Macro Versus Micro: A Business Life’s Lessons

Macro is from the Greek prefix “makros”, meaning large. Micro is from the Greek prefix “micro”, meaning small. In the context of this article it applies to how National/Global events (macroeconomics) can affect your local business (microeconomics).

For the small business owner, these lessons have been front and center since 2008 with the sub-prime mortgage bust and collapse of Lehman Brothers. Currently, the debt-ceiling debacle in July 2011, with the subsequent downgrade of the United States Debt and now, the dealings with Sovereign Debt issues in Europe and the Euro Zone. In short you can do everything right for your business, but sometimes events outside your control could seriously threaten or outright destroy your business and all that you have worked for to succeed.

My first foray into this economic tsunami was in the late 80’s, early 90’s. I was Senior Vice President and Senior Loan Officer at a Northern New Jersey Bank. This was the age of deregulation in banking with banks on full throttle for all types of loans. Construction loans for residential homes, condos, townhouses and also commercial properties such as office buildings, shopping centers and strip malls was the way banks got loans on their books and fee income to their bottom line. Banks also went into “Joint Venture” lending with builders and developers in a way to profit from the sale of the real estate on top of the loan income. Everyone saw the upside, but no one looked for the downside————-until it was too late. Sound Familiar?

Like other banks, our bank at that time wanted to do more Construction Loans and was very interested in forming Joint Ventures with builders. I on the other hand was extremely hesitant to move forward on this type of business for two reasons:

1.) When I saw that sub-contractors were becoming contractors; contractors were becoming builders; and builders were becoming developers, it seemed that anyone could make money in this market, and;

2.) I truly did not understand all the nuances to this type of lending and was uncomfortable putting a lot of loans on the books that I did not fully understand.

We did not do a lot of these loans because I didn’t fully feel comfortable with the source of repayment and the share amount of loan request we received from potential borrowers. A few years latter, when all these types of loans went sour because of more supply than demand (macroeconomics). Back in the early 90’s banks were failing left and right. Over 8,000 banks were closed from 1988-1995. Our bank was not one of them and during that time we benefited from the banking malaise by obtaining new customers from those failed banks and purchasing banks and assets from the government at incredible discounts to book.

One night during that time I was walking out of the bank and it hit me. There are over 200 employees at the bank and the decision we made in the past, and will make in the future affect each employee of the bank and ultimately their family. The simple weight of that thought stays with me today. Mind you, our bank survived and flourished, but like all the banks that failed, we were doing our jobs to the best of our ability, but outside events created a situation in banking that was the catalyst to the abyss.

So what does this have to do with your business? Those experiences have been life lessons that I employ today. In no particular order, they are:

READ AND CONTINUE TO KEEP UP WITH CURRENT EVENTS

Your business is not just about your specific industry, region or local issues. Over the last 20 years national/global events can and will affect your business. The sub-prime meltdown in 2008 and the regulation that occurred in banking now make it extremely difficult to obtain a business loan. Why? Because banks suffer from “herd mentality”. They rushed to make all types of loans, and when the market crashed, they “threw the baby out with the bathwater”. Although the belief was that it happen out of the blue, the reality was that by early 2008 and even years before, all the signs pointed to its tragic conclusion. Better understanding of those events by way of reading the papers, periodicals and keeping abreast of current trends forecasted those events long before the day of reckoning.

Additionally, keep up with technology. Yes its easy to say I’m too old for what happening today, or I don’t want to understand what that younger generation is doing or I can hire a person to do that. But it is important for you, not only to understand but participate in the process. Economic events are being communicated within nano-seconds with actions and reactions swift and violent. Your ability to react is now limited to your clock and not your calendar.

IF YOU’RE NOT SURE, DON’T DO IT!

Sounds simple? But greed is still one of the “Seven Deadly Sins”. No potential borrower that ever walked into our bank and presented their loan request and business plan said “I’m not sure this is going to work, but I thought I should borrow the money anyway and give it a try”. All came in convinced they would succeed and make in fortune, but just the law of averages will tell you that’s not true. If you are not sure, or “your gut” is telling you not to do it———–Don’t.

BE CONSERVATIVE

There are two ways to treat your business. Like a mistress or like a son/daughter.

If you treat your business like a mistress, you know you are doing something wrong, but you don’t care. You justify your decisions by desire, spending money you don’t have, and doing things you do not want other people to know. You are thinking short-term knowing you are risking everything for an immediate gain. Most of the time it ends badly affecting not only your life, but the lives of the people that work for your business.

If you treat your business like a son/daughter you nurture it over time, knowing before it can walk; it needs to crawl and so on. You create cash reserves for rainy days when times are good and manage for the long-term and its success. You invest your time wisely giving more than you are taking. Ultimately your plan for your business, like your relationship with your son/daughter, is that it will be taking care of you when it is time to retire.

So who are you?

EVERY THREAT IS AN OPPORTUNITY; EVERY OPPORTUNITY IS A THREAT

When a situation presents itself as a threat to you or your business how do you react? Of course your first reaction is displeasure and why did this happen to me. That’s being human. But before you hit the panic button, step back and reevaluate the threat. What can you do to diffuse it and turn it into an opportunity? I have seen this countless of times with upset customers or clients. Ninety-Nine percent of the time they want to be heard and treated fairly. They don’t want to hear excuses or “it’s the policy”, but to feel you understand their situation, apologize and solve their issue. In times like that I looked forward to work with those people, because I knew I would not only solve their problem, I would enviable sell them an additional service or product.

Same is true when presented with an opportunity. Step back and reevaluate the opportunity. How many times have you seen on the news or read in the paper about the person or business who thought it was a terrific opportunity and never thought it would turn out they way it did. More times than we can all remember.

Why? Because of greed. We see all the upside, but none of the downside. One of the hardest things to do as a person or businessman is to walk away. There are two sayings I will always remember that my father told me;

“If it’s too good to be true, it probably is”, and;

“The road to hell is paved with good intentions”

Outside events in the world of instant information affect all our lives and business for better or worse. I, for one, chose better.