Just because the economy is treading water, doesn’t mean your business has to.
History suggests that the stock market performs best under a Democratic President and a Republican Congress. Investors like predictability. If this scenario becomes a reality it will yield little in the way of new legislation.
The market has generally been a leading indicator, and many have been waiting for our economy to switch gears. But our economy appears stuck in a vicious cycle. Lackluster GNP growth translates into little job creation. The combination of unemployment and underemployment (thought to be close to 20%) is creating downward pressure on any potential housing recovery.
Kiplinger’s (October 8th) predicts a housing double dip, with prices declining as much as 3% next year. With housing starts at soft 600,000-700,000 units, massive shadow industries such as construction, and building materials, will remain depressed.
The wild card in world economics is currency fluctuations as governments continue to manipulate their currencies and provide subsidies on various products and raw materials. China, who now possesses about $1 Trillion in U.S. debt, is only raising their influence within the U.S. economy. If the dollar were to crash and raw materials or energy prices rise (most are imports), hyper-inflation could become a reality quickly.
So we are likely in for much of the same. I maintain what I have been saying for 2 years, there is more downside risk than upside risk, but the greatest probability is that growth remains positive but sluggish. Stronger companies who planned for a downturn and have sufficient cash, and/or those with strong value propositions will continue to be profitable. Those stuck in a wave of commoditization that has marginalized their business will tread water. The weak will go away. Those industries that have not yet consolidated are ripe for M&A activity.
Some executives got fat and lazy in the extraordinary run of the last two decades, knowing they could pass on a 4% price increase ever year and generate 10% on the bottom line. The economics of the day require us to view the world differently. The problems are not cyclical, they are permanent.
It all comes down to the same formula that works in times of boom or bust. Companies need to find a sweet spot, a narrow range in which they can provide value to the marketplace. Customers are fickle and professional buying organizations more frugal; often requiring a Request for Proposal (RFP) process, for even the most mundane (one bid we heard of included toilet paper).
The downturn has only reinforced that to maintain a sweet spot the marketer may have to be narrower than in the past. The world has become hyper-competitive, and if anything competitors from emerging markets are becoming stronger. Most businesses do not have a cost problem, they have a revenue problem. Don’t rest on your laurels, become completely consumed with improving your offer; every day.