When the Tide Goes Out

If you're reading this and things are tight right now, I want you to know I'm aware of the irony. You're reading an article about economic culling while wondering if you're the one for the chop.

I'm not going to pretend that's a comfortable place to be, but I'm also not going to look away from it. Nor should you.

There's a phrase that gets thrown around every time conditions tighten. Usually by someone whose business is fine. Usually delivered with the detached confidence of a person watching a fire from across the street.

This will separate the wheat from the chaff.

And the thing is -- they're not wrong. They're just not the ones holding the match.

Here's what's actually true: difficult economic conditions expose poor business fundamentals in a way that good times never will. When revenue is easy, you can run a mediocre operation, overpay your suppliers, carry dead weight on the payroll, and never really notice. Margin for error is everywhere. You confuse buoyancy with ability. The business floats not because it's seaworthy, but because the tide is high.

Then the tide goes out.

Take the building industry. When construction is booming, talk to a car dealer. Double cab sales go through the roof. And not just double cabs, mag wheels and fancy accessories sail out the door too. Client's of mine sell utes and mag wheels, they both tell me they see this in real time.

Because when work is everywhere and everyone's busy, every talented young builder looks at his boss and thinks: I could do this myself. And honestly? Maybe he could. He's good at the work. He knows the trade. So he puts the ute on tick, gets some business cards printed, slaps a logo on the tailgate, and instantly he’s a company director. His mates are secretly a bit jealous and his partner is wonderfully, naively proud.

For a while, it even works. The phones ring because the phones ring for everyone. He's booked out three months ahead, same as every other builder in town. He confuses a rising tide for his own talent, which is a completely understandable mistake when you're twenty-eight and the money's coming in.

Then the market tightens. Developers pause projects. Interest rates bite. The phone slows down.

And suddenly he's sitting across from a debt that made sense when the work was there and makes no sense at all now it isn't. And those expenses that were so easy to pay for, all of a sudden get paid at the very end of the month, if at all.

Two years later the ute goes back to the dealer. The creditors are on payment plans. And his old boss - the one he thought he could do better than - is still operating, still quoting, still paying wages. Not because the boss was more talented, because the boss understood that running a business and being good at a trade are two entirely different skills, and that the second one does not automatically confer the first.

The boom didn't create a generation of entrepreneurs. It created a lot of very expensive vehicles that needed to be somewhere by Friday.

I've watched this play out across two and a half decades: these patterns repeat with depressing regularity. And I'll tell you something that's hard to hear: the businesses that fold are almost never surprised. On some level, they knew. The cash flow was always a bit sketchy. The product was never quite sharp enough. The owner was drawing wages the business couldn't genuinely support. It all held together while conditions allowed it. When conditions changed, it stopped holding together.

If that sentence made you uncomfortable, pay attention to that feeling. It's trying to tell you something.

Now, and this matters, I'm not saying every business that struggles deserves to fail. That's not the world we live in. The mechanism is brutal and it's not a precision instrument. I've seen good businesses die because they were six months from a breakthrough when the credit dried up. I've seen founders lose fifteen years of work over one decision that was reasonable at the time. I've seen entire industries hit so hard by external shocks that "perform or perish" becomes a completely absurd frame.

The economy doesn't only take what it should take. Some of what burns is genuinely good.

But some of it isn't. And that's the conversation most people don’t like having.

The useful question, the one worth sitting with if your stomach tightened at any point in this article, is not "is the economy treating me unfairly?" It might be, that happens. The useful question is: would my business survive a bad year if I ran it properly?

Not a catastrophic year. Not a global pandemic. Just a bad year.

If the honest answer is no, that's not a verdict on you as a person. It's data, and data is the only thing worth working with.

The culling is real. The net benefit to economies over time is real. Resources locked up in underperforming businesses eventually get released to operators who can use them better. That's not a cold observation -- it's how markets stay functional. Schumpeter called it creative destruction. He wasn't celebrating suffering. He was naming a mechanism.

The mechanism doesn't care about your feelings. It doesn't care about mine either.

What I care about -- and the reason I write things like this -- is that you don't wait for the market to make the decision for you. Because by the time it does, your options have narrowed considerably.

The wheat and chaff thing is real. The question is which one you are. And whether you're willing to find out before someone else finds out for you.

Oh, and if you need to buy a late model double cab, I know a guy.

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