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Published 06 December 2012 05:09, Updated 06 December 2012 14:59
At school in lower grade mathematics, we all learnt to use predictive models such as calculating distance, speed or the time it would take to get somewhere.
In business, however, there are no set predictive models for what exactly the next year will look like in each particular industry or each particular segment (geographic or otherwise). Great business leaders are often visionaries who can see the future before it happens – or they are at least smart enough to employ advisers to do it for them.
If I could choose one word to describe 2013 and beyond for the business environment, it would be UNCERTAIN. The things that lead me to use this description are trends, forecasts, news; but the most important is what I would term “gut feel”.
The positive thing in a possibly bleak 2013 should be the creation of excitement for the innovative business, particularly those that are orientated to product, price and sales. Uncertain and challenging environments tend to clean out businesses that are weak and archaic.
Such conditions create opportunities for meeting the market with products that are valuable in the eyes of the customer and bring forth a suggestion that relationships will be up for sale. Think about it: some customers have long-term associations with particular brands and stay with those brands because it is inconvenient to change and sometimes it’s confronting to change. In times of economic prosperity there is no need to make a change because fiscal pressures are not as tight as they are in tough economic environments.
Accordingly, while the market may have shrunk, market share is up for grabs because consumers will also be feeling the effects of a weak economic environment and will seek out the best value.
The business leader who supplies products or services in a challenging economic environment has a decision to make. Should they batten down the hatches to survive the possibility of a storm or, on the other hand, should they back themselves and their business product or service and strive to gain greater market share in the shifting circumstances.
To help answer this question, you have to be really clear in evaluating where your business is at. If it is to expand in a difficult market, these are the questions that need a positive conclusion:
1. Is your product or service superior to that of your competitors?
2. Does your product or service satisfy an essential need in the market in which you sell?
3. Are the people behind your business committed to the task?
4. Is your business capitalised sufficiently to allocate the resources required to grow?
5. Will the cash cycle of your business be secure and predictable?
Pay close attention to question five. Cash and cash flow is the new black for businesses entering these challenging times. The days when inherently strong enterprise value existed even when cash flow was weak are over.
If the answers to questions one to four are positive, you shouldn’t need bank or other lending to achieve expansion in a tough economy because you will simply be able to reinject the profits of the business back into future growth.
I’m not saying that if you don’t have positive answers to all the questions above that you cannot expand in a challenging market but I am sounding a note of caution that it is more than likely that working capital will not be as easy to get when you need it from banks or equity providers as it was in the past.
The one thing that is important is making a decision and committing to it, be it riding out the tough times or really going for it and growing the business into next year.
That was something I learnt when I was younger and told a school rugby coach that I thought I had made a mistake after I won a toss and elected to run against the wind (which is something you generally never do). His advice to me as leader of the football team was very simple.
“Now that you’ve made that decision, you just have to go about making sure it was the right decision,” he said.