Rational investors (yes, that may be an oxymoron) know that the stock market goes through cycles. They know stock prices will not go up forever, nor will prices go down forever.
Investors don’t know how long stock prices will go in either direction or when those sickening changes in stock price direction will happen.
Short-term changes in stock prices are often driven by raw emotion, which makes them difficult to predict. It also causes heartburn to people whose business performance is (rightly or wrongly) judged on its stock price.
Fortunately, business fundamentals are much more critical than unjustified panic and unrealistic jubilation over the long term.
When you build a business with solid fundamentals, you can weather the uncertainty that comes with being measured by the overreactions of the stock market.
One way to build solid fundamentals and have the flexibility to adjust to wild swings in an irrational stock market is to build agility into your organization. To build agility into your organization:
- Set up an operational flow
- Make customer-centric decisions
- Create high-performing teams
Here’s a closer look at those three actions.
An agile operating model keeps processes lean and achieves high levels of quality while creating ties from business strategy to delivery using flow-based practices.
Flow-based practices allow you to introduce small, frequent changes to your processes and products, which puts you in a better position to assess and respond to a changing environment. You’re also in a better position to spot opportunities to exploit proactively.
Contrast that with organizations that plan a year (or more) in advance and then get caught flatfooted when business conditions change.
An agile operating model puts you in a position to prepare for different economic scenarios, as Kyle Poyar with Open View Ventures suggests:
“Your goal should be to create scenarios around potential economic futures: no impact, economic ripple, recession, or a full economic reset. While the macroeconomic scenarios are out of your control, you control how you choose to respond. You’ll want to prepare which operational strategies you would employ under these different scenarios.”
In addition, an agile operating model allows you to focus on getting the right things done without worrying too much about who does it. As Des Traynor from Intercom suggests, “processes and boundaries between orgs should become more fluid.”
An agile operating model ensures your processes are as efficient as possible, which allows you to keep expenses low and avoid unnecessary waste.
Efficient processes can help you avoid waste. Making the right decisions enables you to be effective and avoids wasteful activities to begin with.
The right decisions satisfy your customers and support your bottom line. Jon Moore and Marty Cagan with the Silicon Valley Product Group suggest you should “make decisions based on what will quickly solve hard problems in ways that your customers love” and are good for your business.”
Along with changing the decisions you make, you’re probably going to reconsider your roadmap. Des Traynor suggests you “Consider which projects will have more impact on customer satisfaction and the bottom line and adjust your priorities accordingly.”
That means you’re no longer focused on growth for growth’s sake. Instead, think about how to properly serve customers and improve your bottom line.
As Kyle Poyar points out, keeping customers is more efficient than acquiring new customers. Instead of adding more features, it may make more sense to increase self-service and decrease time to value. Like Kyle says, “The more you can automate, the more you can save on onboarding, services, pre-sales, etc. — all while offering a better customer experience and potentially helping you attract more new customers.”
When there is uncertainty in the external environment, you want to minimize the uncertainty inside your organization. High-performing teams give you the predictability you need to have confidence in your decisions.
When you make a decision and can reasonably predict when that decision will be enacted, you’ll have the confidence you need to address uncertainty in the broader environment.
To experience this predictability, create a common language, common cadence, common currency, common measures, and common tools. These commonalities create a shared mental model that allows people in your organization to know what to expect when they work with each other. This allows your staff to concentrate on addressing the uncertainties in the external environment instead of struggling with getting things done inside your organization.
Kyle Poyar states that in conditions of uncertainty, “the name of the game is to do more with less.” If you scaled up too fast in pursuit of rapid growth, you may have to slow hiring and even cut back on staff.
If your teams operate with shared mental models, they’ll be able to adjust to staffing changes and fill any gaps that may result.
You’ll also want to make your company a place where the staff you keep want to continue to work rather than wonder if the grass is greener on the other side of the fence.
And through rough patches, constantly communicate your company’s mission and vision and help everyone connect what they do to that mission and vision. When people understand why their work is important, they’ll be more interested in staying with your company and continuing that work.
Uncertainty has always been here and won’t go away
Morgan Housel, a partner at the Collaborative Fund, reminds us that “The risks were always there. People were just blind to them. The future is always endlessly unpredictable. What changes isn’t the level of uncertainty, but the level of people’s complacency.”
The future seems to be more certain when things are going well, but the truth is you can’t predict the future any better during a bull market than you can when stock prices are crashing.
What you can do is accept that you will never know what’s going to happen next and put yourself in a position to rapidly adjust when conditions change.
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