Mark Meloy:
Hello, I'm Mark Meloy, CEO of First Business Bank. I'd like to welcome you to another episode of the First Business Bank podcast.

Mark Meloy:
Today, we're covering results of the First Business Bank 2021 Economic Survey with special focus on Southeast Wisconsin. The Economic Survey has been underwritten by First Business Bank for more than 15 years, and the results are particularly relevant this year due to the obvious implications of the COVID-19 virus, but also as the survey does each year, it helps answer the question our bankers most often get from clients, what are other business leaders saying?

Mark Meloy:
Our conversation today includes business leaders from around the area who will offer their thoughtful reaction to the survey. I'm going to ask each participant to introduce themselves, then I'll briefly describe the format for our discussion today. Chris, we'll start with you.

Chris Adee:
Thank you, Mark. I am Chris Adee. I'm currently the CFO at OwnersEdge. We're an employee owned ESOP holding company based in Waukesha, Wisconsin. We currently have five diversified businesses in our portfolio today, and I hope to share a little bit of each of those companies as we talk about that survey.

Mark Meloy:
Thanks, Chris. Kent?

Kent Lorenz:
Yeah, thanks, Mark. Uh, my name is Kent Lorenz. I'm the retired chairman and CEO of a company called Acieta, and Acieta is a, uh, robotic automation company based in Pewauke with manufacturing clients primarily in the Midwest. Uh, about three years ago, I retired from that, and now I'm on the board of directors of a number of manufacturing companies and do consulting in the manufacturing, and specifically in the automation space.

Mark Meloy:
Thanks, Kent. Nancy?

Nancy Johnshoy:
My name is Nancy Johnshoy, and I'm a portfolio manager and market strategist for First Business Wealth Management.

Mark Meloy:
Thanks. And, Kevin?

Kevin Kane:
Hi, Kevin Kane, president of the Southeast Wisconsin Region for First Business Bank.

Mark Meloy:
Thanks, Kevin. So, Nancy's gonna get us started today by providing her summary comments about the combined survey results from across all our banking regions, and then she'll touch on Southeast Wisconsin specifically. After that, we'll roll into a conversation with reactions from all of our guests.

Mark Meloy:
So, Nancy, in terms of the overall results from across our footprint, what was the general tone for 2020?

Nancy Johnshoy:
Well, Mark, businesses in all of our markets were clearly impacted by the pandemic. Overall results across all of the regions were pretty mixed with 36% doing better than they originally projected, 43% doing worse, and 21% about the same.

Mark Meloy:
So, specifically in Southeast Wisconsin, what were the outcomes in 2020?

Nancy Johnshoy:
Uh, our Southeast region respondents are pretty heavily weighted to professional services and manufacturing, and despite challenges in 2020, uh, 41% actually saw increases in both sales and, and profitability. Forty-four percent saw reduced sales versus expectations, and 35% had declining profits. More than half, so about 55%, kept head count about the same, and 41% im- uh, increased wages in 2020.

Nancy Johnshoy:
So, the bottom line is that 35% exceeded overall business expectations, actually an increase over the 31% that exceeded in 2019. Forty-three percent did worse than anticipated, and that was also up from 31% last year.

Mark Meloy:
So, the results really, um, kinda stark look at, um, both outperformers and underperformers were higher this year than previous, so what are some key takeaways from that data?

Nancy Johnshoy:
Well, it's not at all unexpected that the pandemic was the primary disrupter in 2020, and the primary cause that was sited by 91% of the companies that underperformed and had less favorable results. Companies had to deal with a lot this last year with modifications for social distancing, employees working remotely, employee absences, and even temporary shutdowns, but the pandemic also created opportunities for some, and many of the companies, uh, of the 31% that outperformed cited, uh, opportunities created by the pandemic as the primary reason.

Mark Meloy:
So, one of the neat things about this survey, as I have said for 15 years now, is that it's really two surveys in one. We ask people to talk about, react to the year that has almost been, and then to look forward and, and into 2021, or the next year as the case may be. Um, so, in a general, uh, tone, Nancy, what were, uh, the expectations, or what's the outlook look like for 2021?

Nancy Johnshoy:
Sure, Mark. And, I think it's important to put the survey results into context of the environment during the time when they were completed. So, these surveys go out and are, are completed, um, about mid-September towards the end of late October, so during that time, in our area as throughout the US, COVID-19 infections were trending higher. The election was in full swing, and we, as yet, had no news of an effective vaccine.

Nancy Johnshoy:
So, even despite all of those headwinds and despite the fact that seven out of 10 Southeast respondents expect overall, uh, business performance to continue to be disrupted by the pandemic, 75% expect better overall business performance, so that's a, a very strong result, even stronger than last year, when 63% expected better performance.

Nancy Johnshoy:
So, all things considered, uh, outlook for 2021 is very strong.

Mark Meloy:
Good. So, economic data's very fluid. You talked about when these surveys were completed. So, as we continue to recover from the effects of the pandemic, in brief, what are you seeing right now that will potentially impact businesses in our area in the next year?

Nancy Johnshoy:
Sure. I, I think, uh, the US economy will continue to rebound into 2021, although the pace of that recovery is, is also likely to slow. Uh, we continue to see strong results in, in many areas of the economy, including manufacturing, housing, consumer spending, and employment. And, unemployment nationally has improved from 26.9 from a peak in April of 14.7%, and even though, uh, state data lags a little bit, as of September, Wisconsin's unemployment rate is lower than the national average at 5.4%.

Mark Meloy:
Good, thanks. So, now I'm gonna turn to our panelists, and Chris, I'll start with you. What are your reactions to the survey results as, as, uh, Nancy's been able to outline them?

Chris Adee:
Yeah, first of all, I would say I was encouraged by the optimism that I heard and read as I reviewed the survey. I thought that was very, um, very insightful and, and good to see that people are looking to the future and what it's about and not just at the past.

Chris Adee:
Um, and then as I look at our four portfolio companies, I would have to say I can-
PART 1 OF 4 ENDS [00:08:04]

Chris Adee:
... look at our four portfolio companies, I would have to say I can relate to the results of that, um, survey as well because in the four companies, clearly one of our businesses, um, had the greatest impact because they significantly, um, work with events and rentals. So, uh, our company in [Pleco 00:08:19] has a significant presence in the event space, and clearly events have been canceled. So, that has impacted them, but they've been able to pivot and really focus on a sale of their product versus the rental of the product, which has helped them, um, look into the future and, and work through 2020. So. And the other businesses, although, um, two of the other three are gonna be down in revenues this year, um, they've still maintained a, a strong presence, uh, going through it with, uh, focused on, uh, public safety and healthcare companies. They've really had a strong presence there.

Chris Adee:
And then QComp, uh, our, uh, robotics integration company, has actually had, uh, one of the companies that's had an improvement in their revenues this year, with a focus on robotics integration in manufacturing, and companies really looking to enhance their manufacturing, bring in some robotics, and uh, mostly, some for speed, getting it to market faster, um, and some to work within, uh, the social distancing and, uh, the things that the pandemic has caused.

Mark Meloy:
Mm-hmm (affirmative).

Chris Adee:
So, I can see a little bit of all of that survey result in, in each of the four businesses that we currently have.

Mark Meloy:
Thanks. Kent, how about your reactions?

Kent Lorenz:
Yeah. You know what, I read the, uh, report. Uh, there was nothing that was really surprising or out of line. I, I think it affirmed what I see as a, I, I'm calling it almost a bar-belling effect of the pandemic. Some companies did better, some did worse. Stating the obvious. If you were making parts for ventilators, if you were making sanitary wipes, your business went through the roof. If you were in hospitality or travel, things pretty much stopped. Um, and I think maybe just to piggy-back off what, uh, Chris was saying, in the automation space, the companies that I'm still working with and talking to, uh, as a consultant, are seeing a huge increase in demand for proposals. And it, as companies are beginning to look at what does life look like post pandemic, it, they're not gonna try to rebuild it the way it was pre pandemic. They're gonna look at where can they automate more, what processes can they, uh, take out of human hands and grow their business with the same number of people, uh, as opposed to adding 20% more people for 20% more revenue.

Kent Lorenz:
So, I think there's a, this is the pandemic, believe it or not, there's a silver lining in that it's a catalyst for companies to really re-examine their manufacturing processes and begin to separate the, the human processes versus ones that could be automated.

Mark Meloy:
Good. Thanks. Kevin, how are your reactions?

Kevin Kane:
Um, I think both what Ann described and Kent, you know, part of it, um, uh, we were out on a call a few weeks ago with a company that, uh, does contract packaging, um, for food companies. Um, and consistent with what, uh, Chris and Kent said, they're talking about, what can we do to automate. And, and part of that is for safety reasons. Part of it is that it accelerated some trends in terms of, uh, you know, labor and what things can be automated because despite, uh, some of the challenges that Nancy described in terms of unemployment, we're getting better on that front, but skilled labor and just labor in general is a little bit tougher to come by. So, I think it amplified some of those, uh, discussions that clients are having, and, and what does it all mean for 'em.

Mark Meloy:
Yeah. Great, great comments. You know, I've been [inaudible 00:11:45] a long time. I've seen a lot of recessions. I've seen a lot of economic impacts on industry, um, probably none greater than the great recession of 12 years ago. And certainly out of that came, uh, I think a new thinking by businesses about, um, how they managed growth. Um, here, here it's a little bit difference. I, I've used the word resilience a lot. Uh, really it's, it's called upon owners, managers, investors to be resilient in their thinking, and all of you have kind of outlined some things in terms of the, the development or the change going on.

Mark Meloy:
Um, what other trends might we expect? One of the things ... and I'll, and I'll give ya a, just a starter idea, and it was touched on, in, in, by a couple of you. That is safety. Just the whole idea of, of not just protecting the consumer, right, the end user of a product, so to speak, but t- the, the higher level of concern, of internal safety, of employee safety. W- what kind of things, um, might we expect, um, as business leaders? What kind of things are we seeing right now in that regard? Chris, I'll go, uh, I'll start with you again.

Chris Adee:
Thanks, Mark. Um, you, you know, overall, it, when you're talking about the safety of your employees, um, it's the, um, processes that we've put in place, um, with our safety protocols within the office, from all the requirements from the CDC, but just what can we do to keep our businesses and collaborating. So, we, as an organization, have essential businesses and have brought people back to the office as much as possible as we can, because we've really found the productivity to be best in the office, but we've also put in place the proper safety protocols because we want to make sure that they're safe from mask wearing to distancing within the offices. And I can recall having a meeting with my, uh, entire finance team about a month or so ago, and we were on a Zoom call having a conversation, and yet we were all physically in the same building and we were still connected through the Zoom technology. So, I think that's really important.

Chris Adee:
Um, I'd also go to some of the products that we, um, you know, sell and offer to our clients from, uh, some of the, um, the niche technologies of, uh, a RealWear product, which is a virtual eyeglass wear that an employee can be wearing out in a job site, and not have to have his entire team around him because he could be communicating with another employee back in the office and getting some direction and some technical skill. So, I think there's a lot of different niche technologies that we can be using in our day-to-day work environments to help protect our technicians in the field, as well as our employees in the office. And I can see that continuing. So, it's really important right now, but it's gonna be an asset and an efficiency in the future for businesses to be able to continue to grow as we continue through the pandemic, but just into the future.

Mark Meloy:
Thanks, Chris. Kent, thoughts as, uh, as it relates to kind of trends or emerging trends that might, that we might all see from 2020?

Kent Lorenz:
Yeah. The, you know, think about this, the safety issue for a minute. You know, an effective floor, certainly safety is first and foremost. If you ever talk to a manufacturer, if they don't say safety is their number one priority, uh, they're in trouble, because it, it has to be. Um, so the good news is I think relative to, I'll say the general understanding of safety, COVID hasn't really changed a whole lot. But looking at it in terms of, uh, br- I, I'll say the, uh, face masks and the plexiglass and creating work environments and work spaces that are cleaner and safer, that's been a huge difference. Uh, so when, when I walk a factory floor, now you could see everybody's got spaces that are very defined, um, and they're very cautious in terms of, uh, cross-contamination, if you will.

Kent Lorenz:
I, I don't think that goes away completely. I, I think post, uh, COVID, I think we're gonna be more aware of just how we transmit things like the flu and colds and other things.

Mark Meloy:
Mm-hmm (affirmative).

Kent Lorenz:
So, I, I don't think that's gonna, uh, go away completely. And I think the other part is getting back to the automation. Um, there's, there's a term, uh, called Cobots, which is a, a shortened version of collaborative robots. These are robots that-
PART 2 OF 4 ENDS [00:16:04]

Kent Lorenz:
... which is a, a shortened version of collaborative robots. These are robots that, uh, can literally work shoulder-to-shoulder with other people. Um, robots typically are considered to be dangerous. They're, they're powerful. They can hurt people, uh, and are guarded and shielded, uh, very, in very safe way with fences and light curtains and floor mats. Cobots, not so much because if they come in contact with a person or an object, they stop. They also are not particularly powerful.

Kent Lorenz:
Um, I'm already seeing a hu- a tsunami, if you will, of people looking at Cobots to integrate in places, not just for repetitive or, uh, dangerous or dirty situations. In this case, uh, really more for safety. Of just getting, uh, people more back in their space, in their environments, so they can be secure. So, uh, that- that, again, I think those are two things we're starting to see that will emerge out of this, uh, pandemic is, uh, I think good things for, for manufacturing.

Mark Meloy:
Mm-hmm (affirmative). Yeah. Gr-great comments. Kevin, how about you?

Kevin Kane:
Um, you know, one of the other things I was reflecting on, Mark, is, um, I think, you know, Wisconsin in a very positive way, is a pretty conservative place and, and what I mean by that is, I think a number of our clients have been pretty cautious traditionally, have managed their, uh, balance sheet, uh, effectively and, and in a positive way. And, uh, talking to a client who said, “You know what? Um, because of some of the challenges that some of our competitors have had to face, we're in a pretty good position and it may open the door to some strategic acquisitions.”

Kevin Kane:
So, I think, you know, that, that is real in my opinion. So, we've got companies that were able to whether the storm. Had, leading into that, managed themselves a little more conservatively and for them, it spells opportunity and they're quite bullish about that.

Mark Meloy:
Mm-hmm (affirmative). Good. Well, Kent, um in, in comments leading up to this, you mentioned that there wasn't anything that surprised you in, in, uh, the survey. Uh, but I'll ask, uh, Chris and, and Kevin if there's anything in, in the, the survey results that did surprise you?

Chris Adee:
You know, I'm, I'm really in the same bowl as Kent there. It wasn't too surprising to me. Again, since I've got that portfolio, I saw a lot of that variation that was going on, but the one thing that as an accountant I did find interesting is, is many people's comments about the inability to forecast with certainty.

Kent Lorenz:
(laughs)

Chris Adee:
And I'll tell you, as an accountant, I'm not sure that you can ever forecast with certainty (laughs).

Nancy Johnshoy:
(laughs)

Kevin Kane:
(laughs)

Kent Lorenz:
(laughs)

Mark Meloy:
(laughs)

Chris Adee:
So it's the variety or the limit of certainty that you have, but clearly, many people are more concerned that in the past they felt more comfortable going into this and I-I feel it's just forecasting is what we do. We gotta take the best information that we can and we're gonna, we'll do what we can with it um, so I thought that was a little surprising, um, but not too much. Just being who I am with that.

Kent Lorenz:
(laughs) you know for me, Mark, I-I think it's uh, and Nancy this'll be a directionally correct answer but 70 some answer of the respondents spelled optimistic, uh, going into next and even with, uh, to Chris's point a fair amount of uncertainty so that was really great to ese to me because it gets back to where you use Mark, which is resilience. So despite all of those challenges, um, companies, many of our clients are feeling, you know what, we're gonna press on. We learned some things and we feel that next year's gonna be better so that to me is really gratifying to hear.

Mark Meloy:
Oh good. Uh, Kent had a, a thought and you used the term, w-which I have used many times and it's kinda this barbell affect or this barbell economy that's come out of it. So to the, to the end of the, the barbell if you will, those that have been most severely impacted by COVID and the current economy we'll call it. Um. Uh. What do you th- see from your opinion, uh point of view, w-what, what do you see that, that getting better getting out? What's... what do you think are gonna be the keys to that part of the barbell?

Kent Lorenz:
Yeah that's a, a great question. Uh. I-I think the recovery i-in the, I'll just say the hospitality and travel and entertainment side is going to be uh, a bit bifurcated and what I mean by that is, I think consumers will rush to go back to the way life was. They can't wait, myself included, to go back to restaurants. To go to concerts. To go to football games. But I think the business side of that, uh, is gonna be much slower to come back and I don't think it'll come back uh, exactly the way it was. I think as business owners know, we're, we're certainly always looking at the expen- the expense side of the income statement and when we look at travel and hospitality and what, I mean that's essentially gone to nearly zero in most our companies. Um. Do we really need to make that trip? Do we really need to go to that conference or can we do it via Zoom? Um. That trade show, do we really have to send 20 people or can we send five?

Kent Lorenz:
And I, so I, I-I think that you know, business, so what's all tied to that? Business travel, hos- you know hotel rooms, food and beverage, all... so I think the recovery's gonna look very different, uh, in 21 22 than it did in 19, uh, in terms of that side of the, the business. Um. And I think that's good. I-I think, again, adopting technology to make our business more efficient is a, t-t-that's a win-win scenario. So I, I, I, I was glad to see the optimism and I do have to go back to Chris's point about forecasting with accuracy. I came up through sales, my sa-, my forecasts were always perfect, just [crosstalk 00:21:53].

Nancy Johnshoy:
(laughs)

Kevin Kane:
(laughs)

Chris Adee:
For sure. (laughs)

Mark Meloy:
(laughs) Is that so, and maybe we just had a bunch of sales people that completed the survey.

Kent Lorenz:
That's right, its uh, you know if you're looking at your business leadership, lot of them came up through either sales or accounting, so you...

Mark Meloy:
All right.

Kent Lorenz:
...you can decide.

Mark Meloy:
Well I think, yeah. Your points are good ones a-and we've gotten into that discussion um, in some other presentations like this in terms of that, you know, that part of the barbell and kind of the long way out cause I do think some of the effects of this are, are really life style changes that are inevitably gonna occur. I mean, I've made the comment too, of just, all of a sudden when someone doesn't have to drive into the office every day and it doesn't matter if it's 15 minutes, 30 minutes, an hour and 30 minutes. All of a sudden they all realize, I just got an hour back, I just got three hours back, you know, whatever kind of thing, by not having to be in my car or mass transit or what have you. Um, a-a-and that creates some sense of, of work life balance. Some sense of a different efficiency, which is propagated by the fact that, hey, people are just more willing to do what we're doing here today and that's be on a video conference as opposed to a phone call or e-mails or what have you kind of thing, so.

Chris Adee:
I'd like to actually add a comment to that if I could Mark cause I've been on a couple of uh, uh, really good networking events in the, in the most recent couple of weeks and I really feel that there's still um, I-I think it's gonna be a slow progression back but people are gonna wanna be back in person, in business, and maybe we wanna ramp up from five to 20 people at a trade show, but as you just think about how people grow in their careers and how important it is to be able to see the CEO in the office and walk down the hall and have a five minute conversation with the CEO to really understand what's going on with him and the business and where I might be in my own career progression. How do I contact that CEO and get a five minute Zoom call with him, so, I do feel that we're, we're gonna wanna be back in person, collaborating as teams, growing the business. I like the...
PART 3 OF 4 ENDS [00:24:04]

Chris Adee:
... operating as teams growing the business. I like the, uh, what I'm hearing about, um, people, you know, doing more with technology. Do we need to bring someone back to this marketplace, or can we hire them in a different marketplace to still help support us? But I do think long term, we're going to need to be back in person on a much more regular basis in order to really continue to drive our businesses forward.

Kevin Kane:
I- I agree, Chris, 100%. And, you know, when we talk about, uh, as we add some folks to our team, which we're doing, uh, the culture and the ability, I mean, that- that's a piece that's much harder to convey and develop if you're working remote all the time. So I- I think that- that build off of what you're describing. Absolutely.

Chris Adee:
Yeah.

Mark Meloy:
Yeah, I- I- I think your comments are right on point, Chris. And what we've, as Kevin mentioned, we've talked about that internally. I think that- I think the employees who suffer the most by a- a separated workforce, uh, notwithstanding the ability to "meet and talk" via Zoom and Teams and that kind of thing, is the- is- is kind of what I'll call the tribal knowledge that- that is transferred by the fact that you're side by side, or in the hallway, or office to office, it's just- there- there's just a consumption there that many of us don't even realize what's going on, uh, when- what- when it's happening, kind of thing. So-

Chris Adee:
Yeah, I think we can do it, we're managing, right? We're all working through the Zoom and the technology, and we're doing the-

Mark Meloy:
Sure.

Chris Adee:
... best we can. But I think long term, and- and I don't, you know, it's not going to be June of 2021 probably, but maybe June of 2022, we really got to think about how we get that blend of bringing everybody back together and- and what that looks like. Maybe we need to save a few days of that hour commute, but three days a week being back in person-

Kevin Kane:
Yeah.

Chris Adee:
... is going to be really important to us-

Kevin Kane:
And to-

Mark Meloy:
Yep.

Chris Adee:
... in moving forward. So...

Mark Meloy:
Exactly. One last question for the group, is there anything not in the results that you expected to see and it wasn't there? Kent?

Kent Lorenz:
None of the results that I expected to see, I- I- I- no, not- not really. Um, it, you know, I think the assumption is that business is going to recover, and the vaccine will work, and all those good things. Um, we still have the best economy in the world, and from an investment perspective, and Nancy and I talk about this from time to time, you know, where else are you going to put your money? The United States, and it's, you know, the stock market here, is the best place to be globally, and I think will be for the next decade. So that bodes, I think, really well for us.

Kent Lorenz:
So, uh, you know, it was optimistic, but I- I- I'm- I'm personally more bullish about where I think the economy's going to go the- the next five years. Uh, we'll get through this, uh, there's no doubt about it. But, uh, I- I think the- the fields will be, uh, rich, uh, in terms of the product coming out of it.

Mark Meloy:
Good. Kevin?

Kevin Kane:
Uh, you know, I- there- there was- there was some stats, uh, from the survey that talked a little bit about wages and the percentages, uh, you know, not only last year but carrying forward, and again, the potential for some, uh, challenges, uh, uh, you know, acquiring skilled labor if that's what you needed. And where I'm going with that, I- there really, uh, y- y- not that it was a question necessarily, although it's somewhat more open ended, but no mention of, um, you know, pricing pressure or inflation, which maybe seems way, way out there at- at this point, given that the rate environment is what it has been for quite a while.

Kevin Kane:
But I guess that was a little bit of a surprise. The rest of the survey, to me, uh, really rang true, but no mention of that, uh, you know, as a concern.

Mark Meloy:
Yeah, that's an interesting comment, because who... I've seen that- I- that- that's come up in other conversations because I- I do... there are certain industries that are really feeling wage, uh, a lot of wage pressure. So, um, when whether that's, you know, supply and demand, inflation, C, all of the above, I'm not sure, but it's- it's certainly being felt in- in- in places.

Mark Meloy:
Chris? Thoughts?

Chris Adee:
Yeah, the, um, I had a couple thoughts, but the one that I would share, um, and maybe it's because it's not as signif-, um, is the- the concept of health care, what's going to happen with our health care. Um, and maybe it's the cost to the employer that I'm thinking about, because of who this survey was focused on. You know, I've heard a lot that our health care costs have been much lower this year because of everything that's going on, but what does that mean to health care next year? And how do people really feel that that's going to come back and impact them? Because once people can get back and really start focusing on their health care, are- are we going to have many more procedures and medical care next year that we didn't have this year, and what does that shift look like, and are we thinking about how that might impact us? So there was one area that I was a little surprised there wasn't a little bit more feedback on.

Mark Meloy:
Good. Well, we've run out of time, so I want to thank all of you for taking the time to share your insight and thoughts regarding the survey today. And to all of you, our audience, thanks for listening to this conversation, and we hope you found it applicable to your company as well as helpful for your own 2021 planning.

Mark Meloy:
I want to remind you that the full 2021 survey can be found at our website, and let us know if there are other topics or information you'd like to learn more about, and join us the next time on the First Business Bank Podcast.