Indecisive CEOs of midsized businesses squelch the decision-making latitude of their leadership teams, who in turn go back to their “wait for the CEO to decide” mode — a sure growth killer.

Originally posted on Forbes online.

We all know that the next recession is long overdue.  It’s been 10 years since the great downturn held most of us in its grip.  Many companies have had steady success or excellent growth.  But all CEOs wonder when the music will stop.  For years now, they’ve been searching for the signs of a downturn. Being on that watch is stressful.  A few years back a decision to hire another expensive executive or sink a big chunk of capital to develop a new, expensive product was easier.  But now, before pulling the trigger, CEOs think about all the turbulent political news and we hesitate.  They reflect on last week’s lighter than average sales and fret that it’s a trend.  CEOs hear a competitor goes belly up and after a brief happy-dance, they worry they could be next. This mix of paranoia and positivity can slow down decision making, or worse, make leaders inconsistent and indecisive.  Indecisive CEOs of midsized businesses squelch the decision-making latitude of their leadership teams, and then it all goes back to “wait for the CEO to decide” mode — a sure growth killer.

Companies stop growing when they lack confidence in their decisions.  Fundamentally, the question is, “How good are the business conditions in which the business operates?  What is its likelihood of success or failure in those conditions?”

Consider one firm that hesitated for over a year on two leadership hires.  The CEO felt bullish at times, yet the following month felt “poor” and uncomfortable with placing big bets.  He ultimately hired those two execs, but far later than was ideal.  He invested in an office expansion — but nine months too early.

Midsized company leaders need to build a “gut gauge” that will help them record their assessment of business conditions in greater detail, then reassess periodically.  This must be done with the leadership team (not just the CEO) and it must be written.  In turbulent times, this assessment should be quarterly; otherwise twice yearly.

First, many minds are better than one, and discussion helps keep our emotions in check.  Every executive who reports to the CEO should be involved.  Those who are not externally facing should take on an assignment which connects them to the broader marketplace.  Ideally, they will do a little outreach, then participate in scoring the current business conditions.

Break up the scoring into four to six categories.  Four core categories I recommend are:

1. Forecast demand for your products or services. Look both at the trends for the last quarter, but also at pending orders and typical signs of interest that lead to sales.  Most businesses already update sales forecasts quarterly based on a consistent approach. Has your forecast improved since 90 days prior?  As a team, discuss the supporting facts and create a consensus rating.  Use any scale you like:  1-5, letter grades — it doesn’t matter.  Just be consistent.
2. Workforce availability. In many markets, the ability to attract the employees you need has hindered growth.  Their high salaries have hindered margins.  For most businesses, being able to hire the talent you need at stable wage levels in 30-45 days’ time is ideal.  Of course, if talent was hard to find three months ago, and now there is high availability, that means competitors are laying off people in your industry — and that can be worrisome.  Discuss this with your team and rate this attribute.
3. Financial strength. Your finances are the sum-total of your ability to compete effectively in the marketplace.  While the income statement is important, the balance sheet is crucial.  The answer to whether a business can weather a storm lies in the balance sheet.  How are your finances relative to one quarter past?  If your firm is strong and getting stronger financially, give yourself a higher score.  This score should not come from the CFO!  While he or she may bring the data, the entire senior leadership team must understand the data, discuss it and find a consensus rating.
4. Verified vendor and competitor moves/health. Everyone in your industry is floating higher or lower with the “business conditions” tide.  It makes sense to try and learn how others are doing.  Of course, there may be misinformation floating about — your team should do their best to verify what they learn.  Of course, you are watching competitor websites, advertisements, press releases and more to try and keep abreast anyway.  Discuss it with your team, and give this attribute a score.

Consider adding one or two more categories to rate.  In your industry, what are the leading indicators that signal good times or bad times?  If your business is debt-heavy, rising interest rates are trouble!  Write up what factors you want your team to review, then assess them regularly.  But keep it simple.

Lastly, average the scores on the attributes above.  Weighting them equally is the simplest approach.  Or perhaps you’ll want to emphasize some attributes more than others.  But use consistent math.  Next, chart your ratings over time.  If you and your team are consistently rating the business conditions as worsening, taking action (see this article for some great momentum rebuilding ideas or perhaps becoming more cautious) makes sense.  On the other hand, if ratings are stable or rising, keep investing in growth without too much fear.

Some leaders can’t find the time to do any special research on business conditions, or they’re not quite sure how.  Don’t let that stop you.  At least bring your team together, go over each attribute (outlined above), discuss the facts (as opposed to opinions) and produce a score.  At least you’re melding minds, focusing them on specific attributes, discussing it all, and writing down the score.  That’s a big step forward.  After the first meeting, you can ask a few on the team to do some outreach for the next session in three months.

Avoid letting sensationalist news or political chatter enter into the conversation.  Maybe politics will help or hurt your business, but it’s not for real until the bill is passed and the implementation of the new policy is confirmed.  Changing how you lead your business based on chatter is never a good idea.

Big crashes like in 2008 are obvious. But it’s the slow changes that are easy to miss.  Stop sitting around ruminating on what damaging business conditions might be lurking.  Use this approach to examine the conditions surrounding your business and document them.  You won’t get instant results the first time you do it, but you’ll build up some analytical skill in your team. The second time you’ll start to notice slowly changing business conditions (for better or for worse).  The third time and beyond will begin to chart a crucial story.