Eyeballing Competitiveness & Business Cycle

Running a business - big or small - has its challenges. What do you need to eye-ball?
First, we need to take a big picture approach. We need to ask ourselves - at what stage of the business cycle are we at now?
What are the signals that we need to track to clue us in whether the economy is growing, is holding steady or tanking?

For a busy executive, a cheat sheet will do nicely. Items will include inflation data, job employment level and wages ( increase vs. productivity ) etc.

Regulators use monetary tools to tame inflation. The most visible being interest rate. Increasing interest rate generally has the effect of dampening consumption and capital investments. US Fed has bumped up rates by 425 basis points, and its lagged effect still to be felt.

The idea is to slow down the economy so that core inflation does not set in. In the US it is 2.4% - an 11 year high versus a ceiling of 2%.

Interesting signals in this context will be how well the corporate sector is holding up given the fact that they have healthy cash surpluses and their willingness to invest in capital goods, now with the slowdown in consumption ( particularly in housing ). At this stage, we would be very interested to see how this is panning out?

We would be interested to know the directions that businesses are heading for. Generally, what does a slowdown entail for the consumers. What are the unmet needs of consumers that once fulfilled will empower these consumers to take advantage of the next upturn in the economy. In the 80s, it was the PC, late 90s, the internet / dot.com. Essentially what it says is that productivity gain is the key to the next surge. And consumers must want these goods! And there are many opportunities, given the state of the technology we are at now.

As entrepreneurs, we need to understand what will turn on our customers. Ever-increasing pressure in the workplace means that executives must find innovating solutions to stay ahead of competition. They have to achieve more for less - unless you are willing to accept lower wages, and the way out has to be significant improvement in productivity.

The business model that adheres to these guiding rules has a better chance of coming out better vis a vis the competition.

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Be patient for growth, but impatient for profits

Think small is beautiful. If your goal is to secure a foothold in the marketplace - that is.

Realising profits early are one of the best signs that you are on the way to a successful venture.

Management does not realise that pushing for fast growth can be detrimental as players, motivated by competitive instinct, will pile innovations into the marketplace. Without the benefit of hindsight, these innovations prove to be a poor fit with customer needs.

With profits in the bag, a certain degree of traction is assured. You will naturally feel confident to spend further time and resources ( you need working capital and capex to grow the market - implies more risk ) to establish the market. More importantly, you can afford the luxury of iterating your way till you find the right fit to meet the needs of your customers and make money. Your just reward - growing your business.

Adapted from: An article from Clayton M. Christensen, a professor at Harvard Business School

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