Economic news comes out frequently, creating a cacophony of often-conflicting trends, dominated by the scariest items. Business leaders must understand the economic issues driving their companies’ profits, but at the same time cope with challenges of sales, marketing, personnel, production and finance. It seems impossible to keep up on economics while also running a business. Fortunately, the concept of an economics tavern can help both corporate executives and small business owners tune in to what’s important while filtering out random noise.
Imagine walking into a noisy, crowded bar, maybe Friday afternoon after work. Standing at the bar, bits and pieces of a dozen conversations are overheard and mostly ignored. Then, one particular voice stands out. If I am at the bar, the voice could be talking about sailing or visiting Rome or woodworking. Tom would hear the discussion about artificial intelligence, Christina would eavesdrop on a Swedish conversation and Anna’s ears would perk up if someone talked about raising chickens.
At the economics tavern, talk is about unemployment, the trade deficit, interest rates and a host of other subjects. A business leader must pick out the appropriate topics to hear about, and that requires preparation. Most companies are very sensitive to sales fluctuations. But the news about GDP, layoffs and government policy is much too broad—keep that in the background as noise. Instead, preparation for the tavern entails identifying the key customer groups and what drives their purchase decisions. The skateboard maker listens for talk about young men (mostly) and their families’ incomes. The retirement home operator stays alert for news about retired people’s pensions and investments. And the staffing company owner wants news about businesses facing worker shortages.
Beyond sales, businesses are concerned about costs. For some that means labor, for others raw materials or fuel. Access to critical resources can be limited beyond pricing issues, so some business leaders must listen out for signs of tighter credit or supply chain failures.
Identifying the key economic issues affecting profits is actually the easy part. More challenging is filtering out the extraneous noise, which is not only a distraction but may be misleading. In the ordinary tavern, a conversation about likely snowfall could be a discussion about a distant ski resort, not the locale of the bar. Similarly, a bad report about industrial production could cause undue worry for an executive providing services to local governments.
Those who have studied economics know that everything connects to everything else, but that concept can be taken much too far. Weak auto sales, for instance, does not necessarily mean weakness for consumer services, nor weakness for business-to-business activities nor exports.
Having a plan for the economics tavern—call it a dashboard—provides two advantages. First, a scan of all the items on the dashboard tells the business leaders not to bother eavesdropping on random conversations. Everything relevant to the business has been covered.
Second, a dashboard of items to be monitored protects against unconscious bias. The optimist in the economics tavern hears good news from the fellow chugging beer but misses bad news from the martini drinker. Similarly, the pessimist notices bad news and discounts rosy claims. Even worse, the optimist’s subordinate knows what news the boss wants to hear. The subordinate will tug on the boss’s sleeve and nod in the beer drinker’s direction to so that the leader’s prior beliefs can be reinforced.
Economic news can be messy and hard to interpret, but a plan for the economics tavern—a dashboard—can help the business leader focus on what’s most important, freeing up time for the rest of the leader’s many responsibilities.