Crisis: The Tipping Point to Victory or Defeat

Journal of Financial Planning: October 2012

Vern C. Hayden, CFP®, is president of Hayden Financial Group LLC in Westport, Connecticut, author of Getting an Investing Game Plan, and contributing editor to

You work hard. You take risks. You stumble. You’re in crisis! Now what? Now you will find out what you are made of.

Crisis occurs in war, relationships, business, and personal finances, to name a few. Today, I am writing about business crisis. Sooner or later, all business owners and investors experience crisis. I say this from the vantage of my own life experience.

There were three times I went through a business crisis that took all my capital and I started again from scratch. The biggest crisis was a venture with Sage Holdings of Johannesburg, South Africa, and Marine Midland Bank of Buffalo, New York, in 1983. As joint partner, the goal was to build a nationwide network of financial planning offices. After burning through about $11 million of capital, the venture did not work. I was out of money, had no job, and had no practice. I went through every phase of crisis described below, and with a very successful result.

Like a mountain climber, I have enjoyed the exhilaration and challenge of taking risks. I will quickly tell you that my successes have far outweighed my failures, and in most cases the crises and failures became stepping stones for something better. Please keep in mind that I am approaching the subject of crisis based on a lifetime of experience as an entrepreneur. This is not a professional analysis of psychological or philosophical factors. These insights are from the trenches where I got my hands dirty in the mud of the marketplace.

With that background, I will outline the three most important phases relating to crisis: (1) understand the causes of a business crisis, (2) recognize you are getting into a crisis, and (3) develop a sound strategy to rebound and restart from a crisis. Inability to execute on these usually leads to failure, or irrelevance.

Causes of a Crisis

The causes of a crisis are almost endless:

  1. It is extremely dangerous to assume that success in one thing will automatically lead to success in another endeavor. Look no further than the attempt of perhaps the greatest basketball player ever, Michael Jordan, to become a professional baseball player. He totally struck out in the sport.
  2. When Socrates said, “Know thyself,” he knew what he was talking about. Another cause of failure is the temptation to stretch ourselves beyond the skills we possess. For instance, if I set up a handball match with the greatest handball player in the world, the Irishman Paul Brady, and bet $10,000 that I would win, it would be just plain stupid and I would lose $10,000. A more appropriate assessment of my skill level would suggest I play someone in my age bracket.
  3. To avoid a crisis, we must possess the skills required to perform the task we are thinking of doing. If it takes a hammer, we don’t want a screwdriver.
  4. Recognize the limits of your area of expertise in judging others. Be very cautious in assessing the skills of others you may partner with or depend on. If you overestimate someone’s skill in an area you are depending on, you may find out how deep a black hole really is. A similar concept applies to personality. Key roles in the leadership of any organization demand the right personality and skill sets.
  5. Another symptom of a pending crisis is when we start losing control and are being carried along by events. We become reactive to people and events rather than controlling a situation or its outcome.
  6. Sometimes we might get lost and not know where we are, particularly when events bring you to strange places outside your comfort zone. We either ignore our business GPS or it breaks altogether. We lose track of our reference points or index.
  7. In the absence of clearly defined objectives, it’s easy to stray, and we may find excuses not to work. Instead, some of us may just “work out.” Be careful when business discipline starts to break down.
  8. The seeds of crisis are planted when clearly defined goals are not established, and when our goals are not properly aligned and coordinated with others’ involved in the business.
  9. If senior officers of a company have little or no leadership or management ability, you could step on a landmine at any moment. This often happens when a son or a daughter “inherits” a business. Think many times before partnering in a business deal with that company.
  10. Be sure you and any of your associates have the health and perseverance to follow things through. Perseverance and tenacity are necessary traits, but they are also a step away from stupid stubbornness. Another judgment call on a tipping point.
  11. Separate fact from fiction.
  12. A lack of communication can cause a crisis to develop very quickly. Without effective communication people tend to assume the worst and proceed accordingly. When the communication deteriorates with management the seeds of distrust and skepticism can germinate quickly.

Crisis Signals

The second phase relating to a crisis is to simply answer the question, “How do I know I am in a crisis?” At some point the recognition of a crisis is obvious. If you are experiencing all or some of the causes in the first phase it is pretty apparent you are in one. Being in denial is a common malady when it comes to recognition, so these six clues will help:

  1. Some aberrations start appearing. Energy and focus diminish. We become preoccupied with less critical issues and subjects. We just sit around talking more. Our income and profits go down. We start to not care as much about doing business.
  2. We start relying more on others to do the business.
  3. We may start feeling less secure and confident.
  4. Sometimes valued relationships start falling apart—the most common being with family.
  5. The art of self-deception subtly starts taking over.
  6. You sense that something is wrong. It’s like getting that dreaded knock in the engine of your car. You know something is wrong, and you have to do something about it.

Crisis Rebound

The third phase of a crisis is how to rebound and get out of it:

  1. The quicker you cut your losses, the better it will be to get a restart.
  2. In discussing issues with clients, particularly negative ones, I suggest three steps: identify it, confront it, and resolve it. You either learn from this crisis or will be conditioned by it. Obviously, it is best to learn from it: assess the damages and remember the positives.
  3. Do not hesitate to emotionally wring the crisis out of your system. Allow yourself a short period of self-pitying, crying, yelling, and any other reasonable catharsis that works. I personally play a lot of handball. It is also helpful sometimes to borrow and absorb positive energy from people you respect. But soon thereafter you need to say, “Okay, I screwed up, now what?”
  4. Expect to pull out of the crisis. Muster all the courage you can find within yourself. Think, behave, and act as though you have already recovered and are moving ahead. Use all your mental, physical, and spiritual strength to create a new beginning.
  5. Create a new game plan based on the realities of your singular skill set. Define and articulate clear goals. Make it a powerful and exciting commitment. Make it a burning desire followed by designed and purposeful action.
  6. Press forward with the one positive strength and skill you have that fits into your new game plan. You may start with small victories, but they will get bigger.
  7. As a practical matter, you may not be able to pay bills for a while. Contact all debtors and explain what is going on. Consolidate bills, get a professional to help if necessary, but do not delay on this. Same applies to the IRS. Communicate and most of the time they will help you. Try an “offer in compromise” if possible, but always communicate. Avoid bankruptcy if at all possible; our regulatory and certification bodies do not like it.
  8. Create meaningful alliances that can be helpful in starting over.
  9. Be prepared to work hard as you follow your written game plan.
General Financial Planning Principles