{"id":3436,"date":"2016-04-04T15:33:32","date_gmt":"2016-04-04T22:33:32","guid":{"rendered":"https:\/\/masonmyers.com\/?p=3436"},"modified":"2016-04-05T09:16:25","modified_gmt":"2016-04-05T16:16:25","slug":"business-cycle-also-rises-hard-earned-wisdom-of-business-cycles","status":"publish","type":"post","link":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/","title":{"rendered":"The Business Cycle Also Rises &#8211; Hard-Earned Wisdom of Business Cycles"},"content":{"rendered":"<p><a href=\"https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle.jpg\" rel=\"attachment wp-att-3438\"><img decoding=\"async\" loading=\"lazy\" class=\"wp-image-3438 size-full alignleft\" src=\"https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle.jpg\" alt=\"business cycle\" width=\"402\" height=\"219\" srcset=\"https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle.jpg 402w, https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle-300x163.jpg 300w, https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle-150x82.jpg 150w\" sizes=\"(max-width: 402px) 100vw, 402px\" \/><\/a>A business cycle increase the degree of difficulty in managing a business. \u00a0Watching (and experiencing) some unconnected sectors undergoing big cycles right now has me thinking about cycles. \u00a0Here are some big ones currently: a) Silicon Valley start-up valuations declining after a 7-8 year boom, b) oil prices bouncing around a 20-year bottom, c) interest rates nearing the end (one of these years) of a 30-40 year decline and therefore super high prices for bonds, d) private post-secondary education in the US hitting a 15-20 year low spot after boom times after the financial crisis, e) beef prices as seen through the Stockman Grass Farmer newspaper, f) commodity price declines and therefore subsequent declines in farm land prices and farm capital equipment makers (John Deere), g) big, processed food manufacturers starting to have declining volume after having growing volume since World War II, and h) stock market bouncing around a 7-8 year high. \u00a0 I am sure there are many more; these just came to mind quickly.<\/p>\n<h3>Business Cycle Lessons Learned<\/h3>\n<p>Business cycles are a fact of business life. \u00a0Ok, how do you manage through the cycles? \u00a0Here is some wisdom I stole from Warren Buffett and Allan Nation of the Stockman Grass Farmer (one of my favorite observers of business). And I am sure they have borrowed from others:<\/p>\n<ul>\n<li><strong>Build a balance sheet to withstand the slow times.<\/strong> \u00a0So logical, yet so difficult to do. \u00a0Warren Buffett says that if you have a highly variable income, he suggests saving 40% of annual profits in cash and liquid investments. \u00a0Debt can often create\u00a0big problems for cyclical businesses particularly because it is easy to load up on debt in good times (see the comments on lenders below).<\/li>\n<li><strong>Keep your wits about you &#8212; do everything you need to do but also do not over react.<\/strong> \u00a0You are never as smart as it seems at the top of a cycle and never as dumb as it seems (mostly!) at the bottom of a cycle. \u00a0Keep your wits about you and find the right balance between changing the things you must and not over-reacting. \u00a0Most importantly, do not think you are a genius at the top of the cycle when you can\u00a0be a little cautious.<\/li>\n<li><strong>The top of the cycle is not normal.<\/strong> \u00a0We always remember the high points; but we need to remember that a high point is not normal. \u00a0We cannot build our businesses for the best of times, we need to build them to work in all times.<\/li>\n<li><strong>Keep fixed expenses low<\/strong>. \u00a0There is no better protection than to be maniacal about keeping fixed costs low. \u00a0This is important protection against difficult times, because it is often just too difficult, too slow and too disruptive to change fixed costs when a company is in trouble. \u00a0In recent years, I helped a company get out of a bad lease that was 5x bigger and more expensive than what they needed. \u00a0We got lucky to get out of it, but no one wants to rely on luck for success.<\/li>\n<li><strong>Keep headcount as low as you can, and avoid large swings in headcount<\/strong>. \u00a0At one Berkshire Hathaway annual meeting, Warren Buffett put up a chart of the headcount in the Berkshire Hathaway insurance operations compared to the premium volume written by year. \u00a0There was huge swings in premium volume as Berkshire wrote a lot of volume when premium prices were high and wrote very little when premium prices were low (very difficult to execute, by the way). \u00a0At the same time, the insurance personnel headcount did not fluctuate much. \u00a0He explained that he wanted to keep the headcount low as a general rule and also help give those insurance people confidence that they can turn down insurance deals when pricing is low, and not just write volume to stay busy and keep their jobs. \u00a0Plus, it is just too painful to make big changes in headcount in a down cycle if we let headcounts get too big in good times. \u00a0This is also very difficult to execute when employees are screaming for help in busy times &#8212; which means that a constant effort to find more efficient methods and keep headcount low is important.<\/li>\n<li><strong>Lenders lend money based on your industry, not your specific business.<\/strong> \u00a0Bankers tend to lend money at the height of the cycle and get antsy at the bottom of the cycle, exacerbating things. \u00a0I had this happen to our private post-secondary school business. \u00a0As Nation writes, &#8220;Your lenders probably know a lot less about your industry than you do and he judges the safety of your loan by seeing how other customers in your industry are doing. \u00a0If one of those customers gets into trouble, everyone in that industry is in trouble, because he will slam the lending window shut.&#8221;<\/li>\n<li><strong>Watch leading indicators (your customers and your customers&#8217; customers and other players in your eco-system)<\/strong>. \u00a0Here is what Nation writes about the cattle business: &#8220;What is confusing, particularly to cow-calf producers, is that there normally is a considerable lag when it appears that your buyer will continue to pay you high prices even though his sales price is falling. \u00a0So, we tend to do nothing and continue on as if we were going to miss the financial bloodbath affecting everyone else. \u00a0But, we never do.&#8221; \u00a0In private post-secondary education, it is obvious on a macro scale that the government will have tighter and tighter budgets into the future and that the traditional (public) institutions were likely to fight back against the rising market share of private institutions to protect the flow of financial aid money.<\/li>\n<li><strong>It is helpful to have &#8220;two games&#8221;, not just one game in a cyclical market<\/strong>. \u00a0As Nation wrote, &#8220;The only way to take (inventory) profits out of a cyclical business was to sell out and go do something else until the market has bottomed out and then buy back in. \u00a0This is why my Dad always said you had to have two games going in order to play one well. \u00a0There are times when retreat is the best strategy. \u00a0While this strategy is obvious in hindsight, it is almost impossible for most of us to do. \u00a0Another problem with this strategy is: what do we do while we are waiting for the market to bottom? \u00a0I have not seen many people who can sit on a pile of cash for years without doing something stupid with it. \u00a0You must have something that can keep you occupied and that runs on a different price cycle.&#8221;<\/li>\n<li><strong>Regulators are fighting the last war, and therefore can exacerbate cycles<\/strong>. \u00a0In banking, lenders seem to continue to be reacting to the financial crisis and still are not lending to small businesses because of the increased regulatory cost of every loan and the regulators somehow prefer large company loans. \u00a0In private post-secondary education, regulators saw the booming enrollments of 2009-2012 with very high profit margins for the public companies, and decided (maybe rightly in some cases) to do something about it. \u00a0Their actions made the private post-secondary decline deeper and even more difficult than it otherwise would have been. \u00a0In California, over half of the private schools have gone out of business in the last four years.<\/li>\n<li><strong>Your customer&#8217;s health is what counts.<\/strong> \u00a0From Nation: &#8220;What really counts in all forms of business is, &#8216;How is your customer doing?&#8217; If he is doing well, you will too. \u00a0If he isn&#8217;t, you will eventually feel his pain.&#8221;<\/li>\n<\/ul>\n<h4>Related Posts and Content:<\/h4>\n<ul>\n<li><a href=\"https:\/\/masonmyers.com\/art-of-balance-key-business-management-success\/\">Art of Balance &#8212; Key to Business &amp; Management Success<\/a><\/li>\n<li><a href=\"http:\/\/www.slideshare.net\/eldon\/sequoia-capital-on-startups-and-the-economic-downturn-presentation\" target=\"_blank\">RIP Good Times &#8212; Sequoia Capital advice to their companies in 2009<\/a><\/li>\n<li><a href=\"https:\/\/masonmyers.com\/mirage-and-false-hope-of-exit-strategy\/\">Mirage and False Hope of an &#8220;Exit Strategy&#8221;<\/a><\/li>\n<\/ul>\n<div class=\"postmeta_wrapper\">\n<div class=\"postmeta classifications small\"><span class=\"post_categories\">Categories:<a href=\"https:\/\/masonmyers.com\/category\/financing-funding\/\" rel=\"category tag\">Business Financing &amp; Funding<\/a>, <a href=\"https:\/\/masonmyers.com\/category\/execution\/business-management\/\" rel=\"category tag\">Business Management<\/a>, <a href=\"https:\/\/masonmyers.com\/category\/competitive-advantage-and-differentiation\/\" rel=\"category tag\">Competitive Advantage &amp; Differentiation<\/a>, <a href=\"https:\/\/masonmyers.com\/category\/execution\/\" rel=\"category tag\">Execution<\/a><\/span><br \/><span class=\"post_tags\">Tags:<a href=\"https:\/\/masonmyers.com\/tag\/business-cycle\/\" rel=\"tag\">Business cycle<\/a>, <a href=\"https:\/\/masonmyers.com\/tag\/debt\/\" rel=\"tag\">Debt<\/a>, <a href=\"https:\/\/masonmyers.com\/tag\/financial-strategy\/\" rel=\"tag\">Financial Strategy<\/a>, <a href=\"https:\/\/masonmyers.com\/tag\/investment-strategy\/\" rel=\"tag\">Investment Strategy<\/a><br \/><\/span><\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>A business cycle increase the degree of difficulty in managing a business. \u00a0Watching (and experiencing) some unconnected sectors undergoing big cycles right now has me thinking about cycles. \u00a0Here are some big ones currently: a) Silicon Valley start-up valuations declining after a 7-8 year boom,&hellip; <a class=\"more-link\" href=\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,190,5,19],"tags":[371,134,84,121],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog\" \/>\n<meta name=\"twitter:description\" content=\"A business cycle increase the degree of difficulty in managing a business. \u00a0Watching (and experiencing) some unconnected sectors undergoing big cycles right now has me thinking about cycles. \u00a0Here are some big ones currently: a) Silicon Valley start-up valuations declining after a 7-8 year boom,&hellip; Continue reading &rarr;\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@masonlmyers\" \/>\n<meta name=\"twitter:site\" content=\"@masonlmyers\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mason Myers\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/\",\"url\":\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/\",\"name\":\"The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog\",\"isPartOf\":{\"@id\":\"https:\/\/masonmyers.com\/#website\"},\"datePublished\":\"2016-04-04T22:33:32+00:00\",\"dateModified\":\"2016-04-05T16:16:25+00:00\",\"author\":{\"@id\":\"https:\/\/masonmyers.com\/#\/schema\/person\/efbf4e28b9f46a9b2ae855d03197ab3f\"},\"breadcrumb\":{\"@id\":\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/masonmyers.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"The Business Cycle Also Rises &#8211; Hard-Earned Wisdom of Business Cycles\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/masonmyers.com\/#website\",\"url\":\"https:\/\/masonmyers.com\/\",\"name\":\"Mason Myers Blog\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/masonmyers.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/masonmyers.com\/#\/schema\/person\/efbf4e28b9f46a9b2ae855d03197ab3f\",\"name\":\"Mason Myers\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/masonmyers.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/87932f33f3b27a6574032d65b17644d1?s=96&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/87932f33f3b27a6574032d65b17644d1?s=96&r=g\",\"caption\":\"Mason Myers\"},\"url\":\"https:\/\/masonmyers.com\/author\/mason-myers\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/","twitter_card":"summary_large_image","twitter_title":"The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog","twitter_description":"A business cycle increase the degree of difficulty in managing a business. \u00a0Watching (and experiencing) some unconnected sectors undergoing big cycles right now has me thinking about cycles. \u00a0Here are some big ones currently: a) Silicon Valley start-up valuations declining after a 7-8 year boom,&hellip; Continue reading &rarr;","twitter_image":"https:\/\/masonmyers.com\/wp-content\/uploads\/2016\/04\/business-cycle.jpg","twitter_creator":"@masonlmyers","twitter_site":"@masonlmyers","twitter_misc":{"Written by":"Mason Myers","Est. reading time":"6 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/","url":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/","name":"The Business Cycle Also Rises - Hard-Earned Wisdom of Business Cycles - Mason Myers Blog","isPartOf":{"@id":"https:\/\/masonmyers.com\/#website"},"datePublished":"2016-04-04T22:33:32+00:00","dateModified":"2016-04-05T16:16:25+00:00","author":{"@id":"https:\/\/masonmyers.com\/#\/schema\/person\/efbf4e28b9f46a9b2ae855d03197ab3f"},"breadcrumb":{"@id":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/masonmyers.com\/business-cycle-also-rises-hard-earned-wisdom-of-business-cycles\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/masonmyers.com\/"},{"@type":"ListItem","position":2,"name":"The Business Cycle Also Rises &#8211; Hard-Earned Wisdom of Business Cycles"}]},{"@type":"WebSite","@id":"https:\/\/masonmyers.com\/#website","url":"https:\/\/masonmyers.com\/","name":"Mason Myers Blog","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/masonmyers.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/masonmyers.com\/#\/schema\/person\/efbf4e28b9f46a9b2ae855d03197ab3f","name":"Mason Myers","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/masonmyers.com\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/87932f33f3b27a6574032d65b17644d1?s=96&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/87932f33f3b27a6574032d65b17644d1?s=96&r=g","caption":"Mason Myers"},"url":"https:\/\/masonmyers.com\/author\/mason-myers\/"}]}},"_links":{"self":[{"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/posts\/3436"}],"collection":[{"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/comments?post=3436"}],"version-history":[{"count":11,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/posts\/3436\/revisions"}],"predecessor-version":[{"id":3454,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/posts\/3436\/revisions\/3454"}],"wp:attachment":[{"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/media?parent=3436"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/categories?post=3436"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/masonmyers.com\/wp-json\/wp\/v2\/tags?post=3436"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}