Tag Archives: Imminent Recession June 2020

Infrastructure stimulus projects will almost certainly be part of our economic recovery.  Continuing our conversation about Pandemic Strategy, this article focuses on the likely stimulus rollout schedule and, during the interlude, what strategic actions we should take to prepare.

Success happens so often to whomever is standing in the right place at the right time. Opportunity knocks and the lucky engineer, who’s just working away on regular projects, opens the door. Strategy, then, is when we make an effort to position ourselves behind the correct door in time for Opportunity to knock.

Sure, it takes work to decide the right place to stand and to know what staff, skills, relationships, and equipment you should have ready. It can be just as difficult to decide when, specifically, you’ll be expected to answer Opportunity’s knock. It’s important that you arrive neither so too early nor too late, to make the most of your preparatory interval, and to be fully committed to execution once it’s go-time.

While many of us complain about how large bureaucracies eschew innovation, predictability works to our favor when trying to predict the Federal responses to our developing economic challenges. They’ve got a playbook and for the most part they stick to it.  We can predict the 2020 Pandemic stimulus response, more or less, by how they responded to past recessions.

Great Depression of 1929-1933

The Great Depression started with a stock market collapse in October 1929, and the economy didn’t stop contracting until March 1933. Key to the turnaround was a change from Herbert Hoover’s unsuccessful belt-tightening response to FDR’s energetic stimulus-based recovery. The incoming administration negotiated for wide-ranging reforms and stimulus spending over the first 100 days following inauguration, from January through March 1933. The New Deal, which included banking and securities regulations, a minimum wage, and a 40-hour work week, also included a $6 billion infrastructure investment. Valued as $120 billion in $2020, the New Deal public works projects finally put America’s withering construction industry back to work.

Notable New Deal projects include NYC’s Lincoln Tunnel, the Overseas Highway out to Key West, and the Hoover and Grand Coulee Dams. Companies that emerged from these contracts include Bechtel Corporation, Morrison-Knudsen (before a disastrous string of acquisitions), and Henry J. Kaiser before he got into shipbuilding and health insurance. The New Deal’s positive legacy begs the question: what if we had not squandered 4 years on austerity measures before pivoting to deficit-spending stimulus?

Great Recession of 2007-2009

The Great Recession of 2007 began in December when a subprime mortgage meltdown precipitated bank failures. The Bush administration took some time for Hoover-esque dithering in the run-up to the 2008 election, until in February 2009 the Obama administration (notably without Republican support) authorized stimulus spending through the American Recovery and Reinvestment Act.

The ARRA included $165 billion of infrastructure spending, about a third larger than 1933’s program, but it rolled projects out much slower than had been hoped. Although generally regarded as a qualified success, the ARRA was simultaneously too large to attract Conservative support and too small to force a strong recovery. By 2013, four years into the spending, American economic recovery was best described as “slow and grudging.” Stimulus spending on infrastructure projects contributed to the recovery, but some economists suggest that a larger, and more rapidly-deployed, stimulus might have yielded better return on investment.

Pandemic Recession of 2020-2021(?)

The current recession is being managed more pro-actively than the 1929 or 2007 economic contractions. Still, though, it seems pertinent that both prior stimulus efforts were enacted shortly after a presidential election allowed the new Executive to claim a political mandate. In mid-June 2020, 4 months into the declared recession, our leadership is indulging their inner Herbert Hoover, dithering away their remaining time admiring the S&P 500 and hyping short-term retail sales improvement.  They will not act before the November 2020 election.

The economy is unavoidably the key issue in November’s election, and whichever party is able to describe the best recovery plan will likely carry the House and the Executive. History suggests that they will claim their mandate within moments of the 20 January 2021 inauguration ceremony. By the following week, if history is any guide, the Congress should open debate on a tax-cut-plus-stimulus package. Despite everyone knowing that stimulus spending is the obvious response, the funds will not be authorized until mid-February 2021 and we’re not likely to be bidding infrastructure projects before next March.

Preparatory Activities

So what can we do over the intervening 9 months so that we position ourselves in the right place at the right time?  For Atlas Geotechnical, the “right place” is the bid-preparation War Rooms of our strongest infrastructure clients. The right time is March and April 2021. We have 9 months to accumulate the financial resources to carry us through a period of intense bidding, plan our activities, adjust our staffing levels, and secure invitations to the winning teams. The right place and right time for your practice is surely different, but there’s no doubt that you should be planning your strategy so that you’re standing behind the right door when Opportunity knocks.

Start Recruiting: To the extent that you can, donate to, support, and visit the academic programs that train up your best new hires. Support your local gunfighters. You’re going to need new employees from the cohort that graduates in May 2021. You need to meet the young professionals who decide to wait out the lull by earning a Master’s degree. They’re going to be assembled and ready to meet prospective when they arrive on campus in 3 months. Make a plan to meet them, encourage them, financially support them, and then hire the best of them.

Refine Your Systems: Limber up and run some drills to prove that you’re ready to work. To design and build like you want, you should identifiy the current rough spots in your practice and polish them out.  Frequent readers will recognize this as yet another recitation of “never waste a lull,” but that’s because it’s important and bears repeating. Never waste a lull. Get your financial systems in order, build up your warchest to the extent that you can – or line up some credit – update your safety manual, refine your report templates. Prepare yourself and your team so that when it’s time to do real work your underlying systems are ready to support you.

Exude Confidence: Know that the stimulus is coming. Be confident in yourself and make sure your crew sees you projecting that confidence like a Boss. You had a workable business plan before the pandemic tanked your backlog; your fundamentals are strong. Believe in yourself and your crew, and share how much you’re looking forward to working through the recovery with them. And for mercy’s sake hang on tightly to your key employees.

Rest:  This recovery is going to be a marathon, not a sprint. We’re planning that it’ll take 3 years to spend our part of the upcoming stimulus.  I’m preparing to work long weeks from Summer 2021 through the end of 2024. My son will be in graduate school. Your children will be older; your spouse may have retired. While we wait for the intense effort to start, we all should try to get some memories into the bank. Once we can travel safely, commit to that trip with your family. Take photos and set up a slideshow screensaver that buoys you up on future snowy airport layovers.

History is a great teacher, but you’ve got to go to class. All of the news that I’m reading suggests that the economy will contract over the next year, and all signs indicate that infrastructure stimulus spending will be part of the economic recovery by this time next year. By making most of the 9 months that our leadership requires to authorize this spending we all can be better prepared for success when Opportunity, predictably, knocks on our doors.

Everyone’s strategic plan is blown right now. Each of us is hurriedly scribbling up own version of a 2020 Pandemic Strategic Plan. Despite Atlas’ long-term commitment to strategy, we struggled making an abrupt pivot toward recession-proofing.

Success arrived (finally) after we stopped cataloging our Subject Matter Expertise and Operational Strengths and made a concentrated effort to examine our bedrock-level brand characteristics. Our new Plan came together when we tailored it to the core skills that differentiate Atlas from other firms. These are our meta-skills; the skills that give rise to our more conventional marketing strengths.

My best posts here in the Geomechanical Musing blog are the quirky ones, especially the ones that include a tropical construction-site photo. This is not one of those posts. This one is a reminder to myself about discipline and serious management: Atlas succeeds when our strategic priorities leverage our meta-skills. Especially in lean times we succeed when our projects align with our underlying nature. I’m hopeful that sharing our experience might provoke some conversations with friends about how we all can support each other as we weather the upcoming recession.

What are Meta-Skills?

Each of us are subject matter experts. Some of us are great numerical modelers, some navigate the permitting process better than anyone, and still others know exactly what it should cost to refurbish a Navy wharf. None of these are meta-skills; they are the skills that you’ve developed by virtue of your underlying technical interests and business enthusiasms. These hard-to-identify underlying attributes are your organization’s meta-skills, and understanding them gives you a marketing advantage that increases efficiency and improves happiness.

Meta-skills are independent of the economy; you’re good at the things that you’re good at regardless of how many high-rise condos are planned. They are the strengths upon which you can pivot your business during tumultuous times. The way that you taught yourself how much it costs to shore a deep excavation is evidence of estimating and workflow planning skills that apply equally to all projects. That you prefer shoring projects to straightforward curb-and-gutter construction indicates another meta-skill. These foundational meta-skills are a great place to start planning your 2020 Pandemic strategy.

Identifying Your Organization’s Meta-Skills

Our initial “strengths” roster was superficial at best. It ended up being nothing but a list of perceived Subject Matter Expertise and Management Quirkiness, things that are the product of our underlying abilities, not our abilities themselves.  Apparently, honest self-reflection is not one of our meta-skills.

We found, eventually, after much trial and error, that an elimination process worked best. We started with that superficial inventory of our strengths and subject matter expertise. We added positive feedback from longtime customers and the results of a recent client survey. We grouped them, we looked for common causes, and we cut. And we cut. And still we cut. Eventually, we arrived at three.

Atlas Geotechnical’s Meta-Skills

These are the three core characteristics that our 2020 Pandemic Strategic Plan will leverage. I’m not convinced that we’re done refining, but perceptive readers will notice that our meta-skills indicate that we’re pretty comfortable with constant change, so I guess we should’t be surprised when our plan includes an intent to keep modifying the plan.  Your meta-skills are different, but for the sake of conversation here are Atlas’ top three: 

We’re Enthusiastic

We really like our work. We sink our teeth into our client’s problems and we don’t let go until it’s solved. Sure, we get fatigued by endless Agency review comments just like everyone, which is why we avoid projects that tax our enthusiasm.

We’re executing our strategic plan when we focus on projects that benefit from enthusiasm. Tight deadlines, complicated analyses that require us to locate Journal articles, these are the types of projects where our enthusiasm meta-skill gives Atlas an insurmountable advantage.

We’re Perspicacious

Understanding a problem has always been the first step to solving it, and Atlas is uncommonly good at understanding difficult geotechnical problems. Empathy for our client’s problems is how we identify which limiting assumption to push back against, or which construction process we can re-sequence, or whatever else we do to re-frame and then solve your really unusual problem.

Our 2020 Pandemic Strategy focuses on maintaining communications with our long-standing customers, listening for problems that afflict their work, and stepping in when we can bring solutions that put their projects back on track.

We’re Polymathic

We’re intrinsically motivated to learn new things. And knowing more and more things sets us up for an easier time learning the next thing. The ability to learn new skills is, in my view, the ultimate meta-skill.  It’s like using your first of three wishes to ask the Genie for an infinite number of wishes.

Here at Atlas we seem never to run out of new things that we could learn.  Working on a design that solves a unique problem feels to us like swimming downstream. It keeps us enthusiastic, and makes it fun to put in the extra effort hitting that tough deadline. A love of diverse learning is the meta-skill that ties Atlas Geotechnical’s practice together. Clients that encounter unique problems are our best opportunity during the upcoming lean year, and Atlas’ strategic plan invests in relationships with those clients.

Leveraging Your Own Meta-Skills

Your organization’s meta-skills are totally different from ours. This is as it should be. Large organizations probably have too many meta-skills to form a coherent plan and should plan in sub-groups. How meta would it be for an organization to claim the meta-skill of comfortably managing wide-ranging meta-skills from its different business units. A meta-meta-skill.

The point, though, is to improve your strategic efficiency and focus you on your core competencies. This is going to be a whopper of a recession, and some of our firms may not weather the lean times. Executing a tight strategy improves your changes of emerging strong on the other side. Each of our plans are better when we focus on our fundamental organizational strengths.

This is a message of optimism and hope, of an opportunity long awaited that is finally set to arrive. But you need to read to the end to get to the positive, encouraging part. The next two paragraphs are not comforting at all. If you are already feeling redlined trying to chart a course for your practice and the staff who look to you for leadership, skip a bit, brother, and pick up when I get to the exciting part about Adam Smith and 18th Century economic theory. 

The Bad News

In a few short weeks the coronavirus pandemic has overwhelmed our healthcare system and crippled our economy. We lack test data, making predictions imprecise, but infections are likely to peak in mid-May. Last Sunday, 8 weeks before mid-May, the Fed flattened interest rates to zero. The stock market in two weeks has effectively given back three years of impressive gains. Nobody is going to start new projects during such uncertain times, regardless of available cheap funding.

There are 8 more weeks, about, until we see evidence that economic activity is getting back to normal. Tax revenue will fall in a way that makes airport expansion projects and new container wharves at the Port of Honolulu unaffordable. I’m not an expert, but I suspect it’ll be August before goods and services are changing hands in a way that allows long-term investment decisions, the types of decisions that put engineers and contractors back to work. Our engineering industry is going to have a lull. Whatever shall we do?

The General Solution

I have a suggestion, but you’ll have to bear with me while I delve briefly into 18th-century economics.  Specifically, groundbreaking thinking in Adam Smith’s classic “The Wealth of Nations.” This is a thick book, a veritable tome. It comes bound in 3 volumes. I’m sure the binding cracks softly when opened to exude a lovely old-book smell. But some of the ideas in it are just as fresh now as they were at the beginning of England’s Industrial Revolution. These ideas are the key to our success as we enter this long-awaited lull. In March 1776, Adam Smith published the general solution to a problem that we all are just about to experience. The details, like every good professor, he left to the reader. But he certainly told us what we need to know in order to do well on the upcoming test.

The key premise is that wealth is created by reinvesting accumulated capital. This applies to your company and to your individual practice just like it does to your nation. As a man of his Industrial Revolution times, Smith focused on reinvestments in labor-saving equipment. He offered as a practical example a hypothetical pin-manufacturing enterprise. By investing some of your pin-selling profits in a better pin-sharpening machine (or whatever, I know nothing about sewing notions), you would be better-faster-cheaper in all of your future pin-making. Thus, your invested capital yields greater wealth. The wealth of nations grows by reinvesting their accumulated capital in ways that achieve greater efficiency.

The pivot from manufacturing to services requires a little discussion:  Knowledge-based companies increase their wealth when they reinvest surplus capital in greater knowledge and efficient service delivery processes. Simply hiring more people grows your top line, sure, and some of that revenue usually flows through wages and benefits to land on your bottom line. Often you can do this through buying a rival firm. The efficiency benefits in these investments are vanishingly small. Some engineering practices, particularly the very large AE’s, then prioritize distributing the slightly expanded profits to shareholders. They do not invest accumulated capital to improve their enterprise. They do not build wealth in the way that Mr. Smith recommends.

The Opportunity

Here’s where this arriving lull transforms from an economic hardship into a rare business opportunity:  Because knowledge and efficiency investments require the knowledge worker’s time, such investments are only economical during a lull. Sure, during fat times we specialist consultants buy new trucks and maybe one of those neet-o robotic total stations, but really, wealth grows when we invest in our staff. We have an opportunity to do that this summer. We can use the slack time during this lull to build shiny new pin-sharpening machines, or whatever. The question that we face, now or in May, once we get our long-awaited slack time, is how best to reinvest so that we increase our wealth? What efficiency improvement should we acquire through judicious application of our time? What pin-sharpening machine (or whatever) will help us deliver services in 2021 better-faster-cheaper than we did through mid-March 2020?

The Commitment

Me? I finally will learn to draw. I’ve been left behind as CAD morphed from a documentation requirement  into a communication and collaboration space. I’m like that old executive we all make fun of, the guy who has his secretary print out his emails and dictates his responses. I’ve been aware of this for several years, but lacked bandwidth to act. I owe Keith MacKenzie at Weeks Marine a debt of gratitude for demonstrating the power of communicating with sketches, and also for treating me kindly when we both realized just how far behind I had lagged. The whole crew at VAK Construction Engineering sets the standard in this kind of collaboration.

By the end of the year I’ll be able to sketch-and-share a pile test setup, a trestle concept, or a dewatering array with clients who are already working with information-dense, collaborative 3d drawings. I will have reinvested some of Atlas’ retained capital in an efficiency improvement that grows our wealth, an investment that I can only afford to make during a lull. A lull is a precious opportunity to finally fulfil Adam Smith’s promise of prosperity through reinvestment. So that begs the question: how will you invest your lull?

The Shared Experiences

You’re going to have slack time; the rest of the year will not resemble the beginning. Just because you lose buyers for your labor does not diminish that labor’s value. Put it to work for yourself and your crew. You will be working for the next few months at growing your future practice. About 25% to 35% of your week will be in service to your future prosperity. Do not waste this lull.I would love to hear back from everyone what investments we make. Better cost tracking that tightens your estimating system? Finally, tearing down and rebuilding that venerable Delmag D30-32 hammer so that it’s more reliable when it goes back to work? Maybe just take a bit of a breather and come back feeling refreshed? The possibilities are endless. The coming lull is real. So is the opportunity to invest in our practices. Do not waste this lull.