A business can be under pressure long before it feels like a crisis. The pressure usually moves through three phases. The first two phases often feel manageable. The third rarely does.
The three phases
- Pressure on liquidity. Cash starts coming in more slowly. The business still runs, but the buffer is shrinking. The lender and the suppliers haven't noticed anything yet.
- Pressure on earnings. Margins are falling. One or two of the largest customers have asked for better terms. The first investments in the core product are being postponed. It still feels temporary, but it keeps repeating.
- Pressure from several sides. The lender has changed tone. Several of your largest customers are negotiating from a stronger position. You've started negotiating longer payment terms with suppliers. It stops feeling temporary.
The difference between pressure and crisis
A crisis feels immediate. Pressure rarely feels like an actual crisis — or only like "a tough year". In phases 1 and 2, an owner-CEO can often still act without outside help. You still have something to negotiate with. The business still has options. The core product can still be maintained.
In phase 3, that's rarely still the case. By then several others are also forming views of the business — the lender, the large customers, the suppliers. The owner-CEO now has far fewer options.
What it means for you
The important thing is not to wait until it feels like a crisis before doing anything. The important thing is to notice which phase you're really in. If you've seen signs of phase 2 for several quarters, it's rarely still phase 1. If you've seen signs of phase 3, internal discussion is rarely enough any more.