There are certain fundamental truths about human beings and how they deal with change. The bottom line is we don't like it.

In business schools, they teach a theory called the J Curve, which has been applied to economics, business operations, politics, and even medicine.

The J Curve posits that a business, economy or government in transition will go through a period of losses—a downturn—before it then returns to a period of growth. On a chart with an x- and y-axis, this phenomenon plots out like the letter “J.” Ergo, the name of the theory: The J Curve.

 

For example, in private equity, when a company receives an infusion of cash from venture capital, the company then experiences a period of financial losses as it deploys the new capital. After that period of loss, also known as ‘spending money in order to make money,’ the company eventually returns to a period of growth.

 

The J Curve can also be applied to businesses in transition. A good example is print media.

Readership of printed newspapers and glossy magazines is declining as more people are getting their news and magazine content online and on social media. This is a major disruption to newspaper and magazine publishers, who have had to completely re-think their business models and ways of making money.

 

As the publishing business restructures, revenues go down as these companies rebuild their businesses. Once the restructurings are done, the new business lines grow (hopefully), operations start to bring in more revenue, and economies of scale kick in to drive profit.

 

While the J-Curve is about financial loss and gain, it is a period in a company’s lifespan that causes a lot of uncertainty and stress for employees. It is vital at these points for the C-Suite executives, especially the CEO, Chief Human Resources Officer and Chief Communications Officer, to pay more attention than ever to corporate culture.

When a company is experiencing a J Curve, it is a key time to regularly measure employee sentiment—I call it “taking the temperature of the company.” A quick quarterly assessment of how employees view the company and their jobs enables leaders to institute changes that will help attract and retain good talent.

 

Everyone thinks that a company’s primary business is its product or service. I argue that the company’s primary business is its human capital. Companies employ people, but it is the people who run the company. Therefore, employees are a company’s most important asset.

The reason a J-Curve period will cause problems for employees is the same reason that any change causes problems in the life of an organization—people resist change!

Why is that? The quick answer is that we are wired that way.