In 2009, the strategy of many companies could be described as defensive. One could read the newspaper, listen to the news, analyze data, and talk to anyone and know that it was going to be a tough and troubling year. The stock market took its tumultuous fall, many jobs were lost, and firms everywhere focused on cutting costs any place they could. When the dust settled, 2009 was for many a year they would like to forget.
Now we are in 2010, and there are new road signs, which means leaders must take new actions. However, I caution those of you who use superficial road signs to determine what actions you need to take. Superficial road signs are newspapers, the radio, television, most magazine articles, and typical gossip with friends and family. Everyone is regurgitating the same stuff, and usually it is false, misleading, and/or past news. You cannot believe all that you hear and read. To have a great company you want to lead the herd rather than follow it. This takes courage, which usually follows knowledge and belief.
I had the benefit of listening to Economist Alan Beaulieu of Institute of Trend Research last week, and he shared quite a few data points that I think will be important for 2010. It also made me realize how many companies are not paying attention to these predictors and may miss them.
I find this happens for 3 reasons: no one in the company 1) is knowledgeable about what to look for, 2) thinks trend-reading is enough of a priority, or 3) believes that this kind of forecasting can be done with accuracy. Regardless of which of the reasons, too often companies act too slowly and cost themselves tons of money. Running your business by driving through the rear view mirror is a great way to have many accidents.
In this article I figured I would share with you some of Mr. Beaulieu’s key points as his economic predictions have been amazingly accurate over a long period and also suggest some other patterns I believe you should look at. To break away from the herd you must look for patterns to identify changes that are taking place in the marketplace so that you can take advantage of them and/or respond to them faster than everyone else. In addition, you need to talk to current, past, and prospective customers. You also need to look at the year-over-year, 12-month percentage growth trends in your business as compared to the key leading market indicators that correlate with them in order to spot inflection points.
In his presentation, Alan Beaulieu pointed out that the unemployment rate is a lagging – not a leading – indicator, so while the number is distressing and affects so many people right now, it cannot help you run your businesses more effectively. He did identify the following items that are important:
- Every leading economic indicator has shown that the downturn has bottomed out, and we have already initiated a slow “U-shaped” turnaround.
- History tells us that it normally takes about 3 years for banks to start to get comfortable about lending more freely after a downturn.
- China is not as bullet-proof as everyone thinks.
- Industrial production as a percentage of GDP is growing in the US.
- Our manufacturing sector is larger and stronger than anyone is giving it credit for. If it were a country it would be larger than Germany’s economy.
That said, he forecasts that
- Interest rates will start to increase by the second half of this year, and the increases will continue into next year.
- Inflation will increase to 6% by the end of 2010, and might go as high as 7.5% in to mid-2012.
- Commercial real estate should bottom out by June 2010.
- The normal range of unemployment will be between 6% and 8% in the future.
- 2011 will be a strong year.
- By 2015, 34% of the government’s budget will be required to cover its debt, so expect taxes to increase.
Okay, so do we know what the inflation rate is going to be, exactly how fast the economy is going to come back, or what interest rates will be in November? No! But I am pretty certain that based on what I saw from Alan’s data that he is directionally correct. So if you believe the economy is turning, and you want to go from defense to offense, and you think some of these changes are happening, what do you do? Here are some recommendations:
- Shift from a defensive to offensive strategy.
- Invest in customer research, and uncover your competitive advantages.
- If your business is currently not growing at an acceptable level, you have a strategy problem. Consider getting help from a consultant to find a strategy that works.
- We are seeing interest rates are historic low levels? Judiciously build up debt with long fixed terms to lock in rates.
- Budget 5 to 6% rises in your payrolls going forward to help your employees deal with inflation.
- Start and plan to raise prices to afford those raises.
- Buy real estate. Property pricing will probably not go much lower, and interest rates may never be seen at their current level in our lifetime. Rarely do low prices and interest rates coincide.
- Renegotiate leases with as long a term as possible to hedge inflation. There are incredible deals to be had in “Class A” buildings.
- Invest in customer service and your sales force.
- Ramp up marketing and advertising, which is cheap right now.
- Provide training and motivation to your workforce, each of whom probably is currently doing the work of two or three people, has not seen a raise in a while, and is going to need to be ready for even greater workloads.
- Find clients in resilient sectors: energy, water, healthcare, funeral services, etc.
- Sell products to foreign markets. As the value of the dollar goes down, the value of these clients goes up.
- If you want to exit your business, you may want to do it before 2012, as capital gains taxes are likely to rise, reducing your wealth creation.
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