Optimism

"Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way." - Viktor Frankl, Man's Search for Meaning

Viktor Frankl was above all a purveyor of positivity. Despite his controversial post-Holocaust history, his experiences during the Holocaust shaped his view that man possesses the freedom to choose his attitude, no matter what happens to him. 

Nearly 200,000 people have died due to complications related to the virus. Hundreds of millions of people have experienced economic pain the likes of which we haven't seen for almost 100 years. The sheer magnitude and swiftness of the viral outbreak and decline in consumer demand caught almost all small business owners off-guard. In fact, we recently surveyed over 300 small business owners from 43 states over the past week and the numbers were in-line with the precipitous declines we expected. And yet:

"Despite some bleak numbers, our respondents indicate the entrepreneurial spirit that drove owner/operators to build their business in the first place is still alive and well. 77% of respondents agreed with the statement that their business will emerge from the pandemic stronger than before."

Positivity, like pessimism, is a choice. And so is the choice to be an entrepreneur, a small business owner, or a sole proprietor. As one well-known entrepreneur once put it, starting a business can be like "eating glass and staring into the abyss." And this is a choice that most small business owners, if given the opportunity, would choose again. And again. And again. The entrepreneurial spirit is fundamentally optimistic. 

As we begin to digest the human toll and pick through economic wreckage caused by COVID-19, small business owners have a choice to make - to infect others with positivity or with pessimism. Here at Permanent Equity, we're still open for business, and over the long-term we're still optimistic on the resiliency, creativity, and strength of American Small Business. 

Owner Operator COVID-19 impact survey results (Permanent Equity)

+ "Now 56% of businesses have >80% of employees working remote - a massive shift. But the shift appears to be temporary, with 70% of businesses not planning on expanding remote work after the crisis has passed. There is high industry correlation here, with Transportation, Wholesale, Manufacturing, and Construction obviously needing to bring employees back to be productive again. But some resistance to remote work is seen based on company size as well: of companies generating less than $10M in annual revenue, 36% are considering expanding their remote workforce post-crisis versus 19% of companies above $10M."

Buying and selling businesses in 2020 (Permanent Equity)

+ We've distilled our thoughts on what buying and selling businesses in a post-COVID world will look like including effects on deal terms, financial terms, and 

Keep calm and carry on - (KKR's Macro Trends)

+ "In terms of economic growth, we are looking for a sharp downturn during the second quarter, followed by more of a U-shaped recovery than a V-shaped one. There are several forces at work. First, we are now embarking on a major de-leveraging cycle, one that many investors may not fully appreciate. The reality is that, unlike the downturn in 2008 (which was more linked to individual home ownership and banking), this crisis has started as a non-financial, corporate crisis. One can see this in Exhibit 2. It also has the potential to be a serious government de-leveraging cycle, given the huge outlays that the United States and Europe are now making to bridge their economies during this uncertain period."

American deflation: truckers are getting rolled by the coronavirus economy (The Inquirer)

+ "Prices are falling. Big manufacturers, with orders slowing, “are unilaterally changing their terms,” Tucker said. "If they paid within 60 or 90 days, they are waiting until 120 days. But a lot of [owner-operators and small firms] live day-to-day on that cash flow. All of a sudden, you push that out 30 days.” There goes fuel money for that next trip: "And you drop like a rock off a cliff.”"

Positional scarcity and the virus (Alex Danco)

+ "There’s a case to make here, which I see being spitballed around on the Internet a lot, that the old way of doing things is over. Our year of remote-only will dispel the familiar rituals and expose our expensive addictions to these things. And after this is over, we’ll have a harder time with casually approving $4000 of flights, hotels, and lost time for an in-person meeting when a Zoom call could do, or spending $50,000 on tuition for learning that could happen online. I doubt it. I believe the contra case is actually stronger. Our year of disruption may very well reinforce, not disrupt, the core reasons for why we do these things."

Why most post-COVID predictions will be wrong (Marker)

+ Amidst all of the post-COVID predictions, it is imperative not to take them too seriously. Here's a look at a few post-9/11 and post-2008 predictions that were just plain wrong: "To take one specific example of how consumer behavior was predicted to change decisively: the end of SUVs, conspicuous symbols of the old excess. In 2008, GM drastically slashed SUV production in favor of sedans, marking an “end of the SUV era.” Gas prices approaching $4 per gallon “are changing consumer behavior and changing it rapidly,” GM’s CEO said. “We don’t believe it’s a spike or a temporary shift. We believe it is permanent.” Experts agreed: “The trend away from these vehicles is irreversible,” said one analyst. An economics academic added: “The SUV craze was a bubble — and now it is bursting. It’s an irrational vehicle. It’ll never come back.” And after all, according to a widely noted book published in 2009, the rise of gas prices to $20 a gallon was “inevitable.”"

This is the end of the office as we know it (Vox)

+ "According to a new MIT report, 34 percent of Americans who previously commuted to work report that they were working from home by the first week of April due to the coronavirus. That’s the same percentage of people who can work from home, according to a recent University of Chicago publication. These new numbers represent a seismic shift in work culture. Prior to the pandemic, the number of people regularly working from home remained in the single digits, with only about 4 percent of the US workforce working from home at least half the time. However, the trend of working from home had been gaining momentum incrementally for years, as technology and company cultures increasingly accommodated it. So it’s also likely that many Americans who are now working from home for the first time will continue to do so after the pandemic."

Even Banksy is working from home during the pandemic (CNN)

+ Famed outdoor artist Banksy is taking his... interesting... creations indoors during the COVID-19 pandemic.

We'd love your help.

If you stumble across something great, send it to weekly@permanentequity.com.

If you know an owner, operator, or someone who works with SMB's, please give us the highest compliment and send them our way. You can find previous The Weekly issues here.