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The Barbell Strategy and Creating Less Disruption to Labor Pools During COVID-19

The Barbell Strategy

March 16, 2020

The chaos of recent events related to COVID-19 certainly allow all of us to reassess our priorities, both family-oriented and professionally, and after giving up on fighting my own restlessness in the middle of the night, focus the mind. To start, I wanted to share one of my favorite brief stories coming out of the current crisis, this taken directly from the epicenter, “the Wuhan”:

In locked-down Wuhan, teachers use an app called DingTalk to remotely assign homework. So thousands of kids gave it one-star reviews in hopes it would get booted from the App Store.

We’re in This Together

This vignette reminded me of a simple fact, one that can really get distorted in times of uncertainty, simply stated that in a global pandemic scenario we face today, “we” literally means that all of us around the world are in this together — and as evidenced above, our shared humanity is often best described through the eyes of all of our most precious assets, our children. I couldn’t help but to laugh out loud at the beauty and simplicity of the kids’ unified response to “DingTalk” aka “homework”, which would no doubt be shared from communities as diverse as Des Moines to Milan to the Hubei province. This is a very real reminder of what is beautiful about the world, that even during times of fear and uncertainty in the center of a crisis, there is hope and the ability for all of humanity and share a laugh together. I really want to impress this upon my own children, and even remind the guy I look at in the mirror every day, “we” are all in this together and “we” will all come through this together in time — there is no room for divisiveness and blame, I want to be my best self and embrace cohesiveness and unity.

Enough with my own cereal box worthy philosophy, however — from a tactical perspective our team at NCP really wants you, our friends and colleagues, to know that we are thinking about you and your families, and certainly about the near- and medium-term strategic ramifications for your businesses. In the next months, we believe that the ‘technical’ definition of a global recession is as likely to be met than not (two consecutive quarters of economic decline), primarily driven by significant interruptions in global supply chains, severely restricted travel and the ultimate effects on small businesses and hourly employees. However, we have a high level of conviction that this will be very different from the “Great Recession” of over a decade ago, and will look much more like a “V” in shape.

Hence, from a strategy perspective we are coalescing around what could be described as a “barbell” strategy . . .

The Barbell Strategy

Businesses of most stripes will need to take certain immediate measures for a near to medium term disruption in their income statements. It is highly likely that the Federal Government will come out with some material and broad fiscal stimulus, and it is our recommendation that virtually all businesses should analyze and use these measures and aggressively pursue these avenues of relief, even in cases where the balance sheets are strong. If the broader business landscape (and its leaders) are unified in their embrace of the economic/fiscal stimulus specific to their companies and industries, we believe that this will mean much less disruption in our extremely valuable labor pools — the ‘near’ end of the barbell. Looking to the ‘other’ end of the barbell scenario — our greatest assets are our people, our associates and mitigating the expense pressures in the near term with what are likely to be backstops provided by our government via our country’s lending institutions, are strategies worth exploring. Low levels of labor displacement regionally and nationally will considerably underscore adequate levels of long-term consumption and ultimately, confidence. These are the ingredients for a faster-paced recovery … not to mention the interest rate picture! (I won’t name the institution, but for some market color, we have access to 5-year paper at a fixed rate of 2.75% — and many of you are far deeper and stronger than little NCP — I have never seen anything quite like this, and our commercial banking partners are definitely open for business.)

I, or any one of the members of our team (Brett, Ryan, Megan, Jessica or Zach), would love an opportunity to catch up in the coming days and weeks, check in with one another and just share some stories, hopefully a laugh — please do not hesitate to drop a line and/or give us a ring.

I’ll leave you with one of my favorites . . . Much more poignantly stated long ago by a tall, gangly man with a top hat on the precipice of our nation’s greatest challenge:

“We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory will swell when again touched, as surely they will be, by the better angels of our nature.”

You can count on The Partnership to continue to share accurate and fact-based updates as well. See more on COVID-19 here.

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Eric M. Lohmeier

Eric Lohmeier is the president of NCP, Inc., an investment banking boutique focusing on lower and middle market Merger & Acquisition and Merchant Banking opportunities. NCP, Inc. was founded by Eric in 2005.