OCTOBER 2007           

EXPANSION OR RECESSION: AVOIDING A SELF-FULFILLING PROPHECY

By Tony Mulkern

             A friend and business owner asked me recently, “Do you think we are going to talk ourselves into a recession?”  His question implied two assumptions.  The first is that the economy is fundamentally strong.  The second is the power of the self-fulfilling prophecy:  Bad things can happen precisely because we believe they will.

              Kei Matsuda, chief economist at Union Bank of California, confirmed the first assumption in a presentation at the CEO Conference sponsored by The Los Angeles Business Journal in downtown Los Angeles Oct. 3.  After examining the data in detail, Matsuda concluded that the sub-prime mortgage problems are very unlikely to substantially slow an overall very strong economy.  The vast majority of economists are in agreement, according to reports in the Wall Street Journal.

              But the power of negative thinking should not be under-rated.  Pessimism makes the headlines, and after all, the chances of a recession are never zero. Certain sectors related to mortgage origination and housing have taken some heavy hits.  Political realities can feed a sense of economic gloom that is not based in objective reality. The President is unpopular, Congress even more so.  The war in Iraq drags on, and other dangers abound.  Oil goes up, the dollar goes down.  The political logjam of secure borders vs. the need for foreign labor shows no sign of breaking up. 

              We could go on, but the point is that all of this affects not only the broader economic scene but also the day-to-day outlook of every business in America.  As they say, it is not news when tens of thousands of airliners take off and land safely every day—only when one crashes.

              It is when your company, community, or the nation seem to be in a “funk” that the greatest demands are made upon our leadership skills as business leaders to maintain forward momentum. In such circumstances, what can you do to contribute to a sense of realistic optimism and to overcoming irrational fears?

• Reaffirm and Recommunicate Your Vision.  Reexamine, update, and speak the vision you have for your organization.  It is impossible to energize yourself and others to make the most of opportunities and to rise above adversities without a clear vision. What we mistake for a slowdown is sometimes nothing more than a need to take stock after a long expansion and make sure our activities are still on track toward our common purpose.
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• Determine to Make Needed Changes.  Taking stock and deepening the vision almost always make us aware of the need for changes, often uncomfortable ones.  This might mean pursuing new customers, markets, product offerings, or re-doubling our marketing and sales efforts.  It may also mean shedding some cherished practices, policies, or even personnel that have become obstacles to the vision.  Tie all of this to strengthening the company and future goal accomplishment.
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• Welcome New Ideas and Suggestions.  The Chinese character for “crisis” and “opportunity” is the same.  Whether the crisis is objectively real or based in irrational fears, it presents us with a chance to more forward in unforeseen ways.  The oil crisis of the 1970s was the opportunity for Japanese auto manufacturers to enter the U.S. market, which they now virtually dominate. The “crisis” over artificial fertilizers and insecticides created opportunities for “organic” grocers such as Whole Foods, now a major, publicly traded grocery chain. Tap your team’s creativity to discover opportunities that may be yours for the taking.
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• Copy Your Non-Competitors.  Entrepreneurial firms striving for the “big time” naturally look to the major players in the field for models of success.  This is sometimes called “the same old same old.”  Often the best competitive ideas come from outside one’s industry.  Amazon is wildly successful at selling books precisely because it did not imitate traditional book stores but catalogue order houses.  Starbucks is a world-wide phenomenon because it decided not to treat coffee as a cheap, mediocre side commodity served in restaurants with endless free refills.  Its restaurants are really “taverns” for coffee and tea.  Wal-Mart and Costco made no effort to build retail “palaces” with the expensive decors and lavish perks of traditional department stores.  They built warehouses for consumers.  What business models from outside your industry can you adapt?
• Make Your Company a “Best Place to Work” Only for the “Best Employees.”  Many formulas are offered in the business press about how to become an employer of choice in a tight labor market.  What matters for you are two things: 1) what you can afford and 2) what your best employees want.  You do not want to become an employer of choice for those who prefer comfortable mediocrity.  Nor can you assume that preferences at another industry or company are transferable to your employees.  Ask them—but listen most to those who represent your “stars”—the kind you most want to retain and attract.  You might be surprised to find that it will not cost you much—except for the discomfort of giving up outmoded management practices and policies.  Countrywide is a leader in the mortgage industry—and likely to remain so in spite of current sub-prime difficulties—in part because it highly rewards top performers and refuses to coddle the rest.
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              Kei Matsuda, the Union Bank economist, compared CEOs to captains of ships who must constantly monitor the economic “weather” that lies ahead.  In our ever-lengthening presidential campaigns, it is ever more challenging to separate self-serving rhetoric from the clear-headed, even-handed analysis in the news.  As captains of our corporate “ships,” it is especially critical during political seasons to keep our crews informed of the “weather” as well, so that they do not succumb to the pessimism and ill-founded fears that can run a ship aground.

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Copyright, Mulkern Associates, 2007