- Tech & Gadgets
- BRW. lounge
Published 11 September 2013 07:10, Updated 12 September 2013 07:32
The question many mid-market company leaders face is when to make their move. Photo: Louie Douvis
With last Saturday’s election over, and the Coalition elected, the political uncertainty that has paralysed the Australian economy is over (despite some uncertainty about the final numbers in the Senate).
The economic uncertainty, however, is not.
The Coalition has promised to cut government spending, but also to deliver big infrastructure projects such as roads.
The government has pledged to create a paid maternity scheme by imposing a 1.5 per cent tax on the 3200 biggest companies in Australia, the vast majority of mid-market businesses.
An economic recovery is coming, and mid-market businesses, with strong balance sheets and lean operations, are poised for growth.
The question mid-market company leaders face is when to make their move. We look at how to get the timing right.
Privately owned mid-market companies start with an advantage, says Pitcher Partners’ David Knowles, the partner in charge, South East region. “Privately owned mid-market companies tend to take long-term views about the investments they make, whereas listed companies with short reporting frames are dealing with short-term metrics.”
Businesses are generally much leaner than they were before the global financial crisis. “They have trimmed their cloth,” Knowles says. “If they are still around today, they have really got themselves into a low-cost model, ready to go.”
Business confidence has remained stubbornly low until recently. Consumer confidence, on the other hand, has been growing steadily.
Mid-market businesses need to watch for a sustained rise in business confidence, says Saul Eslake, chief economist with the Bank of America Merrill Lynch (Australia). “Whether that’s sustained will depend on the Coalition’s performance in its early months in office,” Eslake says.
Eslake warns that rising house prices are not a good sign because they court a correction and worsen affordability. “We need to see a recovering in housing activity, construction, rather than prices,” he says.
Knowles says government spending is a big driver of business confidence, while lack of spending hurts the economy generally.
Abbott has pledged to “build the roads of the 21st century”, but also to cut government spending.
Leaders have spent years drilling cost cutting into their executives and senior management teams. When the time comes for growth, they will need to reverse this message.
The three Cs would apply to leading such a change, says Andrew Henderson, the CEO of management training company, Leadership Management Australasia. “The leadership, executive and senior leadership team need absolute clarity about where they want to head, and the changes that need to be made. They need confidence in their own ability to lead that change. The third C is communication – the ability to communicate that clarity and confidence, and to involve key leaders in finding the solution, so they take ownership.
“And, when changing our mindset, we need to have that vision communicated regularly. We form habit of thoughts, and we need to hear a positive vision, delivered with confidence, time and time again.”
The GFC was a triple whammy for baby boomers – their superannuation collapsed, their property prices fell and they could not sell their businesses. Knowles says there is a lot of pent-up demand from baby boomers looking to sell out as soon as the market returns, making now an ideal time to buy up rivals, consolidate and be in the position to dominate your market when the recovery comes.
Healthy economic times breed healthy innovation budgets, says innovation expert, Amantha Imber. “Unfortunately, when times are tough, the innovation budget is one of the first to get trimmed, if not cut altogether,” she says.
However, Imber says the research shows companies that consistently innovate get more growth and profit from their innovation than those that turn the research and development tap on and off.
As a direct result of the GFC, many mid-market companies today have healthy balance sheets from trimming fat, reducing debt or raising equity (or all three).
The lead up to the recovery is the best time to tip extra dollars into innovation. “If you are not tipping extra money into innovation right now, you can be sure your competitors are, and that leaves you in a very vulnerable position,” Imber warns.