Innovation Junkies Podcast

1.56 BONUS: The Russian Effect & Your Business

The Jeffs talk about preparing your business for geo-political instability based on Russia’s invasion of Ukraine. They dig into why events like this are relevant to innovation and strategic planning, their predictions on how this event will impact businesses of all sizes, and actions business owners should prepare to take.

Jeff Standridge (Intro): This is Jeff Standridge, and this is the Innovation Junkies Podcast. If you want to drastically improve your business, learn proven growth strategies, and generate sustained results for your organization, you’ve come to the right place. Welcome to the Innovation Junkies Podcast.

Jeff Standridge: Hey guys, Jeff Standridge here. Welcome to another bonus episode of the Innovation Junkies Podcast. How are we doing Jeff?

Jeff Amerine: Oh, we’re doing pretty well, but this is one of those kind of one time in a history unusual days when we’ve got an opportunity to talk about something timely going on in the world. And what I’m referring to is the invasion that formally occurred last night by Vladimir Putin and Russia into Ukraine. And it is not just a minor incursion, but a full-on invasion involving aircraft, missiles, sea forces, and ground troops and tanks. And so why is that relevant to this podcast that’s talking about innovation and strategic planning?
And from my perspective, and I’d be interested in what you think about it, I think that kind of per the conversations that we had previously about a black swan event versus a white rhino occurrence in one case is something that couldn’t be predicted, in another case something where you could see all the indications and then it actually happens. What will the impacts be for businesses of all sizes based on this being the first time in seven years that there’s been a major invasion by a nuclear power into a neighbor? What do you think Jeff?

Jeff Standridge: Well, I’d like to hear your perspective and then I’ll respond to that. I know you’ve stayed close to it. And I’ve got my own concerns about what’s going to happen here locally, but you take the lead, and let’s go from there.

Jeff Amerine: Sure. So a couple things, one is I fully anticipate that the price of petroleum and gasoline is going to go up in a substantial way and for a couple of reasons. One is the Russians are a big supplier of oil and natural gas. The Germans have currently halted the flow of Nord Stream gas from Russia to the rest of Europe. I also think that there might be an embargo or something else to put economic sanctions on Russia because of this unwanted attack. The entire world decides to boycott, or at least democracies, decide to boycott Russian petroleum. So as a global view, that’s going to drive up prices in the U.S. And everywhere else. So your input costs for businesses are going to be rising for sure. And the other thing is I say, uncertainty tends to be bad for markets. It can be a disruption to supply chains. So I think that we’re entering this time where small businesses and businesses of all sizes are going to have to factor in a new reality where we’ve got a major European shooting war underway with a nuclear power involved in the engagement.

Jeff Standridge: Yeah. Let’s talk a little bit about fuel, right? So the clear example is I go to the gas pump and it costs me $5 a gallon for petroleum, right? That’s the clear example. The next example is the supply chain of diesel fuel and transport vehicles that are bringing us our goods consuming that fuel. But then you begin to think about air travel. Both diesel and gasoline are used, diesel obviously for jet traffic and gasoline for most general aviation aircraft. So just the ability to get from one place to the other, just a pervasive impact on economic conditions when the price of fuel spirals out of control.

Jeff Amerine: Yeah. I couldn’t agree more. And I think that so input costs are one side of it. Also with this type of uncertainty, given that we’re a globally interconnected world, I think a lot of businesses are going to think twice about where sourcing, who they’re doing business with. My prediction is that the democracies in general will question their supply chains. And you’d have to wonder if this emboldens the Chinese to do something about Taiwan, which is a big provider and producer of semiconductors. If so, even more uncertainty is kind of put a mix, which nothing good comes from shooting wars typically.

Jeff Standridge: No, You’re right. And I certainly want to stop short of politics and just talk about the reality of what we’re facing, but my belief is the decisiveness and the demonstrable, or lack thereof, and the demonstrable action of the democratic countries, how they take a stand and how swiftly and severely they take that stand will determine whether Russia advances further, will determine whether the Chinese are emboldened, as you said. And I firmly believe that if it’s a sluggish response, if it’s a slow response, that we’ve not seen the worst of it. I guess that’s my own perspective there.

Jeff Amerine: Yeah. And from a business and an economic standpoint, for the longest time, democracies have kind of tolerated these authoritarian regimes in other parts of the world and have gone ahead and figured out, well, if we’re inter interdependent and we do business with them, maybe that will lead to more liberalization. We’re not really seeing that necessarily. It’s not really working. I mean, the authoritarian regimes and the sort of command-directed economies are still doing in many ways, what they’ve always done. So you wonder if this event is something that is going to drive the world’s democracies into a closer alignment, into more deliberate interactions between those of us that have solid democracies and the rule of law and more of an isolation around what used to be the former sort of Sino-Soviet block.
You worry a little bit too about other NATO countries who are trading partners and the Baltic stakes and the Baltics and places like Poland and Romanian and Hungary and all those other places being the next targets that Putin has. It appears that he has in his mind a reestablishment of the pre-1990 Cold War era, Soviet block, a greater Russia so to speak. And I don’t think anything good comes from that from a business standpoint.

Jeff Standridge: So let’s talk about some actions or some considerations that business owners and executives need to be thinking about right now, actions they need to be taking right now from your perspective.

Jeff Amerine: Yeah. I would say figuring out how to hedge. If you’re relying on fuel or natural gas and you’re a volume player, figuring out how to hedge that cost if you can. I’d say that would be one particular thing you could look at. Looking at supply chains and figuring out how to onshore supply chains so that there’s not an undue reliance on shipping lanes and stuff from foreign areas where we might have concerns over reliable supply. I think all of that has to be brought into play.
And the other thing, we learned during the pandemic that small businesses, in particular, might only have 30 days of cash reserves. Now is a good time to make sure that your cash position is solid and that you’re making plans to increase the cash reserves because of the uncertainty. I think that not taking undue risk and making sure that you’re focusing on trading partners in regions where you have good rule law are kind of immediate things that people ought to be thinking about.

Jeff Standridge: Yeah. And I would add to that, analyzing your product service mix right now and looking at the profitability per product line or the profitability per service line, and then begin to anticipate some products and service lines are more beholden to supply chain logistics, some are more beholden to petroleum. They use petroleum in the production of the product or service or what have you. So do some analysis of your current profitability by product or service line. And then look at and begin to anticipate you may find that you have a product line today that is marginally profitable that becomes completely untenable in the not-so-distant future. So do that product service mix evaluation and use some assumptions and some anticipations, and then make some decisions about, okay, if my cost of doing business in this product line increases here and here beyond this point, I have to stop providing that product or service. I have to put my efforts into changing my product or service mix in order to compete or be competitive in my current marketplace.

Jeff Amerine: Yeah, that’s good. I mean, I think that idea of being analytical and building a resilient business that can take these kind of shocks that appear to be coming at more frequent intervals than what we’d typically be used to. I think that’s the way to build a resilient business and this is a wake-up call. To me, I won’t say I’m the greatest student of history, but this feels a lot like 1938. And you wonder how the world would’ve reacted if we had today’s knowledge in the 1930s, as it relates to Hitler and that all that followed with the mass that occurred in Europe during World War II and then post World War II Cold War, all that came from that. So I hope we’re ready. And I hope people are clear-eyed about what happens. And I hope that business is we’ll work on being resilient because it looks like we’re up for another shock.

Jeff Standridge: That’s right. So bottom line of today’s bonus episode is don’t be ignorant. Educate yourself on the geopolitical landscape that we’re facing right now and ask yourself the question, how could or how might this likely impact my business in the not-so-distant future? And what can I do to hedge, to protect myself, and to be resilient? Good stuff. Another bonus episode of the Innovation Junkies Podcast. Thank you for joining us. Thanks, Jeff.

Jeff Amerine: Thank you.

Jeff Amerine (Outro): Hey folks. This is Jeff Amerine. We want to thank you for tuning in. We sincerely appreciate your time. If you’re enjoying the Innovation Junkies Podcast, please do us a huge favor. Click the subscribe button right now and please leave us a review. It would mean the world to both of us. And don’t forget to share us on social media.

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