Are you managing based on experience or wisdom? Experience is defined as learning from one’s own mistakes. Wisdom is defined as learning from others’ mistakes. Wisdom is defined as learning from others’ mistakes. Experience is always expensive. Wisdom is free.
During my career at Evans Glass Company, I have experienced five major financial crises: 20 percent interest rates during the Carter administration, the late 1980s recession as a result of the 1986 tax code revision, the Dot.com bust, 9-11 and the recent mortgage crisis. Based upon my experience, which has been very expensive, I have learned that our behavior is very predictable before, during and after each crisis.
Before
Consumer spending on luxuries/non-necessities accelerates because society begins believing that the current boom times are normal.
In our industry, we begin to see the creation of many small glass shops. Glaziers think they see “the boss getting rich” and leave to start their own company. My father said this typically happens six to 12 months before the crisis begins.
During
Society begins loudly complaining that “gas prices are too high,” and our dependence upon “foreign oil” is out of control.
People begin worrying about other countries “owning” us and how our country will become a puppet of the foreign powers.
Parents begin fretting about “their kids’ future” and the legacy they will leave the “younger generation.”
Generally, people believe we will never see good times again.
Businesses panic and operate out of fear by slashing jobs, reducing inventory and taking projects at near cost “just to keep their people busy.”
It is easy to become a victim of short-term thinking with very little or no thought of the future. We function in survival mode.
After
We can’t believe we are emerging from the crisis, so we postpone growth decisions. We are afraid to invest in our business, even though it is the best time to do so and we will get the best return on our investment.
Revenues and profits do not parallel each other. Revenues grow first and faster than profits. Businesses are still using low margins to get work. Margins will be raised when demand begins exceeding supply. Increased profits will then follow.
Cash flow is constricted. Businesses must buy materials to execute the new work. These materials must be paid for before the business collects receivables, or payment to vendors must be delayed until collection. In the latter case, vendors begin demanding payment or they will cease supply. In a few months, the cash flow shortage will disappear.
New equipment purchases or the repair of existing equipment is required. For example, old trucks that were idled need repair, or new hires are necessary.
When we are in a crisis it is difficult to know our location. It is probable that we will forget our past experiences in similar situations. This is a recap of my experience. Will you make decisions based upon experience or wisdom?
