GOOD TIMES MAKE YOU STUPID Commentary by John Harrison Newman Northwest Arkansas Business Journal - November 29, 1999 These are good times to be in business. The economy is strong and opportunity is everywhere. Your company is growing nicely. Sales and profits are setting records.Things couldn't be better. Or could they? Financial statements only tell you about yesterday. Growth can hide problems in employees' attitudes, in product quality, and in customer service. It is entirely possible for these factors to be declining while you are still recording record profits. From my turnaround work, I see repeating patterns in troubled companies. A common one looks like this: When the company is starting out, the owner lives very frugally, often taking no salary for the first few years, surviving on savings or a spouse's salary. Then, perhaps when the company is five or ten years old, they hit some good times. The owner buys an expensive car, joins the country club, buys a fancy house, etc. And why not? Things are going well. Being able to afford some nicer things was a reason for getting into business in the first place. But the good times do not last forever, and the owner's personal financial flexibility is a strong determinant of how well the company will weather the downturn. The troubled company pattern looks like this: the luxuries became necessities. When the tough times came, the owner went into denial. Convinced that good times were always just around the corner, he took no decrease in his pay or perks. It was not until he was on the edge of bankruptcy that he realized that he needed to change. When the owner tells his story, it usually sounds something like this: "Things were going great until ... the economy went south" or, "...until too many competitors screwed up the market," or, "...until I lost some key people," etc. I don't believe that story. Things LOOKED great until the bad thing happened, but the seeds of the trouble were actually sown during the good times. Good times made them stupid. Stupid enough to think that the downturn would never come. Lazy enough to think that they could afford to ignore an angry customer. Comfortable enough to spend too much money on personal items and too little on investing for the company's future. Confident enough to think that they were inherently superior to their competition. Stupid enough to think that they could afford to let their product quality slide a bit. I have seen one CEO go from a hard working, focused leader to one who spent money much too lavishly, had an affair with his secretary, and started coming in late and leaving early. I have seen another company borrow so that they could continue to pay the large bonuses they were accustomed to. I have seen boards that were once focused become highly dysfunctional. Think of your company like a growing child, or a bodybuilder. Ask yourself: Are you adding muscle or fat? Muscle looks like: - A vision that looks way beyond today's success. - Maintaining and building your profit margin percentage. - Investing in customer loyalty. I have a client who recently spent thousands of dollars putting on a picnic for over 400 customers. - Increasing your personal savings so you can easily afford to go without a salary for a few months or more. - Investing wisely in better equipment. - Investing in training and development of employees. - Building employee loyalty. - Maintaining strong lines of accountability, especially at the top. - Setting new aggressive goals. Fat looks like: - "We finally made it, now I can relax." - Hiring less than ideal employees, especially because they are friends or family. - Micro management by the board. - Sloppy, inefficient meetings. - Denial and procrastination. - Paying dividends and bonuses according to personal needs rather than performance. When you hit a small bump in the road, do you confront the problem head on and use it as ally to implement some needed change in your organization? Or instead, do you begin to practice your new position as CDO- Chief Denial Officer? Yes, your role is to be optimistic, but it is NOT to gloss over or deny the hurdles your company faces. The irony is that leading a company well during good times can be harder than managing a turnaround. It becomes more difficult to maintain your edge, and to keep your people focused. It starts with you. Now that your company is finally doing well, you may be ready for a break. Fine - take a week or maybe even a month's vacation. But if you need more than that, then sell your company or otherwise pass the baton on to someone yearning to run the next race. Your employees, your customers, and you deserve no less. Success, on this earth at least, means earning the right to climb the next mountain. It is not about spending ten years enjoying the view while getting giddy from the thin air.