Nearly a decade of bullish business has brought surging employment, resilient stock market indices and swelling consumer confidence. It also has created an unfamiliar issue for many CEOs: What to do with all that cash?
“There’s no shortage of money for CEOs,” says CEO Jeff Pedowitz of consulting firm The Pedowitz Group. “The big question is where to put it.”
Should the bounty be invested in acquisitions? A new headquarters? In product development or geographic expansion? New equipment? Or some other high-priced plan to increase revenue and market share?
The answer for many CEOs these days is none of the above. With nightmares from the Great Recession still fresh in their minds, many are choosing something a bit more hum-drum, like making their organization’s operations more efficient and resilient. Rather than bold bets, they’re carefully weighing their options and making more judicious, conservative wagers. In this period of economic resurgence, business’s Lost Decade still haunts their decision-making.
“As a CEO whose company has taken a while to come out of the recession, I’m frankly still in a state of considering that it might happen again,” says Therese Tucker, CEO of publicly traded BlackLine, a leading financial and accounting automation software firm. “Sure, our financial situation has improved dramatically, and there’s lots of capital to invest. But I’m not going ‘whoo-hoo,’ let’s go spend money!”
Instead, CEOs are looking internally at moves that will make operations leaner and less capital intensive. “I don’t want to spend a lot of our capital on moving into a new region and have to shut it down in a year, or to start a project with a lot of ongoing cost that it turns out we can’t finish because of reasons outside our control,” explains Tucker. “Investments in more efficient operations are sustainable. They’re not going to cause me pain later, when the economy inevitably turns south.”
“I DON’T WANT TO SPEND A LOT OF OUR CAPITAL ON MOVING INTO A NEW REGION AND HAVE TO SHUT IT DOWN IN A YEAR.”—THERESE TUCKER, CEO, BLACKLINE
This is not to say CEOs lack the intestinal fortitude to make big bets on new products, acquisitions and geographic expansion. It’s just that the surprising ferocity of the financial crisis and subsequent recession is tough to shake. Once burnt, twice—okay, maybe more than twice—shy.
“When a downturn happens, it usually happens fast,” says Gaurav Dhillon, CEO of data integration software firm SnapLogic. “Economic upswings don’t last forever, and few people can predict when things will cool down. While CEOs should be aggressive during an upswing and strike while the opportunity is hot, we also need to exercise caution in making expensive decisions that lock us in.”
Such capital resource decisions are the ones that Tucker described, where companies have no way out if a big bet backfires. On the other hand, investments that improve operational efficiency, sales and marketing tactics and customer service are less risky decisions. The capital savings flow immediately to the bottom line to improve net earnings.