The NonsenseAtWork Newsletter February 2008

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February 2008

Avoid your own recession

As 2008 speeds up, it is time to remember the power of a self-fulfilling prophecy. A self-fulfilling prophecy happens when you hold a false belief concerning a future event which then comes true because you changed your behavior.

Here is one to watch: Many economists are predicting a recession. What should you do? Decide for yourself, unlike in this story from my business school days. There once was a food vendor who worked the sidewalk crowd on Wall Street through many a boom and bust. So successful was he that he put his son through business school. One day his son stopped by to warn him that a recession was coming. The proud father decided to listen to his educated son, and promptly went belly-up within the year.

A recession might be out there somewhere, but don’t automatically assume that it is yours. Look for the nonsense in prophecies before you change your behavior.

How should you plan your life or your business based on what you hear about the future? Plan in terms of predetermined events, key uncertainties and surprise-free outcomes.

Consider this example: For people who live on the banks of rivers, any cloudburst over the Blue Ridge mountains is a predetermined event. They know that the rivers will flood. That’s a surprise-free outcome. The key uncertainty is how deep.

Here’s how it works. You cannot act according to key uncertainties because you don’t have enough information. But you can act according to surprise-free outcomes. And you can monitor key uncertainties. In other words, get ready for a flood and keep your eye on the level.

Plan this way and you will be prepared for a recession without putting yourself or your business into its own recession.

Let’s be even more practical. During a recession, what is the best measure you can use to check your ongoing financial health? A measure that applies to organizations and to individuals?

Cash flow.

Come to think of it, this is also the best measure during good times. Cash flow is the simplest and the sanest measure of financial health. Simply answer this question: Does your organization bring in more money than it pays out, yes or no? Do you earn more than you spend, yes or no?

The problem, of course, is that cash flow is easy to measure but difficult to manage. Nevertheless, it is worth the effort, because there is an unexpected bonus for you if you succeed. If you decrease the cash that goes out and increase the cash that comes in, then you will decrease your stress and increase your energy.

Improve cash flow and you improve health, whether yours or your organizations.

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