Harvard Business: 6 Lessons Learned in the Downturn

By Anthony Tjan

Last week we held our Annual Meeting for my firm, Cue Ball, and as part of it we gathered our investor members for a stimulating dinner discussion with HBR editors Eric Hellweg and Katherine Bell, and group publisher Josh Macht. One of the unique aspects of our firm is our Cue Ball Collective -- an invited set of 25 luminary executives and thought leaders who form not just the core of our capital base, but a critical brain trust of human capital for our firm.

Cue Ball Collective members present at dinner included: Alan Hassenfeld, Hasbro's Chairman of the Executive Board; Mike Overlock, former co-head of Goldman Sachs Investment Banking; Bill Achtmeyer, Chairman of Parthenon; Henry McCance, Chairman of Greylock; serial entrepreneur Mukesh Chatter; and about a dozen others from across the private equity, venture capital, and Fortune 500 firms.

Over some good Italian cuisine and syrah in Boston's North End, we enjoyed a stimulating evening as Eric Hellweg, Managing Editor of HarvardBusiness.org, moderated a discussion centered on the question of key lessons learned in the economic downturn.

Alan Hassenfeld from Hasbro was "cold called" to open the remarks, and he explained that as long as the entertainment business remains creative, innovative and reasonably priced, "we get hurt, but not as badly as other industries." That said, he emphasized a key learning: even the smartest people don't know (and can't predict) what will happen. He believes that there will likely be some tough times ahead.

The sentiment of "tough times ahead" was largely shared across the group. We need to reset expectations. Feelings as to the magnitude of how tough these economic times will continue to be were a little all over the map, but folks nodded as Hassenfeld and Overlock commented that "down 20 to 25% is the new up." And as to the debate over whether we are in a recession or a depression, Overlock continued with, "It's a recession if you're still working. It's a depression for your neighbor who lost his job."

If the biggest take away was the need to re-calibrate expectations, here are six other key lessons learned by the Cue Ball's Collective over the last year:

1. Cash is king. In my one of my prior posts in February on my outlook for opportunities in 2009, I commented that in these times cash gets promoted from king to God. Those who have it, and are willing to invest it during these times, will have some unique opportunities. At the same time that cash may be God right now, debt has become the devil. To say that the last year reminds us again of the perils of over-leverage is an understatement -- to say the least.
Related to "cash is king," is a comment made by Cue Ball's Chairman who was most recently CEO at Thomson Reuters -- in good times and bad, we have learned that it all comes back to focusing on the basics (such as operating metrics) that drive fundamental value creation. This means businesses and business models that can generate superior cash flow relative to their peers will be the ones that have the best long-term staying power. (more)