“Reckless audacity came to be considered the courage of a loyal ally; prudent hesitation, specious cowardice.” – Thucydides, History of the Peloponnesian War (trans. Richard Crawley)
In most businesses, a shock like this year’s oil and fertiliser crisis doesn’t show up as news so much as paperwork. A freight quotation comes in noticeably higher than the last one, a supplier writes to say prices will rise from the first of next month, and a farming customer pushes an order back because fertiliser has gone up again. The first decisions under pressure tend to follow within days, and they’re usually the most visible decisions a business makes that year.
An oil shock reaches a business differently from a financial one. Almost everything a physical business sells has travelled by road, rail, sea or air at some point, and a surprising amount of what it buys connects back to energy or agriculture, so rising costs turn up on nearly every line of the cost base at once.
This time, many governments have less room to soften the blow, with high public debt and nervous bond markets limiting their options, while businesses are also facing pressure on their borrowing costs. Then come the ripples: customers with less to spend put purchases off, businesses facing dearer credit hold back on buying and expansion, and stock that cost more to bring in starts building up until it has to be discounted to move.
Customers resist the increases, and margins that looked perfectly comfortable a few months ago are suddenly in question. So the business acts. A discount is agreed for the biggest account, recruitment is frozen, a round of cost cutting begins, and before long the weekly management meeting has become a daily one.
Plenty is happening. Whether it’s happening in the right places is less obvious. I’ve watched that sequence play out in several countries and through more than one business downturn, and the measures tend to outlast the circumstances that prompted them. What strikes me each time is how alike they are from one business to the next, when the same shock reaches each of them by a different mix of routes.
When Everyone Wants to See Something Happen
None of that is visible in the first week, of course. What’s visible is the relief once the measures are announced. Managers have something to report, the owner has something to tell the bank, and the family at home can see that something is being done. Some of the savings will be genuine and necessary, and I wouldn’t suggest otherwise. But it’s worth noticing how attractive visible action becomes once the pressure builds, and how quickly decisions under pressure start to feel like the job itself rather than one part of it.
Look across a handful of businesses in the same difficult quarter and something odd appears. One is losing volume because its customers are buying less. Another is holding volume but watching its margins thin as rising costs outrun its prices. A third has had the wrong mix of customers for years, and the shock has simply made that harder to ignore. All three freeze recruitment and ask their managers for savings, and the management packs list much the same measures. In at least one of them, the list could have been lifted straight from the last business downturn.
The measures may not be wrong. But a response that would have been identical whatever the problem was tells you more than the speed with which it was made. Cost cutting is easy to show at the next meeting, whereas a hard look at the business’s strategic direction takes longer and is far harder to put in a report. The postponed appointment improves next month’s payroll forecast straight away, while its cost turns up months later, in other numbers, where nobody thinks to connect it to the decision.
It’s a close cousin of the reassurance of visible activity I’ve seen in teams rewriting their priority list while the real constraint stays exactly where it was. The most decisive-looking moves in a downturn are often the ones that decide nothing about where the business is going.
The Decisions That Really Can’t Wait
Speed isn’t the problem when the business is in genuine danger, and some decisions under pressure can’t wait a day. If next month’s wages depend on the bank renewing a facility, or one customer’s payment decides whether you can pay your suppliers, acting at once isn’t theatre. It’s the job, and hesitating would be negligent. Anyone who has run a business through a serious cash squeeze knows how little comfort there is in being told to think about the longer term when there isn’t enough money for the payroll, and most have spent at least one Friday afternoon on the phone to the bank.
Just before this article was published, a serious flaw in software that runs a large share of the world’s websites was made public, and within hours governments and large organisations were taking sites offline to patch them. I spent a morning patching my own systems for exactly that reason. It was dramatic and highly visible, but it wasn’t a performance, because each organisation was responding to a specific vulnerability in their own systems, and those without the exposure had no reason to take the same measures. That’s what genuine urgency tends to look like: specific to the business, and aimed squarely at the actual problem.
The less comfortable part comes afterwards. The finance director negotiates an extension to the facility, and the sales director keeps the major account with a concession nobody would have agreed to six months earlier, then finds two other customers asking for the same terms. Both may have done exactly the right thing, and the business is still trading because of them. But the facility has been extended for a business that may still need more working capital than its margins can support, and the concession may have made a marginal account less profitable still.
What it doesn’t tell you is whether the strategic direction still holds. Getting through an emergency and answering the strategic question are different accomplishments, and the relief of the first makes it remarkably easy to believe you’ve done the second.
The People Who Saved the Quarter
A few weeks later the pressure eases a little, and something has shifted in the leadership team. The sales director who rescued the account, or the finance director who bought the business some breathing space, now has more say in what happens next. That’s understandable, and often deserved. People who deliver when it matters earn trust, and they may well have seen something the rest of the team missed.
What’s less often noticed is where that trust goes next. The person who solved the immediate problem becomes the most persuasive voice on quite a different question: which markets to pursue, where next year’s investment should go, or whether the business model still works.
The sales director’s view counts for more at the planning session because of the account they kept, and the operations manager’s savings become the accepted starting point for next year’s budget rather than one input among several. Keeping a customer, renegotiating a facility or finding savings at short notice takes real skill, but it’s not the same skill as reading where a market is heading or deciding what the business should look like a few years from now.
In a small leadership team, centred on the owner and two or three senior people, this happens without anyone deciding it. Nobody sits down and agrees to give one person more say over the direction of the business. The team simply starts to follow whoever most recently showed they could get results, and the larger question gets answered, in effect, by whoever was best at the smaller one. They may well be right about the next decision too. But saving a quarter doesn’t necessarily tell you what will build a valuable business over the next five years.
The Decision That Still Hasn’t Been Made
By the end of the quarter the measures are working. Costs are down, cash is less strained, and the numbers for the bank look a good deal better. Yet a few months on, the weaknesses the shock exposed are still there, and some are deeper than before. The business still competes mainly on price, and its operating model still needs a volume it can no longer reach. The customers who bring in the most turnover were never the ones who made it valuable, and the concessions agreed in the first fortnight have left those accounts less profitable still, while teaching the market that the business will cut its price when pressed.
None of that was caused by the shock. It was simply easier to ignore before the shock arrived, and the busy weeks made it easier to keep ignoring.
There’s a larger question being crowded out as well. More expensive borrowing, stretched public finances and policy that may shift as governments respond all have consequences for a business’s strategic direction, for its customers’ ability to pay, and for what its own funding will cost. That’s something a board, or an owner acting as one, ought to be discussing now. It rarely gets the time, because the finance director is pricing next year’s facility renewal at this year’s rates while the leadership meeting is still discussing the hiring freeze.
Part of what crowds it out is the unequal weight of scrutiny. A proposal to cut spending in a hard quarter looks prudent and needs almost no defence; I’ve seen a recruitment freeze go through in a single sentence. It has always struck me that training and marketing are usually the first things to go, largely because nobody has to argue for cutting them.
Yet I’ve often found that a slower quarter can be a good opportunity to develop people, particularly when competitors are pulling back. Marketing can offer similar opportunities, with advertising rates sometimes easier to negotiate and less competition for customers’ attention. Neither is a reason to keep spending money the business genuinely cannot afford, but both are worth rather more consideration than they sometimes receive.
A proposal to keep funding something like that, or the development work, or the people you’ll need when demand returns, gets questioned line by line, often in the same meeting where the freeze went through. It has to be argued again for the bank, again for the team, and again, privately, for yourself. In the downturns I’ve led businesses through, I generally chose to keep training and marketing going, which meant making that argument more than once, often to an initially unconvinced audience. I can’t remember regretting it. Both decisions involve risk, but only one of them looks decisive.
Ron Ashkenas made a related observation in Harvard Business Review: change driven largely by outside pressure can give every appearance of a response while resolving very little. Most leadership writing warns against indecision, and rightly so, because decisive leadership in the useful sense, meaning timely and well-informed decisions, matters a great deal. But most experienced owners can also remember being extremely decisive about things that turned out to be peripheral, while the consequential decisions went unmade: which customers to serve, where the real advantage lies, and whether circumstances really justify a change in direction at all.
Looking Back at What Changed
A year on, the business has come through the worst of it, although things may still be some way from normal. The list of things done in those months is surprisingly long, and some of them clearly mattered: the cuts that preserved cash, the negotiation that bought time, the hard call that prevented something worse. Others are harder to justify. The appointment postponed to protect a month’s cash left the business short-handed when demand came back. The discounted account still takes time and margin for very little return, and the reorganisation took cost out without touching whatever prompted it.
It isn’t fair to judge those choices by how they turned out, because nobody knew at the time. Hindsight does show something, though. Some decisions under pressure were made to deal with a specific problem, and others were made because the pressure to be seen acting had become hard to bear. Looking back, it’s easier to see what keeps direction in place when the quarter turns, and how rarely it was the most visible thing on the list. Some of what was done was necessary for the business. Some of it was necessary for the people trying to hold the business together.
Most owners know perfectly well that those are different things. The trouble is that they feel identical at the time, and the next hard quarter never arrives with a label on it. When it does arrive, how sure are you that you’ll know which of your decisions are for the business, and which are for your nerves?
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