Is it Time to Start Thinking Differently?
Australia faces the real prospect of an economic downturn. Are you ready?
Most Australians working today, running businesses, start-ups, buying (multiple houses) or investing have only experienced good times. Low interest rates, cheap money and a lifestyle funded on a credit card, resulting in the highest personal debt in the nation's history.
Many businesses are debt encumbered, highly subsidised or financed by billions of dollars in tax offsets and grants. This manufactured existence relies predominantly on consumption.
I have argued that conventional wisdom is usually wrong and there is a place in organisations for a contrary different thinker
Experienced thinkers and leaders have been replaced by well-educated cyclic novices who rely on social channels for validation of their overly optimistic view of prosperity and their own value to their current organisation. There are not many experienced different thinkers with decades of experience left who:
Have worked in very bad times in multiple industries;
Possess the knowledge to plan defence strategies and implement fortress walls;
Can achieve debt reduction and negotiate restructuring;
Can flex management and operational structures; or
Can identify what to keep and what to jettison.
What are we facing?
There was, until March 2018, complacency and the Australian government budget reflected this and added to a false sense of security. Forecast growth over 3%, unemployment falling and a surplus in the Treasury coffers. This is not to be. Another financial crisis is about to explode out of unexpected places.
The value of property is crashing, and mortgage stress is rising even as the Reserve Bank looks to reintroduce quantitative easing - printing money to buy government bonds and the lowering of the cash interest rate. It is too late.
When housing construction falls, consumption falls for all the things that go into a new house or apartment. The ripple effect grows.
The stock market is in a sell down and the big tech companies are bearing the brunt. Businesses that are based on the Internet, social media, app development, search engine optimisation, apps such as Uber, artificial intelligence are all at high risk. One or two of the FAANGS will fall by force of the market and regulatory sanctions.
Finance and access to funding is already constricted and the publication of the Royal Commissions’ findings and pending federal election will only exacerbate current conditions.
The market is saturated, and a culling will occur. The question is who will be culled and when? What segments are safer than others?
Where are we at?
In the latter part of 2018, a raft of Australian companies collapsed, from logistics, retail, internet-based travel ticketing, transport, construction and more.
There are foundation fundamentals that underpin the commercial operations of businesses. They are immutable laws – financial management, revenue greater than costs and base level return on investment. Also, do not burn cash in pursuit of an unknown for example development of an app. Know your market, competitors (open and hidden). Know the compliance laws of advertising, selling to consumers, licenses from other regulatory authorities.
Above all do not put your gut instinct and perception of your capabilities above the practices.
It is these fundamentals that we have seen put business from many segments in good stead, to grow into a multi-million-dollar, multinational businesses.
So, is it time to think differently? Yes and no. What works will work but perhaps differently to what you expect.
Before you discard your bank and rush to shadow banking and unregulated loan providers you should be aware of what the implications are. Can you really survive a downturn paying a few extra percent if your turnover and margins fall 10, 20 or 35%? Probably not.
As you think through the possible impacts of a harder landing for the economy, where will you turn to get genuine knowledge and experience where you will get honest guidance not just spin?
Find someone who’s’ been there before. An experienced business leader or mentor and if you don’t have one of those then maybe meet with a nem Partner. Our Partners have knowledge and experience in all segments of industry, business and commerce, for profit and non-profit. Experience in managing small, medium and very large (some of them iconic) business around the world and we have lived through and prospered through many economic and business cycles.
We don’t have all the answers, but we do know what questions to ask and where to get further help. Follow us for more contrary articles and theories on where the economy is going and how to deal with it.
Author: Kevin Beck, Associate nem Australasia
This article is based on research and opinion available in the public domain.