As the dust settles from the initial shockwave of the financial crisis, intelligent commentators are starting to explore the new business reality. A new pattern of consumer behaviour is emerging that means change for the way all of us plan and run our businesses, writes Hugh Mason.
Last November, the International Herald Tribune was among the first in the media to record the ebbing of the tide of conspicuous consumption that's carried economies around the world to new highs over the last decade or so. However, the scribes at the IHT perhaps put fingers to keyboards a month or so too early to see what was replacing it. Now that new story can be told.
A recent circular by independent investment bank chairman Peter J Solomon says it best:
"Conspicuous saving has replaced conspicuous consumption in the United States. From the plunge in retail sales to the explosion in the savings rate to the lowest consumer confidence levels ever recorded, Americans have turned off spending. They are shopping in their closets and their garages ... it's time for business to prepare for a decade of economic unpredictability."
In a nutshell, here's Solomon's picture, to which we wholeheartedly subscribe:
- Consumers drive the economy and right now they're rattled. Middle class dinner party conversation now centres on how much money the family managed to stash away last month, not the products and service on which it's managed to splurge.
- The result is huge turbulence in markets and businesses can't wait for stability
- It's quite possible that the action of governments printing money round the world will lead to rampant inflation.
- We could well be headed for something like the stagflation of the 1970s
So what's a CEO to do? In a nutshell, the priorities for a future which is anything but foreseeable have got to include:
- Eat, drink, sleep CASHFLOW.
The heart of a business beats every time a pound hits your account, and it bleeds every time you write a cheque. Cashflow is THE vital sign you must watch to keep your business alive. Don't be distracted by folks with other agendas.
Even if investors are breathing down your neck asking why you aren't making the earnings you predicted, they will come round to realising that a business that's still alive has the capacity to grow when things turn around. They have to wait their turn like everybody else.
- Look for a new sugardaddy.
The life support structures that once helped businesses tide over the tricky months - banks - are out to lunch. A very, very expensive lunch, for which every single citizen, and their children, will be picking up the tab for decades to come. Do not expect them to help you now, or into the foreseeable future, until they put their own houses in order.
You need to diversify and find alternative sources of finance and capital. One source could even be your current competitors - see (4) below. Meanwhile, all that money the central banks are printing merrily has got to start sloshing through some unexpected channels sooner or later.
- Discretionary spend - just say no
Will a spending splurge that ramps up capacity really help you sell more, or is it something your managers are asking to do because spending money gives the illusion of meaningful activity?
Make them wait and cut the fat from every budget. If you can keep your resourcing one quarter behind what's comfortable for the staff, you will breed a level of fitness into your business that will stand you in very good stead when the upswing comes to your sector. Maybe this year's staff bonus is simply that they get to keep their jobs. Hard evidence of discipline on the numbers will make your business very attractive to buyers when the market returns.
- Partner Up
Your competitors are hurting just as much as you - but maybe more. If you can focus on where the real value lies in your business, plan for the future and get the capital required together, you stand an excellent chance of picking up fantastically undervalued assets from competitors who lose their bottle or lose the plot.
It's often said that businesses only come together for two reasons: greed or fear. Right now there is a lot of fear about. Look for opportunities to explore merger and acquisition by unconventional means and you may be able to grow a business of critical mass quicker a cheaper than at other points in the economic cycle. The PemBRIDGE CLUB would be a great place to start. It's free to join.
*Plan to mitigate against high inflation. It's going to happen.
*Ask employees about their great ideas to automate cost out of processes.
*Don't just use Open Source, get involved. Its very cheap R&D.
Posted by: David Phillips | Friday, 27 February 2009 at 00:07