First you find out what you have, Dad would say. Then you figure out how to make it work for what you need, ’cause you don’t get what you want. You get just what you have and no more. – Lilith Saintcrow, Betrayals
I was starting to wonder how to approach the world that’s unfolding in front of us now.
Is it too soon to start to examine what’s happening or should we have started to look at this earlier?
A few social media comments by others have, however, led me to think there is value in doing a little analysis, which is what I might do in the next few posts.
Let’s start with Maslow.
Maslow’s hierarchy of needs, as you know, is a theory of human motivation – looking at the things we need as humans.
We start at the bottom with basic physiological needs – food, water, shelter.
Then we need safety, some kind of security – a fixed abode, a trade.
If these are met, then we start looking around for friendships and relationships – for belonging.
And along the way, we look for acceptance and admiration from people – the things that feed our self esteem.
And at the top is self-actualisation – where we add value to ourselves and others in the best way we can.
Maslow saw these criteria as building on each other – you had to complete one level before you could work on the next.
But clearly, when you’re in a crisis, you might drop a level or five depending on what you’re facing.
If you’ve built up a reputation over the years as a pillar of society – meeting your esteem and self-actualisation needs – and then you do something naughty that gets everyone very cross – then you might drop down the love/belonging level and have to make amends and rebuild your life.
Or – something like a virus could come along – and drop you all the way down to the safety and physiological levels.
For many people they’re now wondering about how to meet their basic needs – where will their food come from and will they be able to pay the rent on their homes.
Depending on where you are in the world your experience will vary – and life is no doubt very tough for many people.
If we as individuals are facing life in those bottom two levels, what might a similar hierarchy be for businesses?
I thought I’d take a stab at building up a hierarchy and see if it made sense.
For a business, at the bottom, cash is what matters.
If you’re not bringing in some money then you don’t have the makings of a business – you need cash to cover your costs.
At the next level you have earnings – you’re bringing in more money than you are spending and you have the operating earnings needed to grow the business.
Now, your business is grown up when you start to think of yourself as being part of an industry – where your contribution is recognised as being something people want.
When people get to the point where what they want is you, then you’ve got yourself a name, a brand – you’re a trusted provider of a product of a service.
And right at the top you have a moat – your business is more than just a provider – but it has value that is more than the net assets it has.
Right now businesses and individuals have crashed down to that safety level – and for both, safety now means having earnings or having reserves to draw on.
If you still have a job, or your business is still trading or you get support from the government or you have the money in the bank to cover you for a while, then you’re safe.
If not, you’re in that space where you don’t know where the next meal is coming from – or you’re running out of cash and will go bankrupt.
Warren Buffett wrote “Only when the tide goes out do you discover who’s been swimming naked.”
Many people and businesses have spent their time believing they’re in the top two or three levels of their hierarchy of needs.
They’ve run businesses on thin margins, high leverage and paid out healthy dividends.
And now, they don’t have the resources needed to ride out a storm.
But the way our economies work is that letting such businesses fail would cause so much hardship that it’s better to support them for the sake of everyone else.
Human nature isn’t going to change – there might be a short term increase in the number of people who become more conservative over the next decade or so – but the memory of this will fade.
But principles don’t – and some of us will continue to believe that you can’t get to the top three levels unless you have got the bottom two really sorted.
It’s simple really.
When you live through a season of plenty, put away something for the famine that is to come.
That’s a timeless message if there ever was one.