As everyone has aligned themselves to the realities of downturn and slowdown, as the case might be for different companies, we are setting into some very interesting business times. We have lived in times of crazy growth for a long time. Last three decades or so have been either times of slow stable growth (pre 1991) or high growth (post 2000)…..seldom have we been in times of downfall from existing positions. To that effect none of us have ever gone through such business conditions in our working lifetime in all probabilities. These times will probably teach us some of the most hard hitting and valuable business lessons.
Some of the lessons many corporate honchos have already started to realize are:
Lesson 1 : Best business plans are those which are made on real business and real market…..anything that’s based on too many complex set of assumptions made in order to reflect geometrical growth, are bound to be high risk prone
Lesson 2 : Best form of profitability is real cash flows….virtual profit booking in ever inflating books might cause for some exciting exit options to investors in good times, however in more difficult times they will struggle to even maintain regular expenses
Lesson 3 : Its good to have internal accruals and then growth…not vice versa
Lesson 4 : Ability to get high amount of debts and have a high debt equity model might make the business model look attractive to some….however heavy debt is what it is on balance sheet…debt that needs to be serviced
Lesson 5 : Steady growth is not bad and periods of consolidation after every round of growth is very good….often we don’t give the business an opportunity to go through consolidation phase in fear of loosing growth advantage
While some of the above lessons are bringing about great sense of realism about ways of managing business, to me what’s interestingly standing out is importance of “strategy” in such times….rather paradoxically though. It’s important to understand that market is what we make of it. If ever strategy was going to create huge differentiation for organizations, its periods like now. These are times to learn from conditions and not succumb to them. Far too many organizations have resigned to the fate of economic conditions today….there is difference in picking up the learning’s and moving forward, as against getting risk averse due to mistakes made in the past.
Closer home, in the last quarter or so I have seen consulting firms in India which are down by 30-40%, as against firms which are up by 20-25%. That’s a huge differentiation getting created. Same very firms in the last year were growing at same pace when market forces created natural growth.
Organizations which can imbibe realism in ways of running and managing business, but not loose sight of creating aspirations and meeting them through clear business strategies, are likely to go long way in times to come….watch out for how industry leadership positions in several industries change in next few years….they will change hands much faster than they would have in good times.
Cheers
Rohit Jain