The Economy: Third in the Series
by Don Moore
Though many very qualified economists are making predictions on the economy for 2017, we, as business owners, must make real life decisions more or less on our own. Certainly, we must consider the general economy. But, for many of us, the “micro-economy” we live in is far more important. You don’t need an economist to tell you that the automotive sector continues to be hot. Nor that the energy sector is just emerging from a genuine depression and recovery is tentative and unknown.
So, we’re largely responsible to be our own economist; we’re required to take all the facts and make projections that will shape our approach to capital investment, hiring, debt levels, pricing policy, etc. We must consider the direction of our specific industry, its recent history and its trendlines. We must consider our specific niche within the overall market and the moves of our competitors. We must consider the evolution of industry-wide product and services development and our own response. We must assess the impact of technology and the quality of our technology relative to customer needs. And so on.
We are on the cusp of a new year that has more unknowns than usual. You are likely running a few scenarios or perhaps doing a strategic plan and a market assessment. If not, you should be. One scenario that hasn’t been on everyone’s mind for a while is a Recession Scenario. I can tell you that we are doing one for our firm and recommending/helping our clients do one. I’m not predicting that we’ll have a recession in 2017, but the signs are there and they are stronger in some micro-economies than in others. What I am saying is that you can predict how a recession will impact your company and you can have your response(s) mapped out so that you are acting proactively rather than defensively. You always have more options when you have a plan.
I can’t put the content of a Recession Scenario in a newsletter, but I can give you a few generalized bullets and I am happy to talk with you if you want to dig deeper.
Your company probably serves multiple industries. Each industry will likely be impacted differently and at different times when the economy or their micro-economy slows. Map the likely path each industry will follow and the speed/impact on your sales.
Your competitors likely have a predictable response to a recession, one that you understand from prior recessions. Some will go into heavy discounting early. Some will shed specific types of business. Some will shrink their workforce and capacity early and fast. Some will hang onto people and provide incentives to customers. What will you do, in what order and how fast?
Customers reduce suppliers in a recession. This means that some suppliers (you) can actually see an increase in opportunities as the customer chooses winners vs. losers. What they are doing is essentially choosing the partners that they feel will help them succeed in their recession planning. What does it take to be the supplier that a customer retains? What drives the customer’s decisions, what is deeply important to them? If you ask, they may just tell you.
You are going to have to make cuts. It will be a lot less rushed and emotional if you map those out now. These will involve people, suppliers, A/P terms, inventory levels, purchase contracts, etc. It may mean that you’ll also crack lending covenants with your bank…or even the need to ask for temporary changes in payment terms. By the way, your customers may be doing the same thing. Will you be working with the same people in the same relationship as you are today? If not, how will you be treated by a new person who now has three jobs because his coworker was laid off?
All of this takes time. More importantly, it is sort of depressing to do when business is good. So, it tends to get deferred. I understand that, but the economy is unfeeling and uncaring. Those who have done the scenarios will react better than those who don’t. You are either a winner or a victim. I’ve worked through four decades of recessions, both in my own business and helping my clients with theirs. Decision Associates is going to do its recession scenario in the first quarter. If you want help with yours, let me know. The worst (best?) that can happen is that we won’t need it for another year or so.