When things don't go to plan

I was driving across Auckland from Ponsonby to Howick the other day aiming to make a meeting by 8.30 am. Generally, my view is that the only reason you are late to a meeting is because you left late, so I gave myself plenty of time. You know what happened next – yep, no traffic and I am 20 minutes early! In 2019 this would have taken forever. But now with nearly 50% of the work force working remote or hybrid (more of that in my next newsletter) there are just less cars on the road… most days.

It was a good reminder to not take the assumptions of the past into the future – at least when it comes to planning, whether for a car trip, or for a business.

So here we are few weeks to Christmas, and while most of us have deadlines looming before the holidays it is also time to pause and take stock. This is the first of two pre-Christmas newsletters looking ahead to 2024. This one is all about the market we operate in. The next one is about people and growth.

A note of thanks to Wini Kanagara at BNZ, Nate James at Attention Seeker and Sam Harrowfield at Harrowfield People who shared a panel at Connector Auckland last month and helped with some of the concepts below.

Also – before I dive into it a quick apology to a few of you who have been chasing me for a chat. I did a great imitation of the old ACC advert and fell of a ladder while pruning a tree. The broken right wrist has slowed me down a bit… and thanks to Bella for typing this out for me.

What does 2024 Look Like… and its not what the bloody ‘experts’ think

It is now well established that the track record of expert forecasters—in science, in economics, in public health, in politics—is as dismal as ever. In business, well-known, and well-paid economists are routinely wildly wrong in their predictions of everything from the next stock-market correction to the next housing crash (NZ Reserve Bank predictions on house prices crash during 2020 anyone?)

In 1984 Philip Tetlock decided to put expert political and economic predictions to the test. With the Cold War in full swing, he collected forecasts from 284 highly educated experts who averaged more than 12 years of experience in their specialties. To ensure that the predictions were concrete, experts had to give specific probabilities of future events. Tetlock had to collect enough predictions that he could separate lucky and unlucky streaks from true skill. The project lasted 20 years and comprised 82,361 probability estimates about the future.

In a great summary in the Atlantic they reported the result: The experts were, by and large, horrific forecasters. Their areas of specialty, years of experience, and (for some) access to classified information made no difference. They were bad at short-term forecasting and bad at long-term forecasting. They were bad at forecasting in every domain. When experts declared that future events were impossible or nearly impossible, 15 percent of them occurred, nonetheless. When they declared events to be a sure thing, more than one-quarter of them failed to transpire.

Tetlock, having identified the problem helpfully set out to solve it. He and his wife/collaborator ran the Good Judgement Project. Instead of recruiting well known experts they looked for volunteers. Among them they selected a small group who were –

- Bright people with wide ranging interests, and

- Unusually expansive reading habits, and

- Sceptical of grand theories and group think, but

- No particular relevant background.

This group left the experts for dead!

The message is as we look to understand our market over the next 1 to 3 years, be curious, ask a variety of people. A good starting point is to catch up separately with three good customers, and three good suppliers and ask what they see in the next year, you may be surprised.

The Economy is Personal

I know a number of service suppliers who flew through the lockdown period only to see business slow in the last 12 months. I know manufactures who went through (in order) locked down factories, supply chain problems, no availability of staff, and now a reducing order book. I know retailers who might only see $50 sales in a day after a couple of record years. And, I know companies who are operating in niches that show no sign of slowing.

The message is – the combination of what you supply, the market you operate in, and the profile of your customer bases means that the ‘economy’ is ‘personal’ to each business.

Beware of generalisations about ‘the economy’.

What Does Growth Mean for You?

Growth is all a matter of perspective. NO, I am not about to go wavy gravy on you. The ‘perspective’ is what is the growth I want as the owner given my business operating context next year.

If things are all guns blazing it might be a revenue target

If your market is contracting it might be chasing market share to position for the upward growth cycle even if revenue declines.

If you are seeing competitors struggling it might be an opportunity to take market share, enter a new industry vertical or grow geographically through acquisition.

If you are looking at exit at some stage it might be taking the capacity a slowdown gives you to tidy things up for a future sale

If you are optimistic about your ability to grow when the market turns you might contract slightly, chase margin and hoard cash to chase the market aggressively when it turns.

Growth goals energise us as business owners. It is all a question on choosing one that works for you.

The Stockdale Paradox

Often when business owners enter or are about to enter tough trading conditions they lean on the optimism and resilience that built the business in the first place. But pure optimism has its risks.

James Stockdale was a United States Navy vice admiral and aviator awarded the Medal of Honor in the Vietnam War, during which he was a prisoner of war for over seven years. Commander Stockdale was the most senior naval officer held captive in Hanoi, North Vietnam.

When Stockdale was locked up, he noticed a couple of things. The first was that the POW’s who were pessimists did not survive long. But the other thing he noticed was that the highly optimistic did not survive long either. It seemed that the highly optimistic quickly lost faith. As Stockdale noted “They were the ones who always said, ‘We’re going to be out by Christmas.’ Christmas would come and it would go. And there would be another Christmas. And they died of a broken heart.”

Ultimately, what saved Stockdale’s life was his ability to process the reality of his situation, while balancing that realism with a steadfast, optimistic belief that he would survive and return home.

In Stockdale’s words – “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

You Cannot Cost Cut Your Way Out of Inflation

Let’s talk Inflation. While most companies I talk to have seen cost rises consistently above the published Inflation rate over the last three years let’s use NZ CPI Inflation as a proxy for business cost rises.

New Zealand households have taken an absolute bashing with interest rate rises, consumer confidence has tanked and spending in a number of industries slowed. Yet inflation remains high.

The other thing required to bring down locally caused inflation is the Elephant in the room - significantly larger government spending. This is the challenge for the new government, and it will take a while to bring their spending under some form of control and lower its inflationary pressure.

Looking at offshore inflation factors - global unrest is seeing the US dollar rise against the kiwi peso, the world is consuming more oil than ever with price rises to match and the price of global capital is rising.

Of particular relevance to the price of capital is the NAFTA trading region – Canada, USA and Mexico, the worlds largest trading bloc. Mexico is now the US biggest trading partner and in a number of sectors considered a better manufacturer than China. This region, and particularly the US is seeing the biggest growth in investment in manufacturing since World War 2 (3 x historical annual averages), and this is going to continue for the rest of the decade at least. This means two things – firstly that the cost of capital to our banks is going to stay higher for a long time, at least the rest of this decade, and secondly that our global suppliers will be raising prices annually to reflect rising supply costs in their regions.

We may be looking at inflation above the 3% range for a number of years. Which means we have to adjust our business practises to match.

The costs of goods and people is tracking at 20 to 30% higher than pre Covid lockdowns. You cannot cost cut your way through sustained inflation. Certainly not at that level.

If you haven’t already you will need to put prices up, and condition customers for annual CPI increases at minimum. You may also want to look at your terms of trade to ensure you can maintain ongoing price increases.

And remember – don’t just watch your gross profit percentage. Overhead inflation is just at good at eating your profits, so keep an eagle eye on overhead percentages as well.

F@#k politics, and the media

One of the best ways to protect a market position is through regulation. The harder it is for new players to enter your market the better. If you are in this position then you already know it and you are probably spending a fortune on washed up politicians rebranded as lobbyists.

If you are reading this my guess is you are not running the sort of corporates that do this, so now that you have voted there is not much you can do to affect government actions.

Which means that the actions of politicians in Wellington, and the endless speculations of our media may be entertaining, but they are just a distraction from getting on with business.

Keep that in mind as you plan for next year.

Welcome to New Zealand largest informal co-operative bank.

It is no secret the biggest funder of business in New Zealand is other businesses they owe money to… that’s you! In several of the businesses I have had its often the corporates who take the advantage of us the most.

So, stay close to your receivables, and talk to the customers that are struggling to meet their obligations. This is the squeaky wheel game, stay noisy, help your customers, be paid first, don’t be the bank. And beware debt levels that put you at risk.

Not Sure Who to Ask?

With emerging growth companies growing from 10 to 100 plus people we often face challenges we haven’t seen before, or we feel like we have outgrown a supplier, or we feel stuck or have hit a brick wall but can’t put a finger on why.

If you are unsure of your next step feel free to flick me an email and we can have a chat on the phone about what is going on. I can let you know who may help, who they are working with, and make an introduction if required. No charge, although I am partial to red wine…

Please note –

- this is not a sales job, I can share introductions, but it won’t be me doing the work.

- this is an offer to the owners of emerging growth businesses – 10 to 100 staff, or over $1m revenue as I don’t work in the start up or small business space (under 10 staff)

Until next time –have fun out there!

Cheers

Ben

Mobile: 027 4799 950

Website Link: Connector Communities

About The Author: Ben Marris runs Connector communities and events for the owners and leaders of emerging ($1m + turnover) growth companies and the advisors and suppliers who support them. He believes that these companies are vital for the prosperity of our communities in a fast-changing world. He loves red wine and a good story. He is also dyslexic, so if there are any spelling mistakes or grammatical errors blame his spell check, he does!

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Connector Auckland 2024 Dates: Usually the first Tuesday of the month. Tuesday 13 February, Tuesday 5 March, Tuesday 2 April, Tuesday 7 May, Tuesday 4 June, Tuesday 2 July, Tuesday 6 August, Tuesday 3 September, Tuesday 1 October, Tuesday 5 November.

Contact either myself or Debra on [email protected]