I've driven through my share of rainstorms, listening to some radio announcer in a windowless room telling me that it's a sunny day.

During a change in economic climate, the biggest mistake a leader can make is not to recognize it. So never stop looking out the window. Because accurately assessing the business cycle is key to your company's success.

When I ran Ronald Reagan's economic-policy board, I met some prominent CEOs who failed to recognize that a change in climate was in the offing. They looked at their current numbers, saw that their order books were full, and believed that everything was terrific. But no graph goes up forever. That was true then, and it's true today.

In economic hard times, you have to shift your attention from the top line to the bottom line. Start thinking about profit, rather than revenue. Cash is king, especially when the wind blows. Get back to basics like inventory control, receivables, payables, and cash flow--all of those boring things that people have nearly forgotten about in the New Economy. Focus on generating cash, and your company will be positioned to take advantage of opportunities that the cash-strapped can't afford.

And remember to recognize when the weather is shifting. Rain or shine--look out.

Risk and Other Four-Letter Words Twilight of Sovereignty