While the headlines alternate between doom and boom, most objective data tends to indicate that we’re in a contraction phase of the natural cycle of growth on this planet. Far from being a “problem”, it is a simple fact of life. In fact, it’s a fact of everything, not just life. Growth is not linear. It’s a sinusoidal curve whose frequency and amplitude may follow a general pattern of expansion over time, but contains regular dips within that larger overall trend towards higher values.
But the trend could be towards lower values as well, with successive phases of growth with progressively diminishing peaks. The point is, our popular press and topical conversation ignores the rightness and appropriateness of these cycles. We get ourselves all worked up about the contraction phases. If we had just recognized these truths, and planned for them, we’d be already planning ahead for the next upward cycle.
In fact, many people have done just that. The folks who saw this economic slowdown coming were quietly putting cash aside in order to be able to pay down debt if necessary, buy bargains as prices fell and fund operating expenses should revenues fail to match fixed costs. Many American businesses have smartly accumulated cash reserves. Currently, on average, America’s companies have more than enough liquidity today to completely pay off their collective debt. That’s brilliant. And if they don’t need to use the cash for retiring debt or covering fixed costs, they’ll be in a buying mood at the bottom of the down cycle. Example metrics of when we are actually at that lowest point in the trough is when we start to see M&A activity increase, capital equipment purchases regain ground, undeveloped land prices start to escalate a bit and futures contracts betting on upticks instead of shorting.
There’s another kind of bargain to be had during these harder times. It’s a “character dividend”. Most experienced business leaders, those who have been in the game for twenty years or more, will tell you that it’s easy to lead in good times. The skills a leader really needs are best learned when times are difficult. If you can make a profit during a recession, you have learned the type of leadership that boom-time leaders haven’t had the chance to yet. Skills like scrutinizing all expenses and learning how to really pick the highest priority investments. Making business processes more efficient with the least impact possible on quality and delivery. Adding employees who really fit, and only when hiring can’t be avoided. And learning how to build a cohesive team when styles, talents and opinions vary widely.
I know three business partners who conceived a brilliant service business for the health industry a few years ago, and have successfully created a rapidly growing company that is very profitable. It will do fine during good times or bad, because of the nature of its industry, and its disruptively innovative approach to its business. The partners are in their mid-thirties, relatively inexperienced and very, very smart. They have been experiencing great financial success personally, for the first time in their lives. They are also experiencing great interpersonal turmoil, to the point that when they described to me the phenomenal results they have achieved in the last year, their faces looked like they had just received the worst possible results from tumor biopsies.
“You all are working under a tremendous handicap”, I explained to them. “You suffer from a condition that more and more companies today will not have to face.”
“What is it?” they asked, nearly in unison.
“You have not experienced a downturn in your business that required coherent, Herculean effort to save the company”, I explained. “You don’t think you need each other enough to keep you from fighting about who’s right.”
They looked at me blankly, but I think the point sank in. I hope it did, anyway. They have fairly slim odds of succeeding as a team if they continue to think things would be great, if only the other guy would simply change his fundamental personality. And I mean “succeeding” in the broadest terms, i.e., financial success coupled with a higher qualitative experience of life while working. More money is often necessary for life to improve, up to a point. After that, more money by itself is insufficient. Then you have to have strong relationships with people who care about you, and who you care about, more than you care about being in control, being agreed with or being left alone.
So to gain the “character dividend” that could eliminate their antagonisms, these partners will have to experience tough times. Ironically, their continued dysfunctional interactions will increase the chances that they actually do experience a serious business contraction like the rest of us.
Just what the doctor ordered.