Date14 Apr 2020
AuthorAli Montag

Scrub Daddy CEO Aaron Krause shares his playbook during a crisis: ‘You have to lead by example’

April 14, 2020
8 min read
Ali Montag
Ali MontagHead of Community

When Aaron Krause answers my phone call, he’s prepared. He’s ready to go with answers to my questions. Krause, the CEO of Scrub Daddy and inventor of the company’s crown jewel — a smiling sponge that’s netted over $270 million in sales since 2012 — works hard to be prepared.

When the coronavirus first began to impact American life, that meant preparing to meet surging demand. A 20 percent uptick at Wal-Mart for Scrub Daddy’s cleaning supplies in early March was “just the tip of the iceberg,” Krause says. Today, orders at Kroger are up by nearly 300 percent.

As the severity of the crisis became clearer, it meant preparing for something more difficult: Keeping all 44 of his Folcroft, Pennsylvania based employees safe.

On Wednesday, March 11, Krause sent a company-wide email. Office staff were to pack up, take their laptops, and go home immediately. Warehouse staff were offered a 25 percent raise to keep coming into work, or the option to earn 75 percent of their pay and stay at home. Warehouse employees over 65 years old were told not to worry about it, they could stay home with full pay.

The company would transition to a four day, 10-hour workweek, closing down each Friday for deep cleaning. Each employee’s temperature would be taken as they entered the building. Krause ordered gloves, masks, goggles, and disinfectant. He even ordered a Port-A-Potty for the warehouse parking lot, giving the third-party truck drivers who freight Scrub Daddy sponges across the country a place to use the restroom without entering the building.

On Thursday, March 12, Scrub Daddy opened its doors — ready to fulfill orders. Krause was 24 hours ahead of President Donald Trump’s first declaration of a national emergency.

In a crisis, taking swift action is one of the most important things a leader can do, Krause says.

“I make decisions rapidly and people know that I’m very decisive,” Krause says. “Once I get the information that I need, I just make the decision and I do it very quickly. That builds a real sense of trust.”

For CEOs, small business owners, and managers, the challenges presented today are unprecedented. I asked Krause to share his playbook on leading during a crisis, making decisions, motivating employees, and developing strategies. His answers have been lightly edited and condensed.

How has Scrub Daddy’s business outlook changed?

We have the absolute fortune of continuing to have cash flow. In a crisis like this, that’s the most important thing. You must continue to have cash on hand and have liquidity. Still, we made a bunch of moves right away.

We cut budgets. Instantly, we cut budgets for marketing, and advertising, and travel. I got with my CFO — we had just finished doing our budgets for the year — and I told him to pull it all back up, we’re changing all of it and we’re going to store cash.

We did some things that I’ve never done. We have a $2 million credit line that I’ve never drawn on. I just started wondering, what happens if there’s a run on the banks? I need that cash right now. We immediately called the bank, found out everything we needed to do to draw the line, and we pulled $1 million down the line.

I’ve set up the company right now such that we could probably make it for over a year in a pretty shutdown situation and not have to lose employees, and be able to come back strong when this is over.

How have increased sales impacted your strategy?

We’re just absolutely swamped, and trying to do it with a skeleton crew. None of us are happy, like, “Oh yeah, this is a great time.” It’s like, “Okay, we’re the unintended beneficiary of this particular buying frenzy right now.” People are clearing the shelves of everything because they’re panicking.

What that means is that during this time we’re very busy, and then as this starts to settle, and some normalcy comes back, there will be a plateau. Then we’re actually expecting a pretty steep drop off.

We’re doing the old squirrel with the nut. We’re taking this money and saving it for the rainy day that we know is coming.

How do you make plans for the future?

As a general rule, I’m looking at almost everything five years out for long-term strategy. Where are we going to be in five years? We’re probably going to be more international. If we’re going to be more international, we better look at those markets. We’re looking at Japan, we’re looking at China, we’re looking at different countries in Europe.

I might look five years out and think, “Huh, we might sell the company in five years.” Are we positioned properly to sell the company? Do our books look right if someone came in right now? If someone came in right now and said, “We want to do due diligence on you,” are we prepared for that? That’s real longterm stuff. And I think about that all the time.

Then, three years out I’m looking at contracts that are going to come up, and leases that are going to come due. In three years, if we’re on the same trajectory, are we going to outgrow our building? Maybe we need to start looking for a new building because that doesn’t happen in a year. What if we need to build the building?

And one year out is an absolute must. If you’re not thinking about what’s going to happen to you next year you’ll miss all of your major opportunities. Line reviews for large companies like Walmart, Target, and Kroger and the like are at least one year out, so you need to be thinking about new products and programs at least one year out.

So I think there are different horizons: one year, three years, and five years. All of those fit into different strategies for how you’re growing your business.

How do you build trust with employees at Scrub Daddy?

There’s a couple of ways. First, the people that I hired to work with me right off the bat were my closest friends. My best friend since I was 10 years old is our chief strategy officer. I have two employees that are very close friends of mine that I’ve been working with for almost 20 years. My brother in law is in the business. This whole company is a lot of friends and family. These are people I brought in because I trusted them, and they came to work because they trusted me.

The reason that they trusted me is because of the way that I operate. The way I treat my employees is always talking about the business in terms of “us.” Everything is for the good of the company. It’s not just about me and the accumulation of wealth. It’s about growing something that’s bigger than all of us, and that everybody is a participant in.

Every time there’s been a huge boost in the company, I’ve done bonuses. We’ve always done raises every year. And we do a lot of things to make people feel really included.

Every time we’re on TV, on another “Shark Tank” episode, I throw a really big party in the tens of thousands of dollars and the whole company is invited. Employees are always part of those experiences. Even the lowest person on the totem pole gets to go to these parties. I have a corporate holiday party every year, and we go to a bowling alley with music and a DJ. I talk to everybody from the line workers to the top executives and they all get a sense of who I am.

I’m also a very casual person. I wear jeans and a buttoned-down Scrub Daddy shirt and a baseball hat every day.

Another thing that builds a lot of trust is that at Scrub Daddy, your voice is heard. Whether or not I always [take up the suggestions] is a different story, but I never just dismiss you as stupid or your idea as a bad idea. I really want to hear it out. Why do you think that way? That just breeds a whole culture that’s really collaborative. It’s collegial and it’s fun.

People are honestly texting me all the time how sad they are not to be at work with the rest of the team. It’s really an interesting phenomenon. People really want to be here and they miss each other. They miss being able to go into the lunchroom and just hang out and talk to people.

What’s your process for making big decisions?

As competent as maybe I sound — and I do make decisions quickly — I also don’t think that I know everything. So I do a lot of research.

[In the case of coronavirus] I researched everything I could about the situation and then I called some of the other CEOs that I have tremendous respect for. One of them was our main supplier of the Scrub Daddy material. It’s a multibillion-dollar company. I’m very close with the CEO, I go out to dinner with him and his wife a couple of times a year. I called him up and I said, “Normally I don’t bother you about little things, but this is big. I want to know what you’re doing. I want to know, how are you handling it?”

He was so helpful. He gave me everything he was doing, and he even shared with me some internal communications he had with his staff, just as examples. He said, “If you’re going to put out a communication, make sure you cover these main points.”

Then I called my lawyers and I called my accountants. I wanted to hear everything from the lawyers. Are we legal to stay open? What’s an essential business? And then we looked it up.

We took the reasoning that the [attorneys] used to say yes, we were essential, and we printed out packets of that. We handed it out to every person that’s working here so that if they get stopped by any authority they can say, “No, I’m an essential worker. Here is all my documentation.” Then they’re not riding blindly into work with a chance of getting in trouble.

What’s the most important thing for leaders to do right now?

You have to lead by example. Every day I put my mask on, I put my gloves on, I go out, and I say hi to everyone. I keep six feet away, but I wave, and they know I’m here. I’m here just like they are.

Right now there’s so much uncertainty. You really need to make people feel calm and help them believe that this is going to end at some point.

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