Three boardroom checks that surface cycle amnesia before it shows up in cash, covenants, and compensation.

The stress test you can run from a meeting agenda

I can usually tell when a leadership team has lost its market-cycle memory by the way the forecast is presented. If the deck leads with the base case and the downside is a single “conservative” column tucked at the end, the room is about to do what rooms always do: nod at the “one-off” risks and spend the rest of the hour talking about upside. The fix I use is boring on purpose. I put a standing 10-minute item near the top of the agenda called “Downside math (no adjectives).” No speeches. Just three numbers we must answer out loud.

First: what is our breakeven cash burn if bookings drop 20% for two quarters? Not the annual plan. Not the “we’ll pull levers.” I want the monthly net cash number, and I want it tied to the exact line items we can pause without pretending payroll is a dial. Second: what happens to working capital if DSO stretches by 15 days while vendors tighten terms? People who grew up in a bull run forget that collections can slow the same week your lender gets jumpy. Third: what does our covenant headroom look like under that scenario, expressed in turns and in dollars? If the CFO can only answer with “we’re fine,” we’re not fine.

This is not about being pessimistic. It is about forcing the room to use the same language the bank uses when spreads widen and the “friendly” relationship manager starts forwarding emails from credit. When I do this well, you can feel the temperature change. The operating leader stops saying, “We’ll just sell through it,” and starts asking which expenses are truly variable. The CEO starts talking about timing, not just targets. And you don’t need to name the category or the concept; you just need an agenda slot that makes cycle amnesia harder to hide.

Ask for the 2019 plan and the 2022 plan, side by side

If you want to see whether a team remembers how cycles feel, don’t ask them to describe it. Ask for artifacts. Specifically, I ask for the 2019 operating plan and the first full-year plan they built after the world got weird (often 2022). Put them next to the current plan and look for what quietly changed: assumptions, language, and what the company chose to measure.

Here are the tells I watch for. In the older plan, do they model pricing power as a lever with limits, or as a permanent condition? Bull-market memory tends to show up as “we’ll take price” with no elasticity, no churn sensitivity, and no segmented view of who can absorb it. Next, look at how they treat liquidity. In 2019, many teams talked about revolvers and minimum cash like it was a guardrail. In later plans, especially after a stretch where capital was abundant, that line turns into a footnote, or it gets replaced by a vague belief that you can always refinance. That belief is the part that gets executives fired, because it fails fast and publicly.

Then go hunting for a subtle one: do they still track lead time and inventory turns with the same discipline, or did they stop caring once supply chains normalized? I have watched companies keep the emergency dashboards, then gradually stop looking at them because the numbers got boring. That’s when the next cycle lands. The dashboard is there, but nobody notices the drift until it’s expensive.

The point of the side-by-side isn’t nostalgia. It’s pattern recognition. If the current plan reads like the world only moves in one direction, you don’t fix that with a pep talk. You fix it by pulling the old documents, naming what assumptions used to be explicit, and reinstating the ones that protect you when the credit window closes and customers get picky at the same time.

Comp plans that accidentally assume the cycle stays friendly

I’ve sat in comp committee discussions where everyone agrees the macro is uncertain, then approves an incentive plan that only works if the macro behaves. That disconnect is a very specific kind of cycle-memory loss, and it’s common with younger decision-makers who’ve never had to explain a miss to a board that’s suddenly in capital-preservation mode.

The practical check: take the proposed annual bonus plan and run it against two revenue paths, not one. If the first downside case turns the plan into an all-or-nothing cliff, you’ve built a machine that encourages denial in Q2 and panic in Q4. You don’t need to get fancy. I like three payout zones that people can understand in a hallway conversation: (1) a floor tied to non-negotiables like cash collection discipline and gross margin protection, (2) a middle band that rewards hitting a realistic plan, and (3) an upper band that pays for truly outperformance, not for the rising tide.

Then look at what the plan ignores. If sales is paid on bookings with no adjustment for cancellations, non-payment, or deep discounting, you’re importing cycle risk straight into behavior. I’ve watched teams spike bookings late in the year with terms they’d never accept in a tighter market, then spend the next two quarters cleaning up the mess while finance tries to explain why ARR doesn’t convert to cash. If you want to keep people honest when the market turns, you pay at least part of variable comp on cash receipt timing or on a clean definition of gross profit that includes the concessions people love to hide in “one-time” deal support.

Finally, I ask one blunt question that makes everyone uncomfortable for about five seconds: if we had to do a small reduction in force, would this comp design have pushed leaders to protect cash early, or to keep spending and hope? If the answer is “hope,” you’ve learned something. Fix the plan now, while everyone still has the patience to read the footnotes.