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The best businesses I've seen work counter-cyclically. When there are hiring freezes and layoffs, it's easy to find good cheap engineers and you hire. When job
by blagie 4y ago
The best businesses I've seen work counter-cyclically.
When there are hiring freezes and layoffs, it's easy to find good cheap engineers and you hire. When job markets are hot, you put a pause on hiring.
The same goes for many other things. A recession is an ideal time for deep R&D. There's little competition, and it's possible to do long-term thinking. When the recession ends, and the bubble begins, you hit jackpot.
All of this requires deep enough pockets to weather a few years, though, and patient investors. That's rare.
Cargo culting for Google and Facebook make little sense organization-wide, since they do have deep pockets. They make complete sense employee-wise. No one got fired for following industry best practices, conventions, or cycles.
- int0x2e 4y agoI couldn't agree with you more. A FAANG-tier company with which I'm closely familiar pretty much did the worst thing every time during the past 2 years - they tried to tighten the belt when COVID first hit (missing a ton of great talent when the initial uncertainly killed off some of the smaller companies), then they tried growing and chasing talent really hard, right when the bubble was at its peak, and now that the economic outlook is negative, they've halted / significantly slowed down hiring. My personal opinion is that Warren Buffett's old quote to be "fearful when others are greedy, and greedy when others are fearful" rings really true.
- bluGill 4y agoThe problem is when things are going well you have the sales and thus money to hire and pay more staff, when things are bad you don't have the sales and thus don't have the income. You are absolutely correct. This is one of the best measures of how good/bad management is: how many people they keep around in bad times, and ideally hire. Any idiot can manage a company when there is a ton of money coming in, it takes real talent to manage well in hard times.
- Espressosaurus 4y agoYou need a counter-cyclical business to really make that work however. And given how interconnected things are these days, what out there is counter-cyclical?
- gen220 4y agoHaving a counter-cyclical business is helpful but not strictly necessary and actually not sufficient. What is actually most important are a long-term outlook, backing from shareholders to pursue anti-fragility at the cost of short-term growth, and well-managed and well-protected cash reserves. Few well-known, public or VC-funded companies operate this way, because collective greed is a far more powerful force than the desire to build an anti-fragile, long-lasting company. And in a world where it's fairly easy to close a company's book and move on to start the next thing, and where the economy hasn't experienced real stagnation in over a generation, this arrangement of incentives makes sense. Berkshire Hathaway has historically worked this way, as an example. One of Buffet's basic playbooks was to combine the books of cyclical and counter-cyclical businesses, and harvest temporarily high prices of the former to plow into the latter, and vice versa.
- klempner 4y agoYou don't need a counter cyclical business, what you need is somewhat counter cyclical funding. You develop during recession when it is easy to hire people, and when the economy is on the up side of the business cycle you have a product that's ready to sell.