By David Gewirtz
Many of you know that some years back I wrote a pretty well-received book called The Flexible Enterprise, which was all about how businesses can manage and thrive in a changing economy. Over the past week, I've gotten a bunch of letters from readers asking about how all the economic fuss we've been experiencing will affect their jobs, their businesses, and the world of tech.
I've talked to a lot of concerned and confused people. It doesn't seem to matter whether you're an employer or an employee, an American or someone outside of the U.S., the economic wackiness all across the world is making everyone a bit nuts.
"The way businesses smooth over the sine wave that is cash flow is by using credit."
I'm not going to be a Pollyanna and claim everything's hunky-dory. But I can share with you some background that can help you understand the situation better. I can also provide some coping strategies that will help you make it through this thing and come out solid on the other side.
I've seen so many blog posts and articles that basically claim the financial End Times are upon us, everything's going down the tubes, and there's no coming back.
I completely disagree.
No, I'm not just claiming the fundamentals of our economy are sound. Instead, I suggest you just look around. There are real, tangible assets the world over. I don't need to itemize them all, but there's a ton of real, physical items of value in the world. No matter how it's mortgaged, a house has intrinsic and real value. No matter who owns your loan, a factory that can turn out goods is a factory that can turn out goods.
Here in the United States, we have a tons and tons of real, tangible assets. These things all have value and, in a society where there are a lot of items of value, you have an economy. That's just how things work.
Understanding the bailout
Regardless of what you think about the causes of the subprime mortgage mess, or even whether you're pissed that Congress over-porked the bailout bill (Wooden arrows? C'mon!), the real issue concerning all of us was availability of credit and consumer and employer confidence.
Most businesses rely on credit, not because they're bums, but because business cycles require it. For example, your employer might get paid in 90 days for work you do today. You, on the other hand, don't want to wait three months for your paycheck. You want to get your paycheck Friday, and then every two weeks.
The way businesses smooth over the sine wave that is cash flow is by using credit. If credit were to have dried up, it'd be much harder for most businesses to buy inventory and make payroll.
And it's here that the so-called bailout bill wasn't a half bad idea. In theory, by buying up the underwater mortgage "paper" held by so many banks, the banks will get an infusion of cash and they can then make that money available in loans, so that, for example, your local supermarket can fill its shelves with food which you'll then buy over coming weeks.
The other element of the bill that may help was the increase in the FDIC guarantee from $100,000 per account to $250,000 per account. Now, while not many of us, personally, have $100,000 cash in our accounts, many businesses, especially small businesses, do.
That's not a lot of money for a company with 10 employees. And by insuring the larger amount, businesses and individuals will be less freaked out, they won't be as inclined to yank their cash out of banks, and the banks will once again have some money to loan out.
Of course, banks having money to loan doesn't explicitly mean that you're going to keep your job or that you're going to be able to afford your house or that your boss will be able to afford payroll this week. That's something none of us can predict, but we all stand a much better chance of it this week than we did last week, despite how the world markets might be reacting.
We might not be in as happy a world as one where there was a booming economy and where we can all collectively go back to watching the new season of Dexter, but the increased credit availability and better guarantees on deposits does provide some measure of hope.
Lessons from the past
Will it get worse? No one knows. Probably, at least, not right now. Probably not too much.
We've been down some bad economic roads before and we've learned some lessons. Japan had a similar economic hit in the early 1990s and instead of taking action, their government sort of let things run on their own. As a result, Japan's economy was hurting for almost a decade.
Back in the 1920s, Herbie Hoover really screwed up by leaving the economy to its own devices after the 1929 crash. FDR learned from Hoover's mistakes and concocted the New Deal. Since then, we've had any number of tipping points where elements of our economy mirrored the lead-up to the Great Depression, but the reason we've never really dropped into that level of pain is because we've learned a bit about what works and what doesn't.
In this case, love 'em or hate 'em, our congresscritters acted quickly. That was actually pretty important. I'll be honest with you: it bothers me greatly that this was another sky-is-falling-rush-to-vote situation, which cuts short reasoned analysis. It also bothers me that there are likely to be some jackasses out there making billions off the bailout when they should be locked up in jail. But once a President says the economy is failing, the longer you wait to give the impression things are turning around, the harder it is to turn things around.
The economy is, to a large extent, a mind game. The less people think they'll be making a good living, the less they're willing to spend. And the less they spend, the less money flows in the economy. It's a vicious spiral. Acting quickly helps to prevent the cycle from spiraling, and if the bailout's increased credit availability restores confidence, even a bit, then the economy has a chance of accelerating back to a stable state.
In this sort of situation, speed is good.
Tips for staying successful and sane
Psychologically, though, it's really important you don't freak out. Stay calm. Freaking out hurts, physically. It also hurts the people around you and it interferes with your ability to think. Ever watch a James Bond movie (or MacGyver)? When things got dicey, our favorite heroes stay calm and get resourceful, not crazy.
Stay calm and get resourceful.
There's a point in your mood where you have the choice of going full-goose bozo or simply letting it wash over you. There's a point between stimulus and response where you actually make an internal decision to freak out, to ride the emotion. Make the choice to stay off the ride.
Once you're calm and in a resourceful frame of mind, the next thing to do is think. Expect things to get better and start preparing yourself.
Start thinking about what you should be doing. If business is still churning away, do a better job and charge less. Ask your customers what they need from you and do your absolute best to get them what they need. But be careful about just offering discounts willy-nilly -- doing so could devalue your brand after the downturn is over.
If you're between jobs or things have slowed down too much, focus on building infrastructure. For an individual, that usually means training. Most of our readers are techies, so you folks should use this time to learn or improve your skills. Pick up a new programming language. Learn a new technology. There's so much free information available on the Web, including full academic course programs, there's no excuse for you to not continue your training during slow times.
Be smart about what you spend. This is a big thing. I'm not going to tell you to stop spending. In fact, a bad economy is often a great time to buy stuff cheap. But I'm going to suggest a practice I've often used during the leaner times and it's always worked: only buy what you plan to use soon.
It's that simple. Don't buy stuff you intend to warehouse, unless it's explicitly for investment purposes. If you like to knit, buy only the yarn for the projects you're doing now. If you like to collect things, only buy new items that totally float your boat. Don't fill out your collection now. With eBay and Amazon, stuff will always be there for you.
On the other hand, be sure to buy stuff you really need. Don't skimp on the medications you need to stay healthy. Take vitamins. Try to eat real food, food your grandmother would recognize (that rules out everything I ate between 1992 and 2001).
If you're a business person, keep marketing. I know that's going to sound self-serving from someone who makes part of his living selling advertising, but it's important. If people don't know you're out there, you won't sell stuff. And you need to sell stuff.
Be creative and look for good deals. Ask for discounts and measure your results. Explain your needs and your reality and work with your vendors to get deals that are fair for everyone. Stay calm and remember your vendors are probably as overwhelmed and challenged right now as you are.
Finally, be kind to other people. After the last few weeks, everyone's a bit on edge and some people may lash out. Just be nice. It'll help everything run more smoothly, it'll help you feel better about yourself, and it may help you get what you want more easily.
When it comes to the economy, we're all in this together, for real -- whether you live in the United States or somewhere over the pond. This is an ecosystem as much as it's an economy. The buying and selling we all do fuels everything around us. And it's that flow of money that keeps trucks on the road delivering produce, planes in the air delivering us to meetings and conferences, cars on the road taking little Jimmy to soccer practice, and you and me in our homes, sleeping soundly.
Hang in there, folks. We're a pretty resourceful people and it could have been a lot worse. I think we've dodged a bullet.
One warning, before I go, for the next boom time: if it looks too good to be true, it probably is.
P.S. While The Flexible Enterprise is out of print, I'm working on a nextgen version of the book to be called The New Flexible Enterprise, which should be out some time next spring.