Managing a Business During Inflationary Periods & Understanding Pricing Power

My Guest

My guest today is a particularly personal and a particularly special one for me: I have been fortunate to call Jim Sharpe a mentor and friend for over 10 years now, and I am thrilled that he agreed to join the podcast.

In this week’s episode, we discuss the realities of running a business during high inflation environments, including the risks and opportunities that may present themselves during such times. We also discuss how CEOs should think about pricing their products and services in response to inflationary pressures, and finally how they should deal with vendors who attempt to pass through price increases to them.

Jim has been at the Harvard Business School since 2009, holding positions as a Senior Lecturer in the MBA and Executive Education programs, an Entrepreneur in Residence, and now serves as a Visiting Executive. In 1987, Jim purchased Extrusion Technology, an aluminum extrusion fabricator that he ran as CEO for over 20 years. In 2008, Jim sold the company to a private equity firm, having grown the company from $4MM to $32MM in revenue throughout his ownership tenure. Jim is now an active investor in small and medium sized businesses, holding ownership positions in more than 50 entrepreneurial companies.

Jim graduated from Harvard Business School in 1976.

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Specific Questions and When They’re Asked

(3:36) Overview of Jim’s career and entrepreneurial journey
(6:27) Before you purchased the business that you ran for 20+ years, you had a deal fall apart during its very late stages. How did you manage this emotionally, and what did you learn?
(9:25) What was the macroeconomic situation like when you were managing your own company through a high inflation environment?
(13:52) What were your input costs were doing at the time? Did that have any impact on the price increases that you decided to pass through to your customers?
(15:56) What were some of your biggest mistakes specific to shepherding a company through a high inflation environment? What would you do differently if you could do it over again?
(18:55) How did you manage wage inflation within your employee base? What mistakes did you make and what did you learn from them?
(22:24) How should CEOs think about pricing their products or services in an inflationary environment? What role should input costs play, especially if they’re relatively stable?
(24:42) How does pricing power figure into this? Does your advice also apply to companies selling commodity-type products and services in highly competitive environments?
(27:04) What types of things did you look for within your customer base to decide what magnitude of price increase you ought to be passing through to them?
(33:28) What do a lot of CEOs get wrong about properly understanding their own unit costs?
(36:20) It’s been said that up to 40% of revenues can be unprofitable. How does that compare against your own experience?
(37:44) What differentiates price increases from the other levers that CEOs can pull to increase profitability and/or liquidity?
(40:23) Tactically speaking, how should CEOs actually communicate price increases to both customers and employees?
(45:32) What would say to a CEO who is fearful of losing customers as a result of a price increase?
(51:05) What are some lessons that you’ve learned as it relates to being the recipient of price increases from your vendors?
(58:22) Are there any parting thoughts that you want to leave our audience with?