“Is he afraid?” Ned asked.
“A little,” she admitted. “He is only three.”
Ned frowned. “He must learn to face his fears. He will not be three forever. And winter is coming.”
– George R. R. Martin, A Game of Thrones: A Song of Ice and Fire: Book One
Those of you who have read the “Game of Thrones” books and/or watched the HBO TV series of the same title (I’ve purposely avoided watching the shows because I love the books too damn much) are very familiar with the oft quoted words of House Stark: “Winter is coming.” Those of you who have no idea what the heck “Game of Thrones” is should really consider joining the rest of us here on planet Earth but basically the phrase means, “prepare for the worst because Murphy’s Law is no joke!”
Well, winter is coming…for our economy, that is…in the form of recession. Now I’m not a macroeconomics expert by any stretch but I am economically savvy enough to know that since 1971 (the year that President Nixon suspended the convertibility of US dollars for gold and transformed the dollar into fiat currency) the US economy – as measured by its Gross Domestic Product (GDP) – typically enjoys between 7 to 10 years of expansion and/or relative stability (companies hire…unemployment falls) which is then followed by 1 to 3 years of contraction (companies fire…unemployment rises). Don’t take my word for this, though…take a look at the US GDP Growth Rate over the years for yourself and draw your own conclusions. (Indeed, there are a good number of very smart economists who completely reject the validity of “business cycles” as a predictor of recession.)
Given that the “Great Recession” lasted roughly from 2007 to 2009, simple math tells us that we are going on about 7 years (we’re in 2016) of GDP expansion/stability and even the “anti-business cycle” economists of the world would have to admit that such periods cannot last forever. An “economic winter” is indeed coming…it’s just a question of when it will come.
Before I get accused of being a “Debbie Downer” or a “Chicken Little” or a Robert Kiyosaki (love him or hate him Robert Kiyosaki’s “Rich Dad Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!” should be required reading in our schools), though, I want to quickly say that preparing for recession does NOT bring about recession! I’m all for positive thinking and/or affirmations as they have the power to motivate us when things get rough in our lives but simple positive thinking without action and/or preparation is at best wishful thinking and at worst delusional thinking; “positively thinking” that a recession won’t occur again in the future certainly falls into the “delusional thinking bucket.”
So how does a “positively pragmatic” entrepreneur (such as myself) prepare for the next economic downturn/recession/meltdown/collapse/depression? Well, there are a number of strategies that she should employ including…
- …keeping a cash reserve on hand or securing lines of credit (how much depends on her specific revenues, expenses, etc.)
- …continuing to invest in business development (show me a company that thinks it does not need to find new customers/markets and I’ll show you a company about to go out of business)
- …remaining vigilant in avoiding excess spending, etc.
All of the strategies above are foundational in running a business but I would argue that there is a single strategy that is the substrate of all the strategies noted above. That is,Relational Capital Management (RCM).
Wikipedia’s definition of “Relational Capital” is just as good as any:
“Relational capital is one of the three primary components of intellectual capital, and is the value inherent in a company’s relationships with its customers, vendors, and other important constituencies.”
My only gripe about the definition above is that it does not offer enough examples of relationship constituencies beyond customers and vendors. In fact, I would argue that relationships with partners (and I mean partners…NOT simple vendors/suppliers), investors, media outlets, the general public (in the case of very large/well-known companies) and most importantly a company’s employees are just as important as its relationships with its customers!
Need access to cash? Well, having a great relationship with your banker, investors and possibly even government entities/officials – before having to rely on that relationship – will definitely improve your odds of having access to that cash when you need it most! Indeed, Ford Motor Company used its numerous relationships to avoid having to file for bankruptcy (the way that General Motors was ultimately forced to) in 2009 during the lowest point of the Great Recession. Ford used a combination of “accounting gymnastics”, commercial loans (secured BEFORE the Great Recession) and government loans (secured during the Great Recession) as well as government economic stimulus programs…all of these things were made possible by their Relational Capital (along with a healthy dose of Congressional lobbying).
Trying to improve your “biz dev” results? Relationships ARE your biz dev results…period! (Don’t fool yourself into believing that simple “sales” efforts alone will be good enough to increase your client base.)
Looking to lower your corporate expenditures? Who better than your own employees to help come up with ideas for lowing operating costs? If your company is putting its “employees first,” then it is by definition improving its relationships with those employees and those employees will, in turn, be much more motivated to help find efficiencies for your company.
So the goal of the “positively pragmatic” entrepreneur should be to continually increase her Relational Capital…and she does this by systematically focusing on cultivating her networks (or what some have hijacked the Political Science term of “Spheres of Influence” to describe). I specifically use the word “cultivating” here (instead of “building” or “maintaining”, for example) because it connotes a garden metaphor which I think fits “networking” to a tee.
In her book “How to Be a Power Connector: The 5+50+100 Rule for Turning Your Business Network into Profits”, Judy Robinett offers a TON of suggestions on systematizing your approach to cultivating your networks but I’m going to highlight just one: That is, find a way to add value to almost everyone that you meet regardless of whether or not they’re in your networks. This may sound like a tall order but it isn’t really as even Judy acknowledges that the magnitude of the value and the effort that you put into creating that value is NOT going to be the same for everyone.
For example, for someone that you’ve just met a sincere compliment of that person’s outfit may be the perfect “value add” while someone whom you’ve done business with for many years may merit an all-expenses paid business retreat to Hawaii to check the “value add” box for that person.
Judy also notes that it is critical to offer this value with ZERO expectation of “quid pro quo”. These value adds are NOT an exercise in “you scratch my back and I’ll scratch yours”…you give these value adds because you sincerely want to be of service to others. It’s that authentic commitment to the service and success of others that builds Relational Capital.
Bottom line: It’s your Relational Capital that may be the only real safety net that you and your business will have when the next “economic winter” comes.