I love riding roller coasters. However, I highly recommend not taking your employees on a roller coaster ride. Small business owners can make important business decisions based on reactions instead of purposeful intellect.
Let’s face it, as humans, we’re all subject to emotional reactions.
Let’s do a little experiment. If you had invested $1M in the stock market and you open your most recent statement to see that your balance is now $874k. You go online and see this chart, what would be your next move?
You decide. You either think the stock market will rebound and you’ll recover your losses; Or, you think it’s crashing, and you’d better sell and cut your losses. Right?
This is what happens over the next few weeks. The market continues its sell off.
Again, you have a decision to make. If you had decided to sell with your previous decision, you may feel that you dodged a severe crash. If you held your stocks, your $1M is now $680k.
In the next few months, stocks rebound.
If you had sold at $874k or $680k, you’d have missed the rebound. Should you get back in; or wait to see what happens next? If you held your stocks when your portfolio was at $874k and $680k, you feel relieved and vindicated that you held on.
Again, you have a decision to make. Do you sell thinking that you were lucky and have recouped your losses? Do you hang on hoping for even greater gains? Maybe you’re filled with regret, because you suffered losses on the way down and missed out on recent gains.
This is a chart of the S&P500 from March of 2019 to January 2022.
The momentary crash in February and March of 2020 was triggered by the announcement of a COVID19 pandemic. Experienced investors panicked and sold stocks in February and March of 2020. At some point, investors regained faith in the market and started investing again in April 2020.
In this blog post, you may have known or looked ahead to see what the future held. However, in a business, when you are living in the present, such vision is not possible.
Fear of the Unknown
Your business issues are not as clear as a stock chart. However, they’re just as scary. What happens when a big deal falls through? How do you react when your best employee resigns? What feeling surfaces when investors reject you on a needed round of capital funding? How do you react when a COVID19 pandemic strikes?
All these events cause reactions that are like the reactions investors make when the stock market moves up or down.
What’s the Problem?
Why is reacting to bad news a problem if you’re a business owner? After all, aren’t we all human? What heartless person would be happy when their stock portfolio lost 40%?
When a business owner reacts to bad news with excessive emotion, it communicates two things: 1) that you're a poor planner and not in control; and 2) that you have no objective view of reality.
Let’s cover point #2 first. We're all used to the media spinning the news. One summer, we had more forest fires than usual in our state of Colorado. News reporters announced, “Colorado is on fire”. They followed that report up with closeup video footage of fires. If you didn’t live in Colorado, you’d have believed our state was one large forest fire. Our fire season that year was not much greater than normal; and most Coloradoans barely noticed the fires.
If you’re a CEO or business owner and you exaggerate trouble, you’ll amplify the stress in your people and yourself more than necessary. This exaggerated news causes more trouble than if you honestly pointed out the pros and cons of the situation.
Point #1 is that you aren’t planning. In the case of the stock market, professional investors rely on trading systems. There are different professional systems. Some traders rely on technical indicators. Other traders watch financial reports for their investments. Still others watch economic climate and federal reserve actions. These professionals do well with volatility in the stock market.
As a business owner it's important that you create contingency plans; and understand your big picture vision. Then create action plans that are triggered when events happen. If a big deal falls through, know what you'll do to control costs or backfill that deal with another deal. Create incentive plans to retain your best employees to prevent them from leaving. Line up several investors in case your first pick investors don’t come through with needed capital.
What can you do?
In business there are many activities that you can do to stop from being a “roller coaster business owner”.
Know Your Business Model: Your business needs a sales and marketing funnel that feeds the business. These sales turn into revenue. Revenue is reduced by direct cost, and then by expenses. The result of this subtraction is your net profit. If you have a problem with sales, the rest of your model will suffer. If you have a problem delivering what was sold, your profitability will suffer. Know what you will do with your business model to minimize the pain to you and your employees, in the event of a problem in any area of your business.
In my experience, each business has a different model. This means that your actions and results (cause and effect) will be different than a business owner in a different industry. Know your model so that you know what to tweak when problematic events occur.
Employees will Help if You Let Them: Business owners believe that the weight of their business is solely on their shoulders. They believe if they share bad news with employees, those employees won’t be able to handle the bad news. Don’t exaggerate but do educate. Downturns are a learning opportunity for your employees. Stress is caused by not knowing and not being in control. If your employees know about the problems of the business; and have a role to play in helping, they’ll feel less stress. You’ll also feel less stress because you’re not trying to hide bad news.
Be Proactive: Bad things happen in your business. That’s not skepticism on my part, it’s realism. An experienced stock trader understands that stock values go down and they go up. A professional trader never believes that stock prices will always go up. They don’t care about small down-turns; and have plans for large down-turns. In your business, it is important to plan for unexpected successes and unexpected failures. I suppose if you plan for them, they won’t be unexpected. Isn’t that the point?
Empathize with Others: Your people will react to negative events with negative emotion. Don’t judge them. Instead empathize with their emotion and then talk calmly about your plans to deal with your challenges. Don’t mimic their emotion. If you’re both an emotional mess, it won’t help your business.
Don’t React: If you were in a combat zone and bullets are flying overhead with explosions nearby; would you follow the guy who flinches each time a new sound emerges; or the guy that’s keeping his cool and acting regardless of the sounds? Leaders act… they do not react. This means that you consider your options and act in a deliberate way in accordance with a planned response. If you didn’t plan, you must remain calm while others are losing their mind. Otherwise, you’re not the leader that others will follow.
Learn from Mistakes: No one is perfect; and neither are you. When you make a mistake and take the wrong action, admit your mistake publicly. This admission is not a sign of weakness, it’s a sign of rational thought. The fact that you admit your mistakes means that you are aware and are changing course. If your action caused pain to others; and you don’t admit your mistakes and change direction, your followers will believe that there is more irrational pain to follow.
Humbly Celebrate Success: If you happen to be the lucky investor who timed a market just right, don’t gloat. If I’ve learned one thing in business it’s that, as skilled as you may be, wins and losses happen when you don’t deserve them. Give ample credit to your employees for their effort, regardless of wins or losses. Check your ego during wins; and keep your chin up in losses. These temporal events do not define you.
The experienced stock investor is investing for long-term gains and is unshaken by market corrections. In your business, keep your eyes on your vision; and be undeterred by the ups and downs you’re bound to experience. Businesses like the stock market can be a roller coaster ride. It’s important that you enjoy the ride as if each dip and rise was completely expected.
If you’d like to know more about how I coach my business owner clients, please visit my website at www.mmbizcoach.com.