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« Choosing ideas that get traction | Main | Maintaining Passion »
Tuesday
Feb162016

So what if there's a recession

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Coping with cyclical inevitability. 

Forecasts of recession are common this time of the year. Trawl through the financial press and you’ll see all sorts of gloomy predictions. Most will be wrong. Forecasters don’t have a great track record. Research shows barely 15% of them will get it right. 

Should we worry?

Let’s get a few things straight about the business cycle.

First of all, it’s not dead. In most economies, booms, busts, downturns and recessions happen every five or six years. If you are 40 now and retire at 65, you’ve probably got four to go, maybe half a dozen. More if you’re younger.

Second, it’s not just the cycle of the economy, which can be booming all around you while your own sector goes backwards. Think mining now.

Third, products have cycles. They can go out of fashion. Even if your sector is going okay, your product or service can be overtaken by more agile competitors or disrupted by entrepreneurs you’ve never heard of.

Fourth, even if you have a good product range, your firm can go beyond it’s use-by date. Businesses start up, grow up, mature and decline. Only one original member of the Dow Jones Index is still standing. By and large, firms don’t last forever. Yours might, but most don’t.

Fifth, managing all this is not a matter of size or financial clout. A massive firm like BHP could not prevent China’s demand for iron ore hitting a cyclical peak. The ore price has plumbed new lows as a result, and so has BHP’s earnings and share price.

Cycles are out of your control. When the next recession hits, ask what you could have done to prevent it. The answer is probably nothing.

So what’s the strategy?

Start by acknowledging that everything is cyclical: the economy, your industry, your product, your business. Even you. You’ll launch a career and eventually bring it to a close. Your job is to do each section of each cycle – highs and lows included – to the best of your ability.

Next time you’re waiting for someone to turn up for coffee, run through a quick cyclical checklist on your napkin. Draw a big S sideways so it looks like a wave. Extend it so it’s got a few cycles. Then place the economy, your industry, your product and your firm on the curve. Add yourself too.

Sit back and look at that. It won’t tell you exactly what’s coming next but it will raise your strategic awareness. Some items may be on a roll; others might require a bit of work. And for some, the party might be over.

Your job? To be flexible and open to new ideas.

Imagine an appropriate strategy for each – one that optimises their prospects at each point in the cycle. There may or may not be a recession coming, and you may well struggle in any case. But can you avoid joining the ranks of firms and people that get marginalised when the going gets tough?

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