners and users with a conforming dry lease structure. Dry leasing can be compared to the agreement when renting a car, where the user, whether the driver or not, assumes the responsibility and liability of operating the car while that renter has access to it. If the rental car company forced a professional driver on that user, how would the user be responsible? They wouldn’t. The same holds true with owners dry leasing to users. The users ultimately become the operators of the aircraft. Dry leasing aircraft isn’t as simple as chartering. The responsibility of a charter user is simply paying the

fee and showing up to the flight. With a lease scenario, the lessee or operator must understand their responsibilities and liabilities. This includes finding and securing their own pilot, as well as agreeing who has certain maintenance and airworthiness responsibilities, along with making certain the user shares protections under the owner’s insurance policy, and determining whether those limitations are adequate. While it is slightly more tedious on the user’s and the owner’s parts, LIFT specializes in educating all parties as to how to legally conform to a dry lease structure. With this understanding by the user comes the freedom of temporarily accessing aircraft, which they don’t own, but operating the aircraft as if they did. Lots of CEOs might be intimidated by the time and cost that go into owning an aircraft, even if they like the idea of getting around faster and easier. What would you say to those CEOs? The real advantage of owning an aircraft—or chartering or leasing one for that matter—is that they are essentially time machines. People save so much time flying private, and if they value that time at more than the cost of the aircraft, then in a sense they’re making money. The time saved can really add to your quality of life. That said, most will have a hard time getting rich owning an airplane as an investment. It’s a depreciating asset. That’s right. Aircraft are expensive to own and operate and rarely gain in value. But we specialize in reducing the cost of aircraft ownership—whether through partnerships that allow for a division of costs, making introductions to charter operators, or entering into dry lease scenarios. As an owner using LIFT aircraft management, you can also leverage LIFT’s relationships with insurance providers, maintenance specialists, hangars, FBOs, fuel discounts, avionics companies, A&P [airframe and powerplant] shops, paint shops, engine mechanics, and other aviation-specific vendors. We’re also a full-service aircraft sales broker. If you have an airplane you want me to sell, I’ll sell it. If you are thinking of buying an airplane, I will find the right one for you. The aircraft we represent on a recurring basis include Cirrus, Piper Meridians, Daher-Socata TBMs, Cessna Conquests, Pilatus, Beechcraft King Airs, and Cessna Citations. I will say this to anyone looking to buy or sell an airplane: Use a broker! Sophisticated, high-networth individuals often found success because they are extremely competent in what they do, but this can cause a misleading thought process and often trick some into buying or selling an aircraft on their own. Time is money, and my recommendation

is to hire a seasoned aviation professional to do what they do with efficiency so the buyer or seller can continue to do what they do best. It’s also a bit like buying a house, except there are even more maintenance issues, and most people are probably not going to understand them: “The prop-hub is showing signs of weakness,” “the outflow valve is intermittent holding cabin pressure,” “the bleed-air this” and “the elevator trim actuator that.” You want a good broker who can translate those issues into dollars and time, and project what it’s going to cost you in the future. You might hop on the Internet and find a jet for $200,000 and think, “Hey, I’m just going to go buy myself a jet!” Unfortunately, you may have just bought yourself a $200,000 headache that’s going to cost you $300,000 a year just to keep running—and that’s before you fly it, with the cost of gas and pilots. If I’m looking to buy an airplane, what other things should I look for in a broker? As I mentioned, use a broker who knows the type of airplane you’re looking for—and who will be honest if they don’t. If someone came to me and said they wanted to buy a Gulfstream, I’d say, “This type is not our specialty, but I would be happy to reach out to a colleague who deals in Gulfstreams daily.” If they said they wanted to buy a King Air 350 or a Citation CJ3, I’d be happy to lead the effort and feel confident the buyer would enjoy the process. Second, a broker should listen to your needs and try to find you an airplane that’s right for you. A common question in the aircraft acquisitions business is, “What’s your 80 to 90 percent mission?” If 80 percent of the time you need to get around Texas with two to three people and you want to be able to fly above most weather and you want to fly in the most efficient airplane possible, I’m already thinking: single-engine turboprop. But then I say “single-engine turboprop” and you respond with, “Nope, my spouse, or insurance policy, won’t have it. I need two engines.” Well, now I’m shifting over into a twin-engine turboprop. You say, “Well, prop really isn’t my style, I really like a jet.” Now I can talk you through different jet options, how it’s going to burn a little bit more gas just getting around Texas but can have similar efficiency to, if not better than, turboprops on longer flights. I can then educate you on how certain jets are incredibly efficient, and tell you where parts are readily available. Listening to the customer’s needs first, giving feedback, hearing the customer’s response, and whittling down to a certain type of aircraft—that’s a skill a good broker has. Be wary: Some brokers have aircraft in inventory, and if they are trying to sell you something just because they’ve got it, they don’t

USE A BROKER WHO KNOWS THE TYPE OF AIRPLANE YOU’RE LOOKING FOR—AND WHO WILL BE HONEST IF THEY DON’T.

have your best interests in mind. TexasCEOMagazine.com

Finally, interview your broker. You want to be comfortable with them, understand what their fees are up front, and get to know them as a person. Can they help with finding and interviewing pilots, and with insurance, management solutions, a hangar, and so on? Buying or selling an airplane is a journey. Imagine traveling with a new friend in a two-seat car on a long road trip; by the time you get to your destination, you will likely know that person pretty well. Buying an airplane is like that. If you’re not aligning in the beginning of a sales or acquisitions process, there is a high likelihood it will be pretty bruisy all the way through the process.

AS MORE PEOPLE SEEK ALTERNATIVE AIR TRAVEL SOLUTIONS, WE’LL BE ASSISTING MANY WITH ACQUISITIONS, SALES, AND UPGRADES, AND EDUCATING MANY FOLKS ON HOW TO GAIN ACCESS TO AIRCRAFT THROUGH A CONFORMING DRY LEASE SYSTEM—THE RIGHT WAY.

How has the COVID-19 pandemic affected LIFT’s business? I imagine fewer people have been able to travel, whether they own their own plane or are dry leasing. Once the pandemic hit, we initially saw a rapid pickup in demand from owners and lessee/operators. People needed to move college students home, get elderly people to safer places, or return from vacations and second homes. But at the same time business meetings fell almost to zero immediately, and other types of travel fell off fast. We do have several owners involved in the relief efforts, mostly federal and state government contractors, and they have been utilizing the aircraft. But otherwise, with the United States and every country essentially shut down for a while, there’s been nowhere to travel. A lot of people have COVID cabin fever, but if there are no places to travel, what good is a travel tool?

That meant that as an aircraft manager, we had to figure out how to maintain a group of aircraft with no owner/operator demand for a while. We also took care of upcoming scheduled maintenance items during the downtime. We created a regimen of exercising the aircraft for the owners, so the planes aren’t sitting stagnant. Otherwise it would be like putting a car on blocks in your garage. That would not be a healthy car. We’re also following the CDC guidelines on sterilizing and cleaning the interiors with approved products. We’ve removed all headsets from our aircraft, as this has the potential to transmit the virus, so pilots now bring their own. It’s not our airplane, and we are not the operator of the aircraft, but we do encourage people to wear masks. We also have a form 76

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notifying people of our disinfecting methods, so owners and operators know we’re doing everything we can to mitigate the risk of spreading the disease. When do you expect demand to return? We’re already seeing it. In recent weeks, folks have been starting to think about traveling to Colorado, flying out to one of the islands opening in the Caribbean, maybe making a trip for certain business meetings, playing catch-up. And as we continue to come out of the initial stages, we anticipate a significant uptick in demand from our owners and lessee/operators.

Part of that will be due to airlines canceling routes. It’s a major nuisance to book a commercial flight right now, especially for same-day business meetings. For example, there used to be a nonstop from Austin to Fort Lauderdale in the morning and a nonstop from Fort Lauderdale back to Austin that evening. Now routes like that don’t exist. You’re forced to stay overnight. With owning or having access to a private aircraft, it’s easier to fly direct to your destination. As more people seek alternative air travel solutions, we’ll be assisting many with acquisitions, sales, and upgrades, and educating many folks on how to gain access to aircraft through a conforming dry lease system—the right way. Last question. How do you think the big airlines are going to come out of the pandemic? I feel for the airlines. I use them on a regular basis when evaluating aircraft for sale. There’s a fear factor of sitting in a tube of 80 to 200 other people in a time like this, and that’s clearly driven demand down. I think it’ll take at least a year to a year and a half before the airlines start to feel even close to what they were back in February. Naturally, I believe CEOs will seek out alternatives, whether it be chartering or jet cards or owning their own aircraft or educating themselves on how to dry-lease appropriately from owners. I do believe the world of private aviation will continue to grow, regardless of the pandemic. Time is money. Less time traveling means better quality of life for family and employees. Traveling with no strangers in smaller planes will likely cause less angst. For people who are looking to fly private with maximum efficiency and comfort—and that includes a lot of executives, of course—LIFT Aviation Company connects them with some of the best aviation solutions they can get today.

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WHY WE PROVIDED FREE COVID-19 TESTING

TO OUR EMPLOYEES—AND THE LESSONS WE LEARNED Taseer Badar

As businesses reopen across Texas, it is the responsibility of the employer to ensure that employees feel safe and confident about returning to the office.

I currently serve as CEO of ZT Corporate, a private equity firm with a large and diverse portfolio, and I continue to work with my team on innovative ways to support employees and their families during the pandemic. When this crisis began, I saw it as an all-hands-on-deck moment that would require the public sector to step up and step in however we could to save lives and livelihoods. For ZT Corporate, it wasn’t as simple as having everyone work from home indefinitely. Our portfolio of companies includes essential businesses like healthcare clinics, financial services, automotive dealerships, and more, all of which required our employees to either stay on the frontline or return before many others. It was imperative to me that our employees—1,150 across Houston and an additional 500 in the Tri-Cities, 78

Texas CEO Magazine Q3 2020

Georgia, Florida, New York City, and Arizona—felt comfortable and safe as many of them came back to work. Alongside Houston mayor Sylvester Turner, our team committed to responsibly and safely transitioning back to work. In mid-April, we secured COVID-19 testing through an independent, third-party healthcare provider that allowed us to offer voluntary and free tests to every employee. All of our employees had the option to receive an FDA-approved COVID-19 molecular polymerase chain reaction (PCR) test at a third-party location. The cost was significant, but for us it was a no-brainer. We wanted to help our communities get tested and stay healthy, and to help our economy get on the road to a responsible

By everyone doing their part, we were able to effectively communicate with employees the exact testing procedure that would take place. It was important to me that employees heard a clear and concise message from leadership, and that they felt reassured throughout every step. YOU NEED A NIMBLE, READY-TO-ACT CULTURE. As an entrepreneur, I am no stranger to quick thinking, or to rolling up my sleeves to get the job done. I’ve surrounded myself with likeminded, nimble leaders who knew that this project would be on an escalated timeline and require all hands on deck. From the initial idea to first employee test, we worked together to put a plan in place in less than two weeks. Our team is accustomed to moving swiftly, building consensus effectively, and implementing change. But this type of innovative thinking would have been impossible if our company culture wasn’t well defined before the crisis arrived. FEAR OF THE UNKNOWN CANNOT HINDER ACTION. Moving forward with this idea was going to take a commitment to action, despite not having all the answers at the time (and we still don’t have them now). However, we were willing to take the step forward and encourage the industry and economy to take first steps as well. Waiting for someone else to tell us what to do wasn’t compatible with our culture or values. The financial commitment was daunting, but as CEO it is important to me personally that my employees know I care about them as they fulfill essential roles. Initially, free COVID-19 testing for employees was primarily meant to protect the health and safety of our team as they transitioned back to work. But we soon realized that the benefits extended far beyond that. Having a fully tested workforce would instill confidence in customers who interacted with our team at the car dealerships, healthcare centers, and other businesses we run. With the knowledge that employees had been tested, customers were able to feel comfortable walking in and receiving services.

recovery. We also wanted to be careful not to overwhelm Houston’s existing testing sites; by taking our employees to be tested at a third-party site, we were able to help the city and surrounding counties continue to receive testing in a timely manner. And we hoped that stepping up early would encourage other midsize to large companies to make testing available to their employees. This campaign and promise to our employees did not come without its challenges. Along the way, we learned valuable lessons on how to successfully activate a project of this size when times are so uncertain. Here are the top three: COMMUNICATION IS KEY. Everyone’s roles had to be clearly defined to help bring this idea to life quickly and efficiently.

The CEO role demands all sorts of balances and trade-offs, and never more so than through a global crisis like this one. Through the tragedies and loss of the COVID-19 pandemic, I’m pleased to see other leaders stepping up and playing a pivotal role in helping the country move toward recovery—responsibly, sustainably, and safely. As chairman and CEO, Taseer Badar formed ZT Corporate in 1997. The company has since diversified from owned and operated healthcare ventures to the automotive, real estate, and sports and entertainment industries. Headquartered in Houston, Texas, ZT Corporate has affiliate companies in Texas, New York, Georgia, Florida, and Arizona. Taseer has a BA in entrepreneurship and finance from Texas A&M University and previously worked for Morgan Stanley in New York. He founded The Altus Foundation in 2011, which has given over $7M in healthcare services to date.

TexasCEOMagazine.com

HOW WILL WE

RETURN TO

PRO SPER ITY? Gabriele Camera, PhD, and Vernon L. Smith, PhD

Feature

CURRENT POLICY CANNOT SIMPLY IMITATE PAST POLICY.

As we rebound from the biggest disruption of the 21st century so far, we must not think only of survival— but of a return to real success. The COVID-19 pandemic poses unprecedented challenges, not only to our physical and psychological health, but also to the economic health of our society. One of these challenges is differentiating between the current pandemic-caused economic crisis and the economic crises of the past. The measures taken to mitigate the current economic downturn are often compared to measures taken in past recessions, and many current policy actions imitate past policy actions. But the previous recession reflected the internal disintegration of the economy, arising from the endogenous forces of declining demand and income. The current downturn, instead, reflects disintegration imposed from outside—by the contagion and by policy directed at maximizing social distance, which is a major part of the cause of the decline. Thus, current policy cannot simply imitate past policy, and must account for this external disintegration factor. Another challenge is the performance and stability of the institutions—markets, firms, social norms—that have evolved to support economic life. The current external interventions suffer from three shortcomings that may have unintended and long-lasting negative consequences on the performance and stability of these institutions. • First, the policy response aims at reducing to zero a single risk factor—the intention to maximize survival from virus infection—ignoring a multitude of other risks, economic and social, including deaths due to the lockdown. • Second, policymaking targets short-run aspects of the pandemic by means of extreme and open-ended interventions, ignoring preparations for an orderly post-crisis resumption of socioeconomic activity. • Third, policymaking has taken the form of central command–style action, which is inimical to the freedom that energizes the core of human social and economic betterment. “Thrive-ability” and not only survivability must be part of our vision of the future. At the time of this writing, in the midst of the pandemic, the public vision is hyper-focused TexasCEOMagazine.com

on social distancing and the gloom and doom of contagion. But a successful policy should envision a path to prosperity, not only to survival.

THREE SUGGESTIONS FOR FACILITATING ECONOMIC RECOVERY We thus make three suggestions to facilitate a recovery that supports long-term success in the future.

The first is to begin to reopen markets quickly by setting individuals free to return to their activities, as long as they do not present an immediate risk according to well-established medical standards. This policy minimizes survival risks while reinstating some of the freedom that markets require to do their work. A second suggestions is to create and communicate an explicit timeline for a return to full normalcy, and to delineate the tradeoffs involved. This focuses thought and action on finding pathways to normalcy that encourage the public to make their own decisions, in their own way. It nudges policymakers and the public to embrace a more dynamic vision, and to account for the long-run ramifications of short-run interventions.

Gabriele Camera, PhD, is Professor of Economics at Chapman University and the University of Bologna. His research areas include monetary economics, macroeconomics, economic theory, and experimental economics. He has studied behavioral aspects of currency systems through an innovative combination of theoretical and laboratory investigation. His work on the spontaneous emergence of money in laboratory economies has received international media coverage.

A third suggestion is to quickly step back from top-down, paternalistic policymaking that, historically, has not been very successful. Trust individuals and private entities to restart business activity, to set prices and allocate supplies. They did it before; they will do it again. The main task of policy is to allow the return of those stabilizing forces that we had come to rely upon in our pre-crisis daily lives. Under this premise, we should trust that businesses and individuals can self-organize their activities efficiently and address novel risks effectively. There is no greater engine of thriving and surviving than a free people in selfcommand of their thoughts and actions, driven by human curiosity and love of life, in commercial innovation, in neighborliness, and in spiritual adventure. It is based upon these principles that the pre-crisis world emergedâ&#x20AC;&#x201D; and itâ&#x20AC;&#x2122;s based on them that we will move forward as well. 82

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Vernon L. Smith, PhD, was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. He has joint appointments with the Argyros School of Business and Economics and the Fowler School of Law, and he is part of a team that has created and will run the new Economic Science Institute at Chapman University. He has authored or coauthored more than 350 articles and books on capital theory, finance, natural resource economics, and experimental economics.

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HOW ONE BARBEQUE JOINT ADAPTED—AND SUCCEEDED— DURING THE PANDEMIC Zachary Bergenholtz

In Dallas, as in most of Texas, you can find barbeque pretty easily. But it’s a little harder to find a great barbeque joint that offers all the homemade sides and rubs. When I started Blu’s Barbeque last year at the age of 24, I wanted to give more people that full experience. I’d been interested in barbeque since I started playing around with my first pit in Lubbock in 2014. My first few briskets weren’t great, but after I honed my skills and saw some success in catering, Blu’s seemed like the perfect way to flex my entrepreneurial muscles. Things went well. We opened in the summer of 2019 with a converted shipping container for a kitchen, in the North Dallas spot where I used to get my hair cut. Our menu featured Angus beef brisket, Wagyu ribs, classic sides (coleslaw, five-cheese mac and cheese, baked beans, etc.), and some more adventurous specials to keep things interesting (incorporating everything from smoked salmon to alligator to venison). 84

Texas CEO Magazine Q3 2020

I got to know many of my thousands of loyal customers, and they came to feel like part of the Blu’s family. They got to know me too, on a first-name basis, and today they feel comfortable sharing their latest stories and challenges when they’re in to grab their barbeque. The Dallas Observer even named us to their topfive barbeque list. But Blu’s hadn’t even been open a year before we saw a storm gathering on the horizon.

THE TURBULENT SPRING As an entrepreneur, restaurateur, rancher, and cryptocurrency day trader, I’m used to taking risks and “thinking outside the box.” But COVID-19 tested me like I’d never been tested before. Facing an uncertain future, we decided to make quick operational changes at Blu’s, with the hope that we could keep serving our customers and keep everyone safe in the process. By mid-March, we were in what we called Restaurant Survival

provided them with a short note explaining our precautions. People immediately caught on, and the reaction was overwhelmingly positive. We initially thought that our biggest challenge would be doing enough business to stay open but, instead, it was learning how to serve hundreds of customers each day through a single walkup window—and do it safely. When people drove by and saw 30 or more customers waiting to order barbeque, we wanted them to see our customers respecting the rules of social distancing and feel like they could order from Blu’s and still feel safe. (It didn’t hurt that the visual of those long lines also brought in new customers.) In the first weeks of the shutdown, 72 percent of our customers were placing their orders online and choosing the day and time they’d like to pick it up at our walk-up window. The remaining 28 percent of sales were transacted onsite using a handheld POS device (disinfected after each transaction), which kept person-toperson interaction to a minimum. The installation of the walk-up window turned out to be a great decision. It paid for itself in one day of sales, and our clients appreciated having that sense of safety during a time when everyone was on edge. We strictly enforced the rules, too, even during the busiest times. Today, Blu’s customers still love the convenience and one-to-one personal interaction of the window, especially compared to impersonal drive-through intercom systems.

DOUBLING DOWN

Mode. We changed how we did everything from customer interaction to marketing to purchasing. I want to share some of what we did, and continue to do, not only because these interventions worked for us—but also because they reflect how restaurant operators might think about serving customers in a post-COVID environment. Like many others, I believe that the effects of this pandemic will be with us for the foreseeable future, especially in the world of restaurants. That will require many of us to think and act differently.

A WALK-UP WINDOW OF OPPORTUNITY As the first step in Restaurant Survival Mode, we immediately closed the Blu’s dining room—even prior to the governmentmandated shutdown. No traffic was permitted in the building other than staff. To make business still possible, we quickly installed a walk-up window and interacted with customers exclusively through that window. When people showed up, we

We also knew that Restaurant Survival Mode needed to include marketing. While much of the industry scaled back marketing efforts or waited to see how this whole pandemic thing would pan out, we doubled down—literally. We immediately started spending twice what we were before on advertising. We developed 16 promotional discount codes, redeemable only online, that we marketed directly to our customer base. The great expenses we incurred required us to plan carefully, but we significantly exceeded our stated goals, serving more than 200 customers daily during the heart of the shutdown. From an ROI perspective, the investment in additional marketing and advertising paid off. What about delivery, which for a while seemed like it was becoming a national pastime? We made sure we were fully partnered with services like Grubhub, Uber Eats, and DoorDash. While we prefer to cut the meats to order in front of our customers, we knew that people needed delivery options—and these services are a good way to bring in new customers as well. Through the midst of the crisis, each customer who placed an order through one of these platforms received a gift card to entice them to stop by and purchase from us directly in the future. TexasCEOMagazine.com

To our greater advertising spend we added a dash of creativity and a “get it done” approach. We put our heads together and came up with new ways to meet customer needs. For example, we took on more catering orders, many from medical providers and small businesses. We also started a bulk sales program for chilled meat. That program exceeded our expectations, and we sold hundreds of pounds of chilled smoked meats—something we had never done before. People were uneasy about the economy and the safety of going out, and were quick to jump at the opportunity to stock up on high-quality smoked meat they only had to warm up. Needless to say, all of this required that we secure our inventory. As the concerns about the virus spread, our supply chain practically collapsed. The largest meatpackers would soon close their plants. Fortunately, we foresaw this in time and purchased about a ton of meat beforehand and secured ample cold storage space for all those ribs, briskets, chickens, turkeys, and more. That supply enabled us to deliver consistently to our customer base and the people of North Dallas.

CHANGES WORTH KEEPING—LONG AFTER THE PANDEMIC In May, Texas authorized restaurants to open back up with limited dining capacity. But Blu’s Barbeque decided to keep its dining room closed a while longer. We’d received no pushback from our thousands of loyal customers—why try and pivot now? We felt that prematurely changing a great process could come back to harm us. (Though, of course, a reopened dining room was on the horizon.) As a young entrepreneur, 2020 has been a major learning curve for me, but Blu’s has grown so much in that time. I’ve enjoyed talking with other restaurant operators about how we can keep action plans in place and adapt quickly and creatively to new situations, and I hope to have more of those conversations. For my part, the lessons we have learned through the COVID-19 crisis will inform how we operate going forward. Not only will many of the changes continue to help us meet customer needs in the era of continued social distancing, but the necessity of strong planning and quick action are now deeply ingrained in my makeup as an entrepreneur. Above all, this pandemic has shown me how valuable customer trust is, and how important it is to meet your community members and communicate with them. Moving forward, I will be making that extra effort to answer people’s questions, get to know them on a personal level, and ensure the quality of our service. I want our customers to have no doubt of our loyalty to being the best. And our walk-up window? It’s there for good.

Zachary Bergenholtz is the founder and owner of Blu’s Barbeque in North Dallas. His strong passion for barbeque fueled him to open Blu’s at the age of 24 in 2019.

Texas CEO Magazine Q3 2020

RESTAURANT LEADERSHIP THROUGH COVID-19 AND BEYOND As the industry recalibrates to handle the pandemic and the inevitable recovery, here are some suggestions based on our experience at Blu’s.

Expand lines of communication. Make your restaurant more accessible to customers, whether they have questions or comments or just want to talk to you. In recent months, we’ve expanded two-way communication channels with our customers. We installed multiple phone lines, began using text messaging (inbound and outbound), and enhanced our social media for better real-time communication. If you can make it easier for customers to place an order or have a question answered, they’re going to appreciate it, especially now. Prioritize marketing. Don’t let marketing be the first budget item that gets slashed, and don’t get stuck in the rut of doing what you’ve always done. It shouldn’t take a pandemic to start getting creative with marketing; you should be doing it constantly. Consider walk-up options. In Texas, most restaurant operators are able to offer walk-up options effectively. Walk-up windows allow for safe transactions, friendly person-to-person interaction, and plenty of foot traffic—without bringing that traffic indoors. As COVID-19 makes us all more conscious of social distancing, many people will prefer low-contact setups such as walk-up windows. You don’t have to go with the flow. Just because things are done a certain way, it doesn’t mean you must adapt. We decided to keep our dining room closed even after the May announcements, and it didn’t hurt us. Keep your best interests in mind— remembering that they aren’t always the same as what’s good for other businesses!

GLOBAL FORECASTING ONLINE EVENT

featuring Dr. George Friedman ABOUT DR. FRIEDMAN

DATE AND TIME

Dr. George Friedman is an internationally recognized geopolitical forecaster and strategist on international affairs and is the founder and chairman of Geopolitical Futures.

Tue, September 29, 2020 NOON – 1:00 PM CST

TICKETS FREE

The first 50 ticket holders will receive a signed copy of Dr. Friedman’s new book, The Storm Before the Calm: America’s Discord, the Coming Crisis of the 2020s, and the Triumph Beyond. Offer good while supplies last.

LOCATION

URL will be sent to ticket holders.

ONE OF THE MOST IMPORTANT TASKS FOR A CEO IS PREDICTING THE FUTURE. JOIN US FOR AN ONLINE EVENT WITH EXPERT FORECASTER DR. GEORGE FRIEDMAN.

ABOUT THIS EVENT

In 2020, global and domestic events have disrupted businesses of all sorts, and these events will only continue going forward. How will you maneuver your business to thrive in this new landscape? Your ability to predict the future and plan for it greatly impacts your business. Texas CEO Magazine is hosting this online event to help you get the insights you need for success. We invite you to join us as Dr. Friedman forecasts the future.

Dr. Friedman is a New York Times bestselling author. His most popular book, The Next 100 Years, is kept alive by the prescience of its predictions. His other bestselling books include Flashpoints: The Emerging Crisis in Europe, The Next Decade, America’s Secret War, The Future of War, and The Intelligence Edge. His books have been translated into more than 20 languages. Dr. Friedman has briefed numerous military and government organizations in the United States and overseas and appears regularly as an expert on international affairs, foreign policy, and intelligence in major media. For almost 20 years before resigning in May 2015, Dr. Friedman was CEO and then chairman of Stratfor, a company he founded in 1996. Dr. Friedman received his bachelor’s degree from the City College of the City University of New York and holds a doctorate in government from Cornell University.

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