In working with and reading about countless leaders and businesses, it’s not difficult to see similar threads woven into the most difficult stories. In Part 1 of this series, I share the challenges faced when organizations chase after aggressive, short-run growth.
The second painfully common mistake both in business and in personal life is the use of debt. This concept wades into some deeply polarized waters.
Over the last 20 years, I’ve pursued both ends of the spectrum in managing personal debt and business debt in the markets and, over the last five years, shifting to eliminate all debt, both personally and professionally.
In Jim Collins’s book “How the Mighty Fall,” he shares a story of teaching a collegiate business course. They were working through a case study, and he looked to the class and asked, “Why did the business don’t make it?”
Students called out answers from all across the board. After chasing after various potential symptoms, one of the students sheepishly raised his hand and said, “they ran out of money.” The other students were disappointed at the simplicity of the answer to the professor’s question.
Only when we attend to the most foundational and scientific realities do we have the opportunity to build something artistic on top.
I’ve heard the arguments in favor of debt over and over. It allows for faster growth (see part 1), debt is cheap, we’re protected under the corporate veil, and many more. I’m not saying that there’s never a place or time to carry debt but perhaps shift the way we approach debt.
Here are a few questions to consider:
Should we carry a minimalist approach or get our hands-on as much money as possible?
To cashflow during a launch phase or utilize collateralized debt is one thing. But enduringly utilizing debt to cashflow the operations of a business is something entirely different. Personally speaking, people used to take on debt to buy a house due to the size of the investment and the long term commitment to living in a certain place. Vehicle loans followed mortgage debt, and now payment plans are in place for cell phones, refrigerators, lawnmowers, and even items as little as $100 on Amazon.
How aggressively do we work to get rid of debt?
Yes, the markets often outperform loan interest rates, and I’ve played the margin game in personal and business life. And looking back, I’ve never spoken to someone who carried no debt and was thinking about the return they would’ve gotten in the market over the same period.
As we move through one of the most unforeseen and impactful events of our lifetimes, it’s a powerful flashing warning in the realm of how we utilize and manage debt.
Rates have never been lower, and the flashing lights toward the doorways of debt are everywhere. And, yet there are very real, tangible, and long term benefits of reducing or eliminating debt.
Cheers to looking through the “long lens” and making choices today that have an impact well into the future.
