Alan Greenspan, former Federal Reserve Chairman, coined the phrase “Irrational Exuberance” back in 1996. Although he was known to offer ambiguous and cryptic messages in very dry speeches, investors and politicians were known to cling to his every word. This phrase has been interpreted as posing the question, “how do you know when a good thing is too good?”
With the recent closings and forced restructurings of large glass and glazing subcontractors, I am almost certain that their owners, employees, customers, and creditors wish someone had examined the concept of “Irrational Exuberance” about three or four years ago when the largest concern for most subcontractors was, could you man the jobs that appeared to be endless in number?
Companies generally do not get into trouble in bad times; they get into trouble by overspending, making foolish investments, etc. in great times. The trouble does not appear until the bad times come when too much overhead and the absence of a competitive advantage or a valuable product or service makes it impossible to “meet your nut” each month.
These recent closings should underscore to all of us who operate businesses to never take the good times for granted. Wise owners should be willing to take a little less during the good times and reinvest some of the profits into new products and promotion that could differentiate our companies when the tough times come along. And remember, the tough times will always come along eventually.
It is very difficult to do the research and development for new products and services when you are wondering how you are going to make payroll next month.
Bottom line: Things are seldom as bad as they look or as good as they look. Wise owners and managers know the need to navigate by looking at the horizon on a long voyage, not just at the bow of their ship.
Tool of the Week, Day, etc. – I found an interesting article on the topic of “Combating Short-Termism and Managing for the Long Run at: http://www.managementsite.com/489/Combating-Short-Termism-and-Managing-for-the-Long-Run.aspx.
That is it for today. Post your comments on the Blog and let us stimulate the discussion.
Ted S. Miller