Making Long-Term Investments in Times of Uncertainty

Baron Rothschild, of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets.” Rothschild made a fortune buying in the panic that followed the Battle of Waterloo. A bit extreme when taken in the context of business, but times of uncertainty are often when opportunities present themselves. Conversely, solvable business problems don’t go away when times are hard. In fact, seeking and deploying solutions to such problems becomes more important when the need for growth and improved margin become more acute.

Whether exploiting an opportunity when competitors are cautious or having the confidence to proceed with predetermined plans when the economic cycle takes a dip, outcomes can be rewarding if a team has foresight, has performed its due diligence, and has the courage to move forward when others hesitate.

How Is Your Business Case?

All long-term business investments involve some degree of calculated risk, i.e., “…a carefully considered decision that exposes a person to a degree of personal and financial risk that is counterbalanced by a reasonable possibility of benefit.” Anything less than a calculated risk is a gamble, and successful business leaders don’t gamble.

First and foremost, in uncertain times, exercise your due diligence and perform a deep risk assessment. Honestly and critically assess and challenge the strength of your business case. You should be confident that the cost of the projected investment is accurate and that planned cost savings and/or additional revenues expected from the investment are achievable. And most importantly, brutally assess whether and how current economic and business climate uncertainties will impact the cost of the investment and the achievement of savings, revenue targets, and ROI projections. Consider how much incremental risk is being introduced by unique events and uncertainty in the current business climate. Determine how to counter those incremental risks.

Recall the water level analogy. When times are good and the water level in the river is high your boat is less likely to hit the rocks hidden below the surface. In uncertain times, when the water level is low, there is much less room for error and the rocks become more of a danger to your vessel. To reduce your risk of hitting the rocks, be certain of your business case. And consider how you might reduce your risk by taking steps to accelerate your ROI and shorten the payback period on your long-term investments. Reduce the time window of risk exposure and uncertainty.

Buy Low and Sell High

Relative to your ROI, consider whether existing uncertainty offers an opportunity to “buy low and sell high.” The suppliers, partners, and capital needed to fund the investment may be more readily available and at lower cost than they might otherwise be during an economic expansion. Consider the opportunity to exploit the uncertainty and caution of others to reduce your cost, accelerate execution, and realize your ROI. And take advantage of the negotiating opportunity uncertainty presents.

Is Your Strategic Direction Sound?

Finally, organizations that are confident in their strategic direction and business imperatives and in their ability to execute and prevail have an opportunity to outperform and surpass their competitors who are more intimidated by economic uncertainty. In the absence of acute cash flow or deep systemic issues that require hunkering down, healthy businesses with optimistic growth prospects shouldn’t let near-term uncertainty derail sound strategies.

Uncertainty is not permanent. All things pass. The Dot.com bubble, 9/11, the mortgage bust in ’09 and COVID-19 all receded into the rearview mirror and businesses with sound strategies, good products, strong financials, and high-performing teams prospered. As Lloyd Blankfein, former head of Goldman Sachs, said in a recent Wall Street Journal piece on navigating uncertainty, “It’s never as bad as your worst fears or as good as your best hopes.”