Thanks for the props on Stall Points. You are spot-on with the relevant message from our book for managers in the current economy: bad times can create bad strategy. Price increases can cause longtime customers to trade down and then trade away, behavior that can harden into changed loyalty. Across-the-board salary freezes make your best talent vulnerable to poaching by signalling them that their best days with you might well be over. And a defensive crouch is a horrible posture for a leader in uncertain times, perpetuating those poor assumptions you cite.

Your readers can take a free test at our website called a “‘Red Flags’ Diagnostic” if they are interested in assessing their own company’s vulnerability to a growth stall. If it’s your policy, please feel free to point them to http://www.stallpoints.executiveboard.com.

Thanks,

Derek van Bever

Good to hear from you. Insightful comment as usual. Much like you, I’m no economist but you bring up a great point that this is fundamentally different.

We are one of those businesses who “stocks shelves and pays rent” with our credit. We have established credit and aren’t looking to drastically expand our credit lines any time soon, so I don’t think we’ll be impacted too much. We’ve always paid our bills on time and in turn we’ve had our limits slowly increased, so my guess is that that’ll continue for companies like us. Now, if you’re starting a company today and you don’t have good personal credit, you’ll probably have trouble.

The optimist in me thinks that it won’t get nearly as bad for the average person/business owner as is being speculated, but maybe I’m being unrealistic. The businesses and people who over-extended themselves will be the ones to suffer most, and to some extent that’s how it should be. While I don’t wish ill will on anyone, the market had to turn around at some point and there always will be repercussions for risky decisions.

But I did read one comment (can’t remember where) that got me thinking: This is not a 87 or the Tech bubble. This is fundamentally different situation.

They where incidences where stocks where overvalued. ‘The market’ realised it suddenly & stock prices dropped. That meant that a lot of people lost money. But that was really a paper loss. A lot of the companies trading where actually in the business of producing stock, not wealth so they went out of business. The owners & employees of those companies got hurt. But the ‘real’ economy kept going without too much hassle.

If you had a company that sold shoes online you may have been valued at 10X what it was worth. But if you weren’t running the business by selling stock (eg paying in options), the collapse changed nothing. You continued to pay rent, buy inventory & pay salaries out of sales revenues which went on same as always. Expenses – No change. Revenue – No change. Your balance sheets should have little or no sign of a stock market collapse. Any spending reduction or recession, your above logic applies.

Most businesses don’t pay rent from the stock market so rent keeps getting paid regardless of the stock market. This is a different sort of an issue. Businesses do pay rent & stock shelves from the credit market.

I can’t say I know how that filters down to the practical level. My econ1001 logic says that interest rates in The States need to spike. But I haven’t heard any predictions of that so I can’t say I think that’s what’s going to happen.