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Business Means Risk

Apply Hard Earned Lessons from Disruptions Past

by David Giersdorf

Editorial Note: This article is an excerpt from David Giersdorf’s Hard Ships: Navigating Your Career, Industry, and Life through the Fog of Disruption, available from Amazon, Barnes & Noble, and other online retailers March 25th.

Nobody gets into the cruise industry for quick and easy profits.

A major cruise ship can cost over $1 Billion and take two years to build. The return on investment is a long-term proposition, with many risks involved.

In the worldwide cruise business, operating 24/7 on the world’s Oceans and Rivers, visiting all seven continents, I learned that only one thing is certain: Disruption will happen over and over again, like the ebb and flow of the tides. It is not a question of “if”, but “when”, “where”, and “how bad”.

Count on it.
Prepare for it.
Learn from it.

Apply hard earned lessons from disruptions past. Continuously mitigate known risks.

In the executive and advisory roles I’ve held over the years, I’ve been directly involved in several new ship projects, from concept to christening events, deployment planning, and market introduction. I’ve also handled international market entry, annual revenue plans of over $1 billion, competitive positioning strategies costing hundreds of millions of dollars, plus mergers and acquisitions, due diligence, and post-acquisition integrations.

Some might say I understand business risk fairly well.

It is challenging to earn consistent profits in the cruise business until a company reaches a certain level of scale and revenue. Once beyond that challenging break-even point, the profits and cash flow can be remarkable. The few publicly-traded multi-billion cruise groups that dominate the Industry demonstrate the challenges and the rewards.

By comparison, the smaller specialized cruise company that my family built carried operating margins and cash requirements that would send entrepreneurs in other industries spiraling into panic. Add to those slim margins the ever-present need to book tens of thousands of customers and survive economic cycles we have no control over, and it can be a brutal business.

“By comparison, the smaller specialized cruise company that my family built carried operating margins and cash requirements that would send entrepreneurs in other industries spiraling into panic.”

That is the very reason the cruise business has many valuable lessons for us all. Learn how to stay afloat in the cruise industry, and you can safely navigate any job, career, or business through anything.

When times are great, the objective is to operate as profitably as possible while also improving and growing the business. Consumers spend on bucket-list travel experiences, and cruise and travel companies are eager to fulfill those dreams. But when the public pulls back spending on vacations, revenue falls, as well. And if we didn’t adjust immediately to a decrease in spending behavior, we’d find ourselves in trouble.

In the cruise business, the true impact of a pull-back in spending appears months into the future because of consumers’ advance vacation planning horizons. We can be operating at full capacity and top pricing today, but have a completely different reality unfolding just a few short months ahead. It is critical to watch for such changes and make immediate adjustments before the gap between revenues and operating expenses plus overhead grows too wide, impacting profitable operations and cash flow.

From an accounting perspective, looking ahead at the impact, the same math doesn’t make sense anymore. And we need to make it make sense. Thus, the need to identify changes and adjust rapidly.

I’ve both managed and advised cruise lines through uncharted economic times. Those experiences taught me the delicate balance between the necessary drive for profit and the ability to make it through tough times, despite the high cost. We’d pay almost any price to make it out in one piece, of course.

That has certainly been the case during Covid-19. It’s here where we develop new levels of resilience and create the stability required to weather the next storm.

Whatever struggles you’ve faced this past year, learn from them. The storm isn’t over. And even when a storm passes, the sea never stays flat for long.

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