On Saturday morning, I paid my five dollars and took a shower at an RV park outside of Zion National Park. The water was warm but it trickled out and the facility had a lot less charm than a typical high school locker room. On Sunday morning, I took a shower in the much more luxurious setting of the Four Seasons Hotel in Westlake Village, California. Standing in a marble shower with gallons of hot water and high end amenities was definitely more pleasant. A perfect metaphor for running a small business. Some days you’re just getting by and other days your on top of the world.
If there’s one thing that I have learned in more than two decades as a CEO in a wide range of companies big and small, it’s that everything changes. When it seems that you are on a roll and everything is coming up roses, the odds are good that there’s a nasty surprise just around the corner. On the other hand, the reverse is true. All bad times also end–at least eventually.
So what does that mean if you’re running a company? I’d suggest that you need to put curbs on your strategy in both direction. When things are going great, there’s a natural tendency to extend and invest. You want to hire people, add capital equipment and take on more space. It’s easy to run models based on recent quarters than project over the moon growth.Sometimes you need to go into debt to fund the growth.
This strategy works well on the way up (like buying California real estate with a zero-down loan) but is really tough on the way down. The banks expect to get paid even when your revenues are getting squeezed. I’d rather be more conservative with the expenses, lose a little bit of the upside, but not run the risk of catastrophic failure.In good times, it makes sense to build up your war chest.
There is also significant risk from over-conservatism when times are bad. The contra of irrational exuberance is irrational conservatism. When times are bad it’s easy to justify cuts to marketing, product development, customer service and even sales. If you saved some money on the ramp up, now is the time to spend it. It’s actually easier to grow market share and lock in customers when times are tough than when everything is booming.
Highs and lows. An RV park and a Four Seasons. It’s the CEO’s job to accept both and keep the business moving forward.