The power of freedom

When things go wrong, what matters is how the leader handles the situation. True mastery is not shown when you're sliding down a hill but rather when you're climbing it up.

My effectiveness is truly tested when business or the economy are having a hard time. And honestly, I find excitement in that. I’m always engaged; I never lack energy or enthusiasm, no matter how bad things get. Perhaps that’s the key to our company’s success.

I advise everyone to immediately prepare for tough work and see themselves as crisis managers. When everything is going well, you’re not as needed; you play a different role in the business. There’s a function that creates value and a function that materializes it. Always strive to create value rather than just materialize it.

I don’t derive pleasure from high financial results. I understand they are the fruits of efforts made a year ago. What interests me is the value I’m creating now. My work has always focused on this. However, I didn’t come up with this model overnight. I admit that at first, I revelled in early financial success and celebrated significant achievements. Over time, I realized that it’s more important to be at the forefront of value creation and lead my team there. There’s no point in celebrating what has already been achieved; it’s just a comet tail.

Around 2015–2017, I began to understand how each of my decisions impacts the balance of interests in the business. It’s crucial to track how the decisions made affect the company trajectory. I can see what’s happening and make the right decisions when I understand what stage the business is at:

• Growth

• Stable development

• Stagnation

• Decline

This categorization helps me approach management and strategy thoughtfully by directing efforts where they are needed most at the moment. I declare that if I sense that the company is not growing, I’ll stop managing it. This is essential for me. I made this decision long time ago and wrote about it in my first book. I’m convinced that one should always leave at the right time.

I’m familiar with Adizes' methodology, but I strongly disagree with it. I believe that a company's stages of development depend not on its age, but solely on the quality of management. A company's age can drastically change with a change in leadership. I've witnessed this in over 200 partner companies within our network.

We had several partners on the brink of collapse, but a team change helped them grow into network leaders within a year or a year and a half. Organizations do not age like people do. While we carry a gene of aging, organizations do not. Discussions about company life stages often mask underlying management inefficiencies.

If you have a mature company, it means that the management team urgently needs to be replaced. If you are experiencing significant revenue growth but have unbalanced margins, it indicates problems in financial management, not that the company is heading in the wrong direction. Everything can be balanced with effective management.

I also find it absurd to claim that out of three parameters – price, quality, and timelines – you have to only choose two. I am convinced that it’s possible to successfully manage all three parameters simultaneously. That is the essence of effective management.

Let’s take a closer look at the stages of a business:

1. Growth Stage: At this stage, it’s crucial to focus on meeting customer needs and ensuring employee well-being, even if it comes at the expense of personal interests. Investing in these two areas will bring long-term revenue, especially if the business rarely sees repeat customers. In such cases, prioritizing internal marketing and employee engagement becomes more valuable than direct sales.

2. Stable Development in Challenging Market Conditions: When facing a market crisis, particular attention must be paid to financial stability. It’s important to ensure that the business remains profitable for investors. In my management practice, there is a strict rule: avoid losses at all costs. We have a principle that as soon as we see the business going into the red, we actively begin to cut costs. According to my management model, we cannot allow the company to be unprofitable for more than five or six months. I always say that if we don’t get any profit for more than seven months, we’ll have to take serious optimization measures. This means reducing staff and lowering salaries. I candidly tell my team that we cannot sustain the current model. There is a strong temptation to try to keep all employees on board by continuing to invest our own funds into the company, but that strategy doesn’t work. The business model starts to “suffer”, becomes accustomed to this mode, and then it is very difficult to recover. Of course, there is always a fine line between necessary measures.

As they say on an airplane, in case of an emergency, you should put your mask on first before assisting a child. The same applies to business: it’s important to protect yourself and not be afraid to prioritize the company’s interests in times of crisis. This is extremely important. This is my tactic, although others may see different solutions.

During the development stage of a business, there is a shift in internal balance. This doesn’t mean that we stop caring for employees and clients, but the conditions change. While we used to invest a lot in financial resources, now, during a crisis, our ability to make such investments is limited. A crisis means a reduction in available resources, and this issue deserves special attention, possibly in a separate chapter on crisis management.

As I’m writing this book, we are going through a challenging period. In fact, we have already faced similar difficulties before, but now we are encountering them again. For example, in January and February, we incurred serious losses – up to 85 million in January. January is always a tough month. In the first quarter, losses reached 70 million, but we have learned not to dwell on it. Instead, we focused on increasing our market share and improving processes and systems. As a result, we achieved fantastic financial results in the second quarter.

If we had started to slow down back then, even with reserves of funds, the situation could have got even worse. This stage is difficult for most people, and forecasting periods of difficulty is relevant for everyone reading this book. It’s important to monitor market conditions. In July 2024, while writing this book, I understood that we were about to face six challenging months, but we were prepared and believed that things will get better in 2025. By the time I finalize this book in October 2024, I realize that nothing good awaits us in 2025.

We don’t view our business as problematic; instead, we see these difficulties as temporary. We adapt our motivational schemes to the current situation, support our employees, and take the full responsibility. This is the only right tactic because excessive staff reductions and the panic associated with them can lead to failure.

I always advise clearly distinguishing between “business” and “market conditions.” Initially, due to lack of experience, I confused these concepts myself. When the market was declining, I thought we were underperforming. Now I always separate these circumstances.

3. Business During Stagnation: In the third stage, when a business stops growing, it’s crucial to shift the focus back to the customer. It’s important to realize that if your operational model isn’t delivering the expected results, it’s time to drastically change your approach to resource allocation. During this period, analyzing the situation and adjusting strategies becomes critically important.

A business often stagnates due to a misunderstanding of the value it creates for its customers. You may have lost touch with them and no longer feel their needs. Understanding what the customer truly wants is akin to love; it isn’t eternal. Even if you’ve discovered a brilliant management tool, over time – whether in a year or a decade – it will require adjustments. Continuous analysis is necessary because customers don’t buy what we find interesting or appealing; they purchase what is valuable to them.

Numerous studies support this idea. A customer doesn’t always choose a real estate service just for profit or time-saving reasons. Sometimes, it’s simply important for them to have someone by their side. In some cases, clients seek real estate services because they need an expert to assess the scale of their purchase. These could be individuals who rely on external validation, which does happen. Therefore, if we misinterpret the customer’s motivation and build our system on that misunderstanding, we risk losing everything.

When a business enters a state of stagnation, the key question for management becomes: what went wrong? The problem usually lies at the highest levels of management. Often, leaders tend to blame operational units, claiming they aren’t functioning properly. However, my experience indicates that if a company is stagnating, the issue is likely rooted in mistakes made by upper management.

4. Degradation: This stage is the hardest for me to describe; I believe our company has never reached this point but has come close. The main characteristic here is that the organization stops meeting societal needs. Symptoms of this stage include low employee engagement. Outsiders often sense what’s happening within the company.

Some might argue that degradation arises from a declining market. However, if the market is falling and the organization is increasing its market share, that’s definitely not degradation. I’m speaking about the essence of the organization itself. The market can certainly impact financial results, but a company can be in a state of degradation even with strong financial performance. It might be losing market share or lowering the quality of its services or products while still making substantial profits.

For a leader, it’s essential to honestly answer the question: “Where are we?” For instance, I’ve made many personnel decisions at the peak of success. Even when everything seemed fine, people would ask me, “Why are you changing the team? Everything is great!” And I would respond, “No, it’s not as good as it seems.”

In 2024, I underwent a major overhaul of our top management team. Despite having a successful year overall, we faced significant issues with market share and performance metrics. The only thing that saved us were the favorable markets of 2021, 2022, and 2023. I was convinced we were entering a stage of degradation: we were disproportionately increasing costs and losing employee engagement. So, I decided to take action.

In a state of degradation, every step becomes critically important. It’s like in the movie “Interstellar”: one hour on another planet equals seven years on Earth. For those who find themselves in this stage, recovering previous positions can be extremely difficult. Many companies fail because once they enter a state of degradation, they can’t respond quickly enough to changes in the external environment. In such situations, two hours of delay can cost a company its very existence.

Another characteristic of the degradation stage is that people begin to protect their personal interests rather than those of the company. It’s essential for employees' interests to align with those of the company. However, during the degradation stage, this connection is lost, and corporate culture starts to focus on the appearance of work rather than actual results. In this stage of degradation, many people are more concerned with seeming productive rather than being productive.

Equally significant is the fact that the zone of risk becomes infinite; there used to be the river of risk, now it’s the sea. For example, during a storm, a person can be swept away from the shore. They either quickly try to return or they may never come back. I must admit, I sometimes feel a shiver when I realize we are being pulled into this stage. It’s a terrifying stage, and I fear it. Most systems enter it and quietly perish.