Fly your business using instruments – not sentiments

Pilots are taught to navigate using either Visual Flight Rules (VFR) or Instrument Flight Rules (IFR). VFR-rated pilots may operate an aeroplane only in weather which is clear enough to allow them to see where they are going. So, for example, VFR-rated pilots may not fly into clouds as their vision will be impaired, thus making navigation extremely tricky.

Many small VFR-rated pilots fall victim to a phenomenon called False Climb Illusion (FCI). FCI occurs when our otolith balance organs provide false information to the brain, which is exacerbated by the lack of visual information to correct the error. The results are often fatal.  IFR-rated pilots are aware of this phenomenon and, despite the physical feedback, will navigate the plane using instruments only. The pilot might feel like he is climbing but the instruments never lie.

With the talk about a revival in the economy, many entrepreneurs will begin to make decisions based on what they hear and see in the press. We are still in the equivalent of the dark clouds of uncertainty; a gap in the clouds might be followed by another cloud or clear skies … we just don’t know.

Economists know that sentiment moves markets. But, when sentiment is devoid of any substance, the sentiment may change direction rather unpredictably and rapidly. These boom and bust cycles are just part of everyday business life. Successful entrepreneurs know this, and navigate the markets not listening to the wisdom of the markets but to the navigation instruments they have built for themselves. My mentor, a very successful investor, liquidated his assets a year before the last economic meltdown. His critics were hushed twelve months later when the recession hit.

It’s hard, however, to resist the sentiment. A few years ago, by way of example, despite my logical brain telling me that the property market was overheated, and that a correction was definitely due, I could not resist the strong forces of my peers who were telling me how much their property values were increasing. The birth of my second child provided just the impetus I needed to buy a house. As it happened, it was a badly-timed purchase decision. I should have watched the instruments and not listened to the market sentiment.

There is a strong probability that many entrepreneurs are going to make some bad decisions now that they think the economy is on the upturn. They are not going to look at the fundamentals, in their business, to make decisions but rather base these important decisions on what the press and their friends tell them about what the future might bring.

I have been asked how we, as entrepreneurs, should be acting in light of a recession; now, I am asked the same question in light of the imminent upturn. My answer never changes: You should be running your business exactly the same – whether you are in a recession or an upturn. You should always be aggressively marketing, obsessed with customer service and value, and keeping your business lean and efficient. The instruments in your business should constantly be measuring sales, marketing, customer service, cash flow, margin and overheads. In this way, you will ensure that you fly your plane safely, no matter the weather!