The Operator's Playbook for the Decade of Earned Growth
In this market, "agility" matters more than "accuracy"
The macro narrative for the past 18 months has been dominated by a key question: When will the Fed pivot? When will restrictive monetary policy subside, and the comfort tide of lower rates return? As we sit here in April 2025, it’s time to face a fundamental reality: the pivot obsession was largely a distraction. Waiting for a Fed pivot isn’t productive.
We are in a new regime defined not by emergency measures but by the reassertion of financial discipline. This isn't just about taming the inflation surge of 2022; it's about resetting expectations after a long, perhaps excessive, period of artificially low capital costs. For operators, founders, and investors, understanding the contours of this new landscape isn't optional – it's the prerequisite for survival and success in what promises to be a decade of earned, not gifted, growth.
In this essay, I’m sharing what I think matters now.
1. This Is the New Normal
The Fed maintaining its benchmark rate in the neighborhood of 4.5% isn't some temporary holding pattern while inflation takes its final bow. Given the recent tariff news, I’m speculating on a surprisingly high CPI print in the coming months. While controlling inflation was the initial catalyst (post COVID), the persistence of these rates signals something more profound: a move to restore discipline to capital markets after more than a decade where money had effectively no cost. Think of it less as fighting the last war and more as setting the terms of engagement for the next era.
Why is The Fed insistent on higher rates even as headline inflation has moderated from its peaks? Because the zero-interest-rate policy (ZIRP) era created distortions. It fueled asset bubbles, encouraged speculative ventures with questionable economics, and allowed mediocre businesses to survive on cheap leverage rather than operational strength. The current stance isn't just about price stability; it's about forcing a more rational allocation of capital. The Fed seems determined to remind markets that capital should have a cost, and risk should demand a real return. They aren't here to perpetually bail out business models that only work when money is free.
Capital markets have received the memo; especially in a tariff-heavy short term future. Risk is being re-priced across the board. When you can get a decent return on short-term government debt, the hurdle rate for investing in anything riskier – venture capital, private equity, high-yield debt, even public equities – necessarily goes up. Investors are no longer just chasing growth narratives; they're scrutinizing unit economics, demanding paths to profitability, and questioning the viability of cash-burning models like never before. The tide has gone out, and we're seeing who was swimming naked. Mediocrity, propped up by cheap funding rounds, finds itself exposed and increasingly unfundable.
The real lesson here is fundamental, almost Buffett-esque in its simplicity: build businesses that work at 5%, not 0%. Does your model generate actual free cash flow? Are your unit economics strong even after accounting for a realistic cost of capital? Can you fund your growth through operations or, if external capital is needed, can you offer investors a compelling return above the risk-free rate? Businesses engineered for the ZIRP environment, reliant on endless funding rounds and negative cash flow in pursuit of scale at any cost, are sub-optimal in this new climate. Resilience, efficiency, and a relentless focus on the bottom line are the new table stakes. Stop waiting for the pivot; start managing for the reality we have.
2. The Consumer Isn’t Broken — They’re Just Tapped Out
Another persistent narrative we need to challenge is the idea of the "strong consumer." While aggregate spending figures might occasionally surprise and showcase upside, digging deeper reveals a more complex and concerning picture. The consumer isn't broken, perhaps, but large segments are certainly stretched thin, behaving rationally in the face of sustained pressures.
The chart above is from Q4 2024 and latest version for Q1 2025 will be published in a few weeks. When you look under the hood, you find nuggets of information around delinquency rates of 30+ days and 90+ days. Perhaps, most importantly, Americans have $1.21+ trillion in credit card debt.
Let's acknowledge this for what it was. The surge in consumer demand from mid-2020 through 2022 was heavily fueled by unprecedented fiscal stimulus, rock-bottom interest rates enabling cheap debt, and temporary shifts in spending patterns during lockdowns. That wasn't a structural change in underlying consumption power; it was a temporary, artificial boost. Assuming that level of demand as a baseline for future growth is a critical forecasting error.
What we are seeing now is the logical aftermath. Trade-down is real and accelerating. Consumers are actively switching to private labels, flocking to discount retailers like Aldi and dollar stores, delaying big-ticket purchases, and scrutinizing every dollar. Simultaneously, bifurcation is stark. High-income households, often insulated by asset ownership and stable employment, continue to spend on services, travel, and premium goods. But the middle and lower-income majority? They are navigating a minefield of credit stress, wage stagnation relative to cumulative inflation, and pricing fatigue.
Look at the data, not the headlines. Credit card balances remain stubbornly high, and with APRs often exceeding 20%, minimum payments consume a share of income. Delinquency rates, particularly for auto loans and credit cards among younger and lower-income cohorts, have been ticking up. While wages have grown, the cumulative impact of inflation over the past three years means many households feel like they're running faster just to stay in place. Add the resumption of student loan payments and persistently high costs for essentials like housing, childcare, and insurance, and the picture becomes clear: discretionary income is squeezed. Consumers are tired of relentless price hikes; elasticity is back with a vengeance.
As a CFO, I’m taking a surgical approach in some of my conversations with CEOs and CMOs to better understand the customer base. Taking an atomic view into the cohorts. We are re-asking “who is our consumer, specifically?” Beyond gender and age, looking at geography, purchase behaviors (value vs. frequency), merchandising strategy against the cohorts, and stretching the discussion into price elasticity for our core products.
Are you serving the resilient high-end, or the stressed mass market? Assuming broad-based strength is being intellectually lazy. You need granular understanding. Model your core customer's likely financial situation. Are they dealing with higher rents? Mounting credit card debt? Feeling the pinch of grocery prices? Understanding their reality is key to predicting their behavior and tailoring your value proposition, pricing, and marketing effectively. Ignoring this bifurcation is like flying blind into turbulence.
3. Tariffs Are the Inflation Nobody’s Modeling Correctly
The disruptions hitting supply chains now are increasingly geopolitical, not just logistical, and tariffs represent a direct, government-imposed cost increase that many businesses haven't fully reckoned with.
The COVID-era supply chain snarls – container ship traffic jams, port backlogs, semiconductor shortages – were largely logistical headaches. The challenges we face now, particularly concerning trade with China and strategic industries, are rooted in national security concerns, industrial policy, and a broader trend toward economic decoupling. These aren't temporary glitches likely to resolve themselves; they represent a potentially long-term structural shift in global trade patterns. Thinking these tensions will simply evaporate is naive.
In short, tariffs are taxes on imported goods. Whether levied on consumer electronics, industrial components, apparel, or raw materials, these taxes increase the landed cost of goods. While some savvy operators have diversified their sourcing or negotiated terms, the reality is that these costs often get passed through, either explicitly or implicitly, contributing to the stickiness of inflation in many sectors. Crucially, these tariffs are unlikely to disappear in the short term. Regardless of political winds, the underlying geopolitical friction and domestic focus on reshoring or "friend-shoring" suggest that trade barriers are now a persistent feature of the landscape, not a temporary political move.
Here’s the uncomfortable truth: most companies and executive teams still haven’t fully re-underwritten their cost structures for this persistent risk. Many budgets and forecasts still implicitly assume a normalization of trade relations or use pre-tariff cost bases. Have you modeled the impact of existing tariffs on your gross margins 12-36 months out? Have you scenario-planned for potential increases or expansions of tariffs on key inputs or product categories? What's your Plan B, C, and D if your primary sourcing region faces new restrictions?
This isn't just about COGS; it impacts pricing strategy, inventory management, and long-term sourcing decisions. Ignoring the embedded cost and ongoing risk of tariffs is like ignoring a significant portion of your tax burden. It leads to inaccurate forecasts, flawed strategic decisions, and potential margin erosion that catches companies flat-footed. It’s time to treat geopolitical trade risk with the same analytical rigor as currency fluctuations or commodity price volatility. It’s a core input, not an edge case.
4. Dilution, Debt, and Discipline: The New Capital Playbook
The rules of engagement with capital allocators—whether venture, private equity, or lenders—have fundamentally changed from the easy money days. Understanding what capital wants now is critical for founders seeking funding, CFOs managing balance sheets, and boards overseeing strategy. Ignoring this shift is a direct path to dilution, loss of control, or worse.
First, let's be clear: growth is still valuable. Capital allocators are always looking for opportunities to back winners and drive returns. But the kind of growth they value has shifted dramatically. Growth without a clear, credible path to profitability is viewed with deep skepticism. Speculative land grabs funded by burning cash are out. Efficient, sustainable growth with strong unit economics is in. Investors want to see that you can acquire customers profitably, that your margins are healthy and ideally expanding, and that your business model generates, or will soon generate actual free cash flow. The burden of proof is significantly higher. If you're raising capital, the question isn't just "How big can this get?" but "How does this become a profitable, self-sustaining business, and when?"
Second, the availability and cost of capital reflect the new rate environment. Credit is tighter. Banks are more cautious, demanding stronger covenants, higher collateral coverage, and, of course, charging higher interest rates based on the elevated benchmark rates. Accessing debt requires a healthier financial profile than it did three years ago. Simultaneously, equity is more expensive. With higher risk-free rates available, equity investors demand higher potential returns to compensate for the risk they're taking. This often translates into lower valuation multiples compared to the peak, meaning founders face greater dilution for the same amount of capital raised. Furthermore, when capital is scarce and companies are desperate, control often shifts towards the investors providing the lifeline, potentially through more onerous terms like liquidation preferences or board seats.
Third, the entire capital stack is repricing. It's not just common equity; the required returns on preferred equity, convertible notes, mezzanine debt, and senior loans have all increased. Each layer demands compensation appropriate for its risk level relative to the now-higher baseline rates. Founders and management teams who fail to understand how their position in the capital structure is valued in this new environment risk making poor decisions. Accepting terms that seem palatable on the surface might lead to severe dilution down the road or create a debt burden the company struggles to service. Understanding the true cost and implications of different forms of capital is more crucial than ever. Negotiating from a position of operational strength and profitability provides invaluable leverage.
5. What Matters Now (and What to Ignore)
In an environment saturated with economic data, punditry, and market volatility, the key to effective decision-making is signal versus noise. Operators need to focus relentlessly on the metrics and trends that directly impact their business and tune out the constant chatter that distracts or misleads.
What to Actually Track (Macro vs. Micro):
The Yield Curve (and Real Rates): Don't just look for inversion as a recession signal. Watch the overall level and shape of the curve – it tells you the market's expectation for the cost of capital across different time horizons. Critically, track real rates (nominal rates minus inflation expectations). Positive real rates mean capital has a real cost, demanding higher return hurdles for investments. This is fundamental.
Margin Compression (Your Own!): Forget the aggregate profit numbers. Obsess over your gross and contribution margins. Are they holding, expanding, or shrinking? Where is the pressure coming from – input costs, labor, pricing, tariffs? This requires granular, product-level analysis.
Consumer Liquidity (Your Segment): Move beyond generic consumer confidence surveys. Track hard data relevant to your target customer: savings rates for their income bracket, credit card utilization and delinquency trends, wage growth versus inflation in their sector, student debt burdens. This will help inform demand forecasting.
What to Ignore (or Heavily Discount):
Monthly CPI/PPI Noise: While the long-term trend matters, getting caught up in the month-to-month wiggles and arguing about whether core services rose 0.4% or 0.5% is unproductive. Focus on your input costs and pricing power.
Constant Rate Cut Optimism/Speculation: Don’t build budgets and strategies based on hoped-for Fed cuts. Plan for the rates we have. React to actual policy changes, don't predicate. I refuse to look at magic 8-balls.
The S&P 500 Daily Moves: The performance of a handful of mega-cap tech stocks driving the index often has little bearing on the reality facing most consumer, retail, or industrial businesses, especially private ones. Don't let broad market euphoria or panic distract from your operational metrics.
The crucial mental model for this regime isn't accuracy in forecasting – predicting the precise economic path is a fool's errand. There are too many variables at play with tariff implications. It's agility. How quickly can you react to changing conditions? Do you have contingency plans? Can you adjust pricing, sourcing, or spending based on real-time data? Build resilience and flexibility into your operations and financial structure. That requires focusing on the right signals and having the organizational capacity to adapt.
6. Play the Long Game, But Respect the Short One
Navigating this environment demands a specific mindset. The strategies that worked during the era of perpetually cheap capital and stimulus-fueled demand are no longer sufficient. Success in the coming years requires a return to fundamental operating principles, combined with the agility to adapt to ongoing uncertainty.
This is shaping up to be the decade of earned growth, not gifted growth. Companies can no longer rely on macro forces to lift all boats. Growth must now be generated through strong execution, genuine value creation for customers, relentless efficiency improvements, and disciplined capital allocation. It has to be fought for and won in the trenches, not simply assumed as a function of market expansion or cheap funding.
In this context, optionality, not optimism, will separate the winners from the rest. Optimism based on hope – hope for rate cuts, hope for a strong consumer rebound, hope for geopolitical tensions to vanish – is unwise. True strategic advantage comes from building optionality: maintaining a strong balance sheet, generating free cash flow, having diversified supply chains, cultivating multiple sources of funding, and possessing the operational flexibility to pivot when conditions change. Businesses that preserve and expand their options will be positioned to weather storms and seize opportunities, while those betting everything on a single rosy scenario risk getting wiped out.
The companies that thrive will be those led by operators who deeply understand their unit economics, manage their cash flow meticulously, make tough decisions on costs and resource allocation, and build resilient teams focused on delivering tangible results. The ability to navigate complexity, manage risk, and execute consistently is now the premium skill.
The challenges are real, but the opportunity exists for well-run businesses to gain significant ground. Play the long game by building a durable, valuable brand, but respect the short game by managing liquidity, adapting quickly, and focusing relentlessly on what truly matters. That's the playbook for the new era.