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Peloton Provides Early Lessons And Insights About Recovering From A Crisis
From:
Edward Segal, Crisis Management Expert Edward Segal, Crisis Management Expert
Washington, DC
Wednesday, May 25, 2022


The cover of Edward Segal's book on crisis management
 

Commentary From Crisis Management Expert Edward Segal, Bestselling Author of the Award- Winning Book "Crisis Ahead: 101 Ways to Prepare for and Bounce Back from Disasters, Scandals, and Other Emergencies " (Nicholas Brealey)

An important part of any company's plan for recovering from a crisis is setting the right priorities and managing expectations for how and when it can bounce back.

The exercise bike maker Peloton, which earlier this month reported a quarterly loss of $757 million, is a good example. Earlier this year the company announced it was temporarily halting production of its equipment until demand caught up with supply. "Peloton stock has been battered over the last few months, dropping more than 60% year to date as investors try to reconcile the company's role in a post-pandemic environment," according to Barron's.

Peloton's initial efforts to communicate about their recovery efforts are providing important lessons for business leaders when they have to lead their organizations in bouncing back from a crisis.

A Sober Message

Barry McCarthy, who became CEO in February, communicated to shareholders  most of what he needed to in a sober message. His letter was successful because he placed the situation in perspective, explained what had been done to put the company on the road to recovery, outlined what would be done in the coming days and why he was optimistic about Peloton's future.

In his letter to shareholders, McCarthy painted a grim picture of the company's finances. "The balance sheet challenge has been managing inventory. We have too much for the current run rate of the business, and that inventory has consumed an enormous amount of cash, more than we expected, which has caused us to rethink our capital structure (more on this in a moment)."

But there appeared to be a light at the end of the tunnel. He went on to say "Fortunately, the obsolescence risk is negligible, and we believe the inventory will sell eventually, so this is primarily a cash flow timing issue, not a structural issue."

'Turnarounds Are Full Of Surprises'

When McCarthy "showed up to run Peloton about three months ago, he was surprised to learn just how discombobulated the supply chain was and how quickly the company's cash coffers were shrinking," according to CNBC

"'The nature of turnarounds is they are full of surprises,' McCarthy told analysts on Tuesday, during his first post-earnings conference call with Peloton."

The Crisis Recovery Hall of Fame is full of companies and organizations that were able to dig themselves out of the hole, restore their image and credibility or return to profitability.

It remains to be seen whether Peloton will be one of those companies. That's because recovering from any crisis takes time, discipline, a plan—and patience.

Set The Right Expectations

Step one in bouncing back from a crisis is for those in charge to share their observations about the severity of the situation. The worse the situation, the more likely it is that it will require more time and resources to recover.

Business leaders who present the darkest possible credible picture of the situation will also be setting a high bar for recovering from it. In doing so, they might also be able to buy themselves and their companies more time to bounce back. The message they send will be that "things are so bad, we have nowhere to go but up."

Be careful, though, about presenting too bleak a picture, especially if it makes it appear that the situation is so grim that it is hopeless. If that happens, people could write your company off before it has a proper chance to make a comeback.

Establish The Most Important Priorities

CNBC reported that "McCarthy said in the letter he is focused on stabilizing Peloton's cash flow, getting the right people in the right roles and growing the business again. Expanding subscription revenue is a centerpiece of McCarthy's strategy, something he takes from his prior experiences at Spotify and Netflix. He also said Peloton will soon be selling its products through third-party retailers, a step the company has not taken before."

Crisis Recovery Plans

Although crisis recovery plans must be customized to address the nature of each crisis, each plan will share the following basic provisions. The overarching purpose of any plan is to bounce back from the crisis as soon as possible.

Reality Check

  • Explain how bad the crisis was, and the impact it had or is expected to have on the company and those affected by it.

Priorities

  • Immediately address the cause of the crisis.
  • Identify the lessons that were learned from the crisis and take steps to ensure the crisis will not be repeated.

Goals

  • Define success in recovering from your company's crisis.

Milestones

  • List the milestones that must be achieved for the company to fully recover from the crisis.

Timeframe

  • Explain the order in which the milestones should be reached and the timeframe for achieving them.

Resources

  • Based on the goals and objectives to be achieved in recovering from the crisis, evaluate the expertise, skills and resources that will be needed.
  • If what you need is not immediately available, take steps to ensure it can be obtained.

Updates

  • Provide updates to the stakeholders and others affected by the crisis about your progress in recovering from it.

Communication Channels

  • Use all appropriate methods and channels of communication to share your updates and other information about your company's efforts to address recover from the crisis.
  • Provide a point of contact for people to send any questions they have about your company's recovery efforts; immediately respond to those queries.
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Edward Segal is a crisis management expert, consultant and the bestselling author of the award-winning Crisis Ahead: 101 Ways to Prepare for and Bounce Back from Disasters, Scandals, and Other Emergencies (Nicholas Brealey). Order the book at https://www.amazon.com/gp/product/B0827JK83Q/ref=dbs_a_def_rwt_bibl_vppi_i0

Segal is a Leadership Strategy Senior Contributor for Forbes.com where he covers crisis-related news, topics and issues. Read his recent articles at https://www.forbes.com/sites/edwardsegal/?sh=3c1da3e568c5.

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