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As in nature, economies and businesses have tides. Like someone looking to navigate coastal waters, understanding the tides of business is critical to piloting a safe and successful course.
I live in a location where I can see the tides every day. They are a daily reminder that we live in a world of constant motion, ebb and flow. As true as this is in nature, which is constantly in motion — whether the seasons, migration patterns, unexpected natural disasters or natural entropy — it’s a reality in business as well. Those looking to successfully operate a business can learn from nature, like the three lessons below about tides.
Lesson 1: When the tide is out, everything shows
Everything that was hidden by water gets revealed when the seas, reacting to the gravitational pull of the moon, peel back and expose what lies beneath. For example, buildings built on piers may look great when the water is in, but once the tide goes out, the piers are exposed, and their condition is readily visible.
If you really want to see what is holding your waterfront building up, just crawl underneath when the tide is out. From rotting piers to barnacle-encrusted timbers to accumulations of debris, there is no end to what might be underneath.
Conversely, if you want to get a good look at the stability of your business’s underpinnings, have a good look when the tides of economics roll out to sea. Warren Buffett said it best: “Only when the tide goes out do you discover who’s been swimming naked.”
Put another way, when things are booming and all is well, people can hide the reality of their situations. When things get tough, however, people and businesses are exposed for who and what they really are.
Newsflash: The tides of the real estate market are out right now. Business practices that seemed easy in boomtimes are not working now, and many agents who were swimming in the excesses of the market prior to May 2022 are discovering that they were swimming naked.
Activities (or lack thereof) that “experts” touted for producing results in previous markets look ill-advised or fluffy today because minimal effort just doesn’t get the job done anymore.
A good question to ask yourself would be, “What has the downturn in the market revealed about my business?”
Lesson 2: When the tide goes out, the unprepared are trapped
Half Moon Bay in California is noted for tide pools that are exposed when the tide goes out. Anything that decides to stay in any of the tide pools is literally stranded until the tide comes back in.
Although fun for the school kids who get to examine the pools that contain all kinds of marine life, it’s not good news for anything trapped. Crabs, fish and other critters are easy pickings for coastal birds, and if they don’t get them, the brutal sun can make things intolerable.
If you do not understand the nature of tides in business, you could be marooned when the market waters recede. Those who were in business during the foreclosure crisis learned this the hard way. Agents who could not land a foreclosure contract had to rely on buyers and short sales. Many agents failed to stay in business.
Those who endured built strong customer relationships that provided a solid foundation for their businesses going forward. And when the foreclosure run ended in 2011 and the normal market began to return, many REO agents who had relied on a flow of foreclosures to stay in business were caught shorthanded as production dried up almost overnight.
A good question to ask yourself would be, “In what ways has the current market caught me unawares and left my business in jeopardy?”
Lesson 3: Understand the local tides
Where I live, the tides are not that severe: Although a decent amount of beach is exposed at low tide, the worst-case scenario for us is that it’s more difficult to get the boat out of the marina because of shallow water. On the other side of the North American continent, however, the Bay of Fundy is another thing altogether.
I’ve visited St John, New Brunswick, Canada, a number of times and witnessed the highest tides in the world. The harbor looks serene when the tides are in — when they go out, however, there is an entirely different view. At its deepest point in Minas Basin, the tides can be an incredible 53 feet high.
If you visit, you will spot ladders in the harbor to access the boats — only when the tides are out, and you see how tall those ladders actually are, do you begin to grasp how remarkable the tides are. It’s not uncommon for boats bobbing in the harbor at high tide to be sitting on the muddy bottom once the tide waters head out to sea.
Navigating the harbors around the bay requires planning; if you need to leave when the tide is out, you may be out of luck. Conversely, if you moor your boat anywhere other than where there is a ladder, there’s a good chance you won’t be able to access your craft when the water levels drop.
The lesson here is simple: You had better take time to understand the ebb and flow of business cycles and be prepared. You need to be a student of the market and current economic forecasts. In the same way a fisherman knows to be out of the harbor before the tide renders their boat useless on the bottom of the bay, it’s critical to pay attention to business cycles so you effectively respond before things happen.
If you know a recession is coming, you should be slashing expenses and stockpiling reserves to get you through. The wrong time to be test-driving a new boat is when the tide is out.
In business, the principle is simple: You cannot spend your way out of a recession. You do not want to be trying out costly new tactics. You should be stripping things bare and diving deep into the tried-and-true fundamentals. Those who do not understand this principle may be spending money thinking all is well when in reality they will need that money down the road to simply stay afloat.
A few good questions to ask yourself would be, “Where do all the pundits say the market is going? If it goes into a recession, do I have the necessary reserves to stay in business if my cash flow is negative? If we are going into surplus years, do I have a plan in place to put aside money for an inevitable downturn?”
There is another issue around the Bay of Fundy: Due to the massive amount of water flowing through the area twice a day, the nearby river’s rapids actually move in reverse. The Reversing Rapids are a series of whirlpools, waves and white water rapids created as the high tides of the Bay of Fundy meet up with the Saint John River in a rocky gorge in Saint John, New Brunswick.
Timing is of the essence if you wish to traverse this area by boat; the action of the rapids can get quite intense during the movement of the tides and make navigation difficult. Again, the analogy to business is simple: Know the timing of the market and respond accordingly.
Truth is, ocean tides are a normal and inevitable part of life. If you live on the coast, you understand and compensate. If you are in business, it’s critical to understand that businesses and economies also have tides. Learn to read the tides and compensate; do otherwise at your peril.
Carl Medford is the CEO of The Medford Team.
