Photo credit iStockPhoto
Entrepreneurs are an optimistic bunch. If they weren’t, they probably couldn’t do what they do. Plans and projections reflect this optimistic view. The future is always a place that is better than today. At least in our mind. So that is how we plan. But reality is never quite that neat. The future is unknowable. We will always be at least a little bit wrong. But it is human to predict positive outcomes to our current actions. Think about it. If you didn’t think it was going to turn out well, why would you be taking that action? Makes sense, right?
Scientific experiments show that most people anticipate future positive events, as opposed to future negative events. – Neil Patel
We like to think that our business is growing all the time. There is a saying in business that we want all of our charts to be up and to the right…like this:
So we expect our revenue to be that way. But that is never reality. Reality looks more like this:
The Cycle of Reality
Maybe the overall trend is rising, but there is a high degree of variability to it. Our revenue is irregular…it has seasons. Every business has a cycle. Some are obvious. Farming for example. Nature provides the natural cycle to plant, to tend, to harvest, and to prepare for the next season. If you didn’t plant in spring, there won’t be anything to tend in the summer or harvest in the fall. And you don’t start harvesting as soon as you are done planting.
Trends Never Grow to the Sky
But if we forget about the seasons, it is easy to think that the current trend we are in will continue. But nothing grows to the sky forever. The trend changes…sometimes unexpectedly. In hindsight, we might see that things were changing. But when you are in it, it is easy to get into the lull of “this time it’s different”. But winter always comes. Sometimes early. Sometimes late. Sometimes its mild. Sometimes…not so much. But it always comes.
It Feels Different When You Are In the Middle Of It
As obvious as all of this seems, it never feels that way when you are in the middle of it. You have to remind yourself of that.
When our mind is in that “this time it’s different” mode, its time for caution. Our ability to consume income rises as our income rises. Its called Parkinson’s Law. The demand for any resource rises as the availability of that resource rises. So our spending tends to look like this:
That Gap Is The Problem
Unless we put restraints on ourselves, Parkinson’s Law will create these huge gaps when the natural cycle happens. Knowing the natural cycle of your business is the first step. But that isn’t enough. They economy has cycles. The market changes. Things just go wrong. Being at least a little bit pessimistic can help.
The harvest season is the time to be stacking the Benjamins…so you have reserves to carry you through the preparation, the planting and tending that you need to do until you can harvest again.
I am a pretty conservative person, so I drew the line a little lower than you might. That’s up to you. Being optimistic keeps you going, but remember, the future is unknowable, and you will always be at least a little bit wrong. Someday you’ll probably need that stack.
Comments
Share this Post