Listen to the podcast:
For Karl Ulrich, vice dean of entrepreneurship and innovation at Wharton, the existential threat to small businesses struggling through the coronavirus pandemic isn’t just an academic exercise.
Ulrich owns MakerStock and Xootr — two small businesses housed under the same roof in Scranton, Pennsylvania. MakerStock supplies plywood, acrylic and other materials to university labs, engineering and architecture schools, and individual buyers. Xootr makes foldable scooters, the kind often used to zip around city streets.
When the coronavirus pandemic hit the United States in late January, forcing many states to shut down nonessential business throughout March and April, the demand for MakerStock products flatlined. But the scooters were suddenly selling like crazy.
“The MakerStock business basically went away [because] our customers literally closed their doors. And the Xootr business — everyone said, ‘Oh my God, I don’t want to be on a subway,’ and went looking for alternative transportation,” Ulrich said. “So, in the same building, we’ve seen two business, one get boosted and one get crushed.”
Ulrich spoke recently on the Wharton Business Daily radio show on SiriusXM about the challenges faced by entrepreneurs who are trying to resurrect their firms as life begins returning to normal. States have lifted stay-at-home orders and are permitting stores and other businesses to reopen in an effort to stem historic job losses and stabilize the economy nationwide. (Listen to the podcast at the top of this page. You can also watch a video interview with Ulrich below.)
On the micro-level, business leaders have myriad decisions to make, from staffing levels to product assortment to planning ahead if a second wave of the virus should shutter their doors again in the fall. Ulrich is no stranger to that particular stress. He’s been examining whether to increase staff at Xootr to meet the surge in demand; whether to reconfigure his supply chain because most of the scooter parts come from China, which has experienced manufacturing disruptions; or whether MakerStock should simply shut down or, instead, view the next six to twelve months as an opportunity to become very lean, and perhaps emerge from the pandemic even stronger. With plenty of unused mylar film on hand, the business pivoted to help create face shields for health care workers. But, Ulrich acknowledged, such a pivot isn’t possible for every business. He pointed to hospitality as an example.
The tough decisions have Ulrich thinking about what he’s learned over time about managing through crises.
“I’ve weathered a few downturns and a few recessions, and one lesson I’ve learned is you [must] cut deep and cut hard,” he said. “You know, deeper than you think you need to cut, when you face a crisis like this. I think probably the bigger pitfall I see is people who are basically burning cash somewhat overly optimistically at this point.”
The VIDE Model
Ulrich teaches the VIDE model to his students. The acronym holds that value, or V, in entrepreneurship is a function of three factors: the idea (I); your skills and capabilities, or what you do with the idea (D); and exogenous factors (E) that are out of your control. That could be a fire that destroys the physical store, a sudden collapse in demand because of a change in technology, or even a viral outbreak that changes daily life across the globe.
“My students have historically rolled their eyes at the E,” Ulrich said. “They’re like, ‘Oh, yeah, come on. What could that possibly be?’ They’re not rolling their eyes anymore. They’re realizing, ‘Wow, yeah, some little virus in a bat 8,000 miles away can crush my business, and it has nothing to do with me.’”
“I’ve weathered a few downturns and a few recessions, and one lesson I’ve learned is you [must] cut deep and cut hard.”
While Ulrich doesn’t expect another disruption on the scale of the coronavirus pandemic during his lifetime, there is always something around the next corner.
“We need to find a better way to communicate to young people that these things do happen and that there is tremendous value to being lean and flexible in the event that some disruption occurs,” he said. “I think tempering optimism with a sense of there is going to be something, it’s going to be outside of your control, and being resilient and lean to navigate it is an important quality in entrepreneurs.”
Reevaluate and Redirect
Some businesses will not make it to the other side of the pandemic, and neither will many jobs. Setbacks are hard, but they also provide an opportunity for firms and individuals to reevaluate and redirect. Ulrich mentioned that his son, who graduated from college about a year ago, was laid off last month. He is using the time to reflect on his long-term goals and explore his options. Ulrich urged others to do the same.
“This is a socially legitimate period in which to retool and to work on projects, so I think it’s a good opportunity for young people,” he said.
When asked for his best advice to the next generation of entrepreneurs, Ulrich simply said: “Do the work.”
“Focus on what are your skills, and those skills better be tied to recognizing problems and solving those problems. Those are the skills that make you most useful in a crisis and that I think make you most useful in general in life,” he said. “We were in a period of a lot of irrational exuberance, a lot of capital available, a lot of people [getting] by on swagger. I think those times are gone.”