The economy is in a mild recession. The housing bubble has burst and is reverting to mean (normal) values. The super leverage of the 2000’s is being unwound as the investors who took the risk are paying the price of risk. There is a lot of speculation about how bad the economy will be.
We will not have a great depression. This is just a normal business cycle, unless political protectionism makes the situation worse. This cycle is predictable and expected by mature investors. There are challenges coming, but nothing to panic over.
Consumers will not be able to use their homes to use like an ATM to keep spending. Increased energy and food costs further will reduce consumer spending power. Consumers will change their spending towards different priorities for the next few years until incomes increase again. Job outsourcing globally will keep salaries low.
Consumer spending is the driver of two thirds of spending. Fortunately the world is now more successful everywhere, and increased demand is now coming from Eastern Europe, Asia, India and the Middle East. So consumer spending will recover internationally first.
So how will the economy recover? Productivity and innovation has always driven economic growth.
Invest in businesses, products or services that increase productivity. Can you lower shipping costs, use energy more efficiently, use less material in products, service clients quicker at less cost, or reduce overheads? These are the drivers of productivity. And the companies that do this are the ones to own.
Innovation and market changers are the companies that will thrive in the future. Look at Apple’s success in changing the music market. There are kids who have never bought a CDs nor albums. They buy music through iTunes. Television and movies are the next to be changed. Low cost hardware and better software has made an explosion of producing content available. With so many choices for customers, how can major studios or networks hold on to viewers? Look for distribution over the web to grow.
Computer grow exponentially more powerful, and programs now do the leg work of thousands of technicians or clerks. CAD changed how we design products, test ideas, and do research. Better quality and lower prices have come with these innovations. In fact, as the price gets lower more people have access to the power of software. Look at the success of new medical products that are improving medical care. CAD has speed up development tremendously. Furthermore the web will be replaced by cloud computing which will increase the amount of data available faster.
Invest in energy businesses that increase productivity of creating energy or conserving energy. One caveat, they must be profitable at a much lower oil prices. Energy will be the next bubble to break. $100 to 120 per barrel is not sustainable.
Oil was stuck in the $15 to $20 per barrel range for two decades. A price of $30 dollars per barrel would be reasonable today with normal inflation. The value of the dollar fell about 30% over the last two years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall at the current high prices, and alternative production methods are cost effective above $30 per barrel. Both will reduce future demand for oil and lower prices. Invest only in energy processes that are cost effective at $30 - $45 per barrel. I expect oil to fall to $60 – $70 per barrel in 2009.
In summary, the future economic growth will be from productivity and innovation. Productivity and Innovation will overcome a few years of low growth or recession. This is where we need to invest for future profits.
April 22, 2008
March 28, 2008
Redefining Success
In High School success was passing your courses and graduating. Having friends, a date on Friday, and a date for the Prom are good.
In college success was still passing your courses, but more important was figuring out your major. Most of us had no experience whether we would like our career afterwards, but we choose them anyway.
After college success was getting your first job and an apartment. Friends and good times may be a priority. The adventurous take breaks and travel, while most of us tried to figure out what we are doing at work.
Next success was finding love and marriage. Success is finding a partner to love and who will love us.
Family comes after marriage. Success was buying a house or condo. As the family grows, success was getting a bigger house.
Getting promoted, or getting a better job was our next definition of success. Some will choose to be self employed instead.
At some point, the economy or business cycle changed and success was keeping our job as other were laid off.
Maybe your next success will be retiring, or maybe it was a recent success. Perhaps you will consider it a success to find part time work to keep you busy, or success is more games of golf.
While these are all fine goals, I think most are not a good definition of success with the exceptions of love and family. Let’s propose a better definition of success.
Success is when we take care of customers. Success is earning a living. Raising good children is a success. Success is when we make the world a better place.
Success is when we do for others selflessly. Success is not about us, not what we own, but about serving others. We succeed when we help. Help any way we can by either our time or money. Volunteer at charities or church. Volunteer in you schools or neighborhood. Just take action for others.
Isn’t that a better definition of success for you to live by? Change your definition of success and you can leave a better world. Then you are succeeding!
In college success was still passing your courses, but more important was figuring out your major. Most of us had no experience whether we would like our career afterwards, but we choose them anyway.
After college success was getting your first job and an apartment. Friends and good times may be a priority. The adventurous take breaks and travel, while most of us tried to figure out what we are doing at work.
Next success was finding love and marriage. Success is finding a partner to love and who will love us.
Family comes after marriage. Success was buying a house or condo. As the family grows, success was getting a bigger house.
Getting promoted, or getting a better job was our next definition of success. Some will choose to be self employed instead.
At some point, the economy or business cycle changed and success was keeping our job as other were laid off.
Maybe your next success will be retiring, or maybe it was a recent success. Perhaps you will consider it a success to find part time work to keep you busy, or success is more games of golf.
While these are all fine goals, I think most are not a good definition of success with the exceptions of love and family. Let’s propose a better definition of success.
Success is when we take care of customers. Success is earning a living. Raising good children is a success. Success is when we make the world a better place.
Success is when we do for others selflessly. Success is not about us, not what we own, but about serving others. We succeed when we help. Help any way we can by either our time or money. Volunteer at charities or church. Volunteer in you schools or neighborhood. Just take action for others.
Isn’t that a better definition of success for you to live by? Change your definition of success and you can leave a better world. Then you are succeeding!
February 13, 2008
Solving the Energy Problem
Why do we want to solve the energy problem? Look at the risks of doing nothing. How much of our trade imbalance is based on oil? Oil is a significant threat to our economy and world peace.
Hugo Chavez in Venezuela has threatened to cut off oil to the US? Vladimir Putin and Russia has the power for using natural gas and oil over Europe. Iranian President Mahmoud Ahmadinejad is using oil wealth to threaten destroying Israel and potentially starting a world war against the West?
Think about the war in Iraq? The fight between the Shiites, Sunnis and Kurds is over religion, power and oil wealth. Iran, Syria and the terrorists are all interested in Iraq’s power and wealth.
How about a potential overthrow of the pro US government in Saudi Arabia? Al Qaeda was spawned under the House of Saud, and a large number of their citizens hate their government. What happens if they lose power?
Why should we continue to give money, political power, and an economic weapon to people who hate us? The current risk of supply problems is significant, and would damage our economy.
How much of our trade deficit is based on oil? The 12 months through November 2007 the US imported 3,647,889 barrels. Assuming the average price over 2007 was approximately $75 (Current prices are in the low $90’s), oil imported was approximately $273.5 billion in 2007. Our trade deficit in 2007 was $711.6 billion, making oil imports about 38% of the deficit.
To solve the oil problem, we need plans for the long term as well as the short term. This is a series of solvable projects that needs a long term vision to happen.
Short term actions:
Drill more domestic oil off all the coasts and in Alaska to cover the next decade. Everyone points to the potential for pollution. Oil drilling and transportation processes have improved dramatically over the last 50 years. The rare accidents are cleaned up quickly. Oil will always be needed for premium energy, plastics and products. The US needs to increase production.
Locate more natural gas reserves and develop pipelines to heat buildings and homes. Our infrastructure is reaching its limits, and needs expansion.
Find better ways to clean pollution from coal emissions, and require the whole world to use the technology (including China, India, Russia and developing countries) for a level playing field. China and India are causing three to ten times the pollution than the US. Why should we be held to higher unfair standards like the Kyoto protocol than the rest of the world?
About global warming:
Human caused global warming is not scientifically proved beyond a doubt. Global warming is a natural cycle with a little human contribution since the industrial revolution.
Why is a 1 degree Fahrenheit (0.5 degree Celsius) increase over 100 years traumatic? History shows a normal range of variation around 3 degrees Fahrenheit (1.7 degrees Celsius) in the last 2,000 years. Go back millions of years and the natural temperature variation is larger. The biggest factor related to global warming is the natural variation in the output from the Sun.
The fanatics are talking CO2 will destroy the world. People and animal exhale CO2. Are we talking about people and animals breathing CO2 being the main cause of a pending future natural disaster? I don’t think the world is that fragile.
If human kind is contributing less than 1% to 5% maximum of global warming, why are some panicking? Most of the research is based on computer models that are simpler than reality. These models do not work well when compared with current data. Look at the hurricane predictions from 2006 & 2007. The results missed reality going the wrong way from the faulty models. Most global warming models are based on faulty logic. The lack of good science is why I do not take global warming seriously as a panic.
Long term actions:
Generate more electricity using solar and nuclear. Solar electrical generation is finally becoming efficient enough to be cost effective. It could generate 10% of future needs as well as being pollution free. Tax incentives and private industries should be the source of solar products.
Nuclear energy is the choice of many countries including Canada, Britain, Spain and France. France generates 90% of their electricity from nuclear power. The plants in the US are aging, and need to be replaced with new, safer designs that are also more energy efficient soon. The older nuclear plants need to be retired for safety. Legal battles with environmental extremist have prevented new nuclear energy plants. We need to make nuclear power politically possible and economically feasible.
Convert hybrid cars to plug in hybrids to use less oil. This requires more electric generation from solar, coal and nuclear. Hybrids work because of the expanded range for practical transportation. Pure electric cars are too limited in distance for average commuting, and public transportation takes too much time for busy Americans to use. Most of us do not live near transportation that goes near our offices without doubling our commuting time. Time is our most valuable resource. This is why less than 3% ride public transit to work.
Create fuel cells to replace the gas engine generating electricity for hybrids. Fuel cells are getting close to being more economical for gasoline and alternative fuels like ethanol, natural gas and hydrogen.
Grow and develop grass based ethanol since corn based ethanol is too energy inefficient. Grass based ethanol generates much more energy than corn at a lower cost. We also need a pipeline system that carries ethanol. Transporting ethanol in trucks is too expensive and unreliable for extensive use.
The Results of Energy Independence Program:
A ten year program for energy independence will bring world oil back to $30 - $50 per barrel when the US stops importing oil. Dictators will have loss their income and a threat to use against the West. The possibility of war would be reduced. The American economy would improve with less trade imbalance.
The technology is there for everything proposed here. It takes a leader, political commitment, private and governmental investment, and the will to get it done. We are ready for the leadership to step up.
Hugo Chavez in Venezuela has threatened to cut off oil to the US? Vladimir Putin and Russia has the power for using natural gas and oil over Europe. Iranian President Mahmoud Ahmadinejad is using oil wealth to threaten destroying Israel and potentially starting a world war against the West?
Think about the war in Iraq? The fight between the Shiites, Sunnis and Kurds is over religion, power and oil wealth. Iran, Syria and the terrorists are all interested in Iraq’s power and wealth.
How about a potential overthrow of the pro US government in Saudi Arabia? Al Qaeda was spawned under the House of Saud, and a large number of their citizens hate their government. What happens if they lose power?
Why should we continue to give money, political power, and an economic weapon to people who hate us? The current risk of supply problems is significant, and would damage our economy.
How much of our trade deficit is based on oil? The 12 months through November 2007 the US imported 3,647,889 barrels. Assuming the average price over 2007 was approximately $75 (Current prices are in the low $90’s), oil imported was approximately $273.5 billion in 2007. Our trade deficit in 2007 was $711.6 billion, making oil imports about 38% of the deficit.
To solve the oil problem, we need plans for the long term as well as the short term. This is a series of solvable projects that needs a long term vision to happen.
Short term actions:
Drill more domestic oil off all the coasts and in Alaska to cover the next decade. Everyone points to the potential for pollution. Oil drilling and transportation processes have improved dramatically over the last 50 years. The rare accidents are cleaned up quickly. Oil will always be needed for premium energy, plastics and products. The US needs to increase production.
Locate more natural gas reserves and develop pipelines to heat buildings and homes. Our infrastructure is reaching its limits, and needs expansion.
Find better ways to clean pollution from coal emissions, and require the whole world to use the technology (including China, India, Russia and developing countries) for a level playing field. China and India are causing three to ten times the pollution than the US. Why should we be held to higher unfair standards like the Kyoto protocol than the rest of the world?
About global warming:
Human caused global warming is not scientifically proved beyond a doubt. Global warming is a natural cycle with a little human contribution since the industrial revolution.
Why is a 1 degree Fahrenheit (0.5 degree Celsius) increase over 100 years traumatic? History shows a normal range of variation around 3 degrees Fahrenheit (1.7 degrees Celsius) in the last 2,000 years. Go back millions of years and the natural temperature variation is larger. The biggest factor related to global warming is the natural variation in the output from the Sun.
The fanatics are talking CO2 will destroy the world. People and animal exhale CO2. Are we talking about people and animals breathing CO2 being the main cause of a pending future natural disaster? I don’t think the world is that fragile.
If human kind is contributing less than 1% to 5% maximum of global warming, why are some panicking? Most of the research is based on computer models that are simpler than reality. These models do not work well when compared with current data. Look at the hurricane predictions from 2006 & 2007. The results missed reality going the wrong way from the faulty models. Most global warming models are based on faulty logic. The lack of good science is why I do not take global warming seriously as a panic.
Long term actions:
Generate more electricity using solar and nuclear. Solar electrical generation is finally becoming efficient enough to be cost effective. It could generate 10% of future needs as well as being pollution free. Tax incentives and private industries should be the source of solar products.
Nuclear energy is the choice of many countries including Canada, Britain, Spain and France. France generates 90% of their electricity from nuclear power. The plants in the US are aging, and need to be replaced with new, safer designs that are also more energy efficient soon. The older nuclear plants need to be retired for safety. Legal battles with environmental extremist have prevented new nuclear energy plants. We need to make nuclear power politically possible and economically feasible.
Convert hybrid cars to plug in hybrids to use less oil. This requires more electric generation from solar, coal and nuclear. Hybrids work because of the expanded range for practical transportation. Pure electric cars are too limited in distance for average commuting, and public transportation takes too much time for busy Americans to use. Most of us do not live near transportation that goes near our offices without doubling our commuting time. Time is our most valuable resource. This is why less than 3% ride public transit to work.
Create fuel cells to replace the gas engine generating electricity for hybrids. Fuel cells are getting close to being more economical for gasoline and alternative fuels like ethanol, natural gas and hydrogen.
Grow and develop grass based ethanol since corn based ethanol is too energy inefficient. Grass based ethanol generates much more energy than corn at a lower cost. We also need a pipeline system that carries ethanol. Transporting ethanol in trucks is too expensive and unreliable for extensive use.
The Results of Energy Independence Program:
A ten year program for energy independence will bring world oil back to $30 - $50 per barrel when the US stops importing oil. Dictators will have loss their income and a threat to use against the West. The possibility of war would be reduced. The American economy would improve with less trade imbalance.
The technology is there for everything proposed here. It takes a leader, political commitment, private and governmental investment, and the will to get it done. We are ready for the leadership to step up.
January 26, 2008
What Sells During a Recession?
The economy is slowing down in 2008, and this is part of a normal business cycle. The question is what should you be doing right now to get your share of business? There is no reason your business should not do well regardless of market conditions. We just have to adapt to the market and be aggressive marketing and selling.
First let’s focus on what sells during recessions. These areas do well in slow economies. So how can your business cater to the desires of your customers or consumers?
Exports sell – The recession generally lowers the dollar (already happened!) so this is the time to find products to export. The growing economies of China, India, Asia, Russia, Dubai and other petroleum wealthy countries are ideal for expanding business while you have a currency advantage. Use the value of America to sell. McDonalds and Coca Cola are great examples of exporting.
Comfort sells – people are worried about their homes, their jobs, and their family. For most people they pull in spending on big luxuries and vacations. However they replace them with familiar pleasures and little treats to make staying home more pleasant. Traditional foods, decorations, home entertainment, and health products are examples that will do well.
Value sells – money is tight, so people will hold it unless it is a good emotional or financial investment. Return on Investment and quick payback work for businesses, investors and consumers. Have features that are usable, use less energy than competitors, are green, save money, and do more for the price. Wal-Mart, Costco and Sam’s Clubs do well when people are watching their dollars. But you don’t have to be the cheapest to be a value buy. Offer guarantees and let them know they are buying a product or service that does what it says it does and performs well. Remember decisions are emotional first, then buyers justify their decision logically.
Quality sells – Ford advertised “Quality is Job 1” and it really is. People will pay for better quality. Toyota and Honda have made the best quality cars over the last twenty years, and look how their sales are worldwide. Toyota is about to be the bigger than GM.
Simplicity sells – Easy to use products and services always do better than competitors. Lower priced products and services with fewer features do well when people are being frugal. Design new versions to make a basic and simple product or service as possible. Your higher end customers will still want the old features and pay more, but get new customers into your base now and upgrade them later. Existing customers you can offer sensible upgrades and extras for more.
Luxury sells – the very wealthy are immune to slow economies unless the stock market drops precipitously. They want to impress friends and enjoy what they get. However they are less likely to buy the ostentatious instead of more subtle beauty. They don’t want to offend as much as impress. Green mansions still have cache since you look responsible, green, and have something unique compared to the merely rich in their regular McMansions. The wealthy will still travel but may justify it to themselves being combined with another purpose – “since we were in Greece on business, we visited Athens”. There are less people feeling wealthy, so you have to target and appeal to the really well off. This market is wiser about value and will negotiate more, but purchases are still emotional decisions.
Design sells – often the real decision maker between competitors is design. Better performance, distinctive appearance, new colors, fashion, different fragrances, and artistic design do sell strongly. Does the product fit the hand, easy to use, and the curves look appealing? Cadillac has recovered it name with better design products. How do the competitors look? People will pay a little more for a Target styled product than a cheaper Kmart or Wal-Mart product. They want what will impress them and their friends.
Love Sells – seriously there is no greater need for people than to love and be loved. This is where advertising has always succeeded. The original Mustang “makes it happen”, “every kiss begins with Kay” Jewelers, beer ads making you look attractive, Victoria’s Secret, and Match.com are example of how you can make it easier for romance and family. Family is often a stronger bond to support. How can you make it easier or appeal to singles and families?
Humor sells – Seriously we buy from people we like. Look at the successful Miller Lite’s ads which were making people laugh at celebrities. Some of the most famous ads were from two football players making fun of the perception football player are dumb. Playing dumb sold a lot of beer and got these guys into the movies as actors. Make sure your clients know they will have a good time with your product and service. Southwest Airlines built a great business making passengers enjoy the trip.
Novelty sells – something cute, cheap, funny and easy to talk about always sell well. A good video on YouTube.com can create insane demand. Pet Rocks with those silly directions on ‘How to Care for Your Pet Rock”, Superballs (where did mine go?), the Wallcrawlers which were funny looking octopuses that flopped down the walls, the Slinky which still fascinate kids, and the hula hoop all still sell.
Security sells – people still have desires, but with less opportunity to earn it a small percentage will take what doesn’t belong to them. Incidences of crime, especially locally, can be used that so people want to protect what they have. The tendency is already there for consumers, just get them to look at a risk they ignore to get them motivated. If you sell security advertise to your market using fear.
Advertising sells – Most businesses cut advertising first when times are tight. This is when you want to expand your advertising and take market share from competitors. Make sure to track results, and watch your budget. Negotiate better deals from your media while they are losing other business. Successful companies often expand advertising in slow economies. Save by expand internet marketing and focusing your print, radio and television advertising. Consider switching to cable television in focused markets versus broadcast ads. Send postcards instead of sale letters to save postage. Have the postcards get customers to go websites with shopping carts. Call old customers regularly. Stay in the selling mode no matter what the market is.
Follow these ideas and you may not have a recession in your business. These ideas generally work in most economies, but will work better during slow times. What can you sell now?
First let’s focus on what sells during recessions. These areas do well in slow economies. So how can your business cater to the desires of your customers or consumers?
Exports sell – The recession generally lowers the dollar (already happened!) so this is the time to find products to export. The growing economies of China, India, Asia, Russia, Dubai and other petroleum wealthy countries are ideal for expanding business while you have a currency advantage. Use the value of America to sell. McDonalds and Coca Cola are great examples of exporting.
Comfort sells – people are worried about their homes, their jobs, and their family. For most people they pull in spending on big luxuries and vacations. However they replace them with familiar pleasures and little treats to make staying home more pleasant. Traditional foods, decorations, home entertainment, and health products are examples that will do well.
Value sells – money is tight, so people will hold it unless it is a good emotional or financial investment. Return on Investment and quick payback work for businesses, investors and consumers. Have features that are usable, use less energy than competitors, are green, save money, and do more for the price. Wal-Mart, Costco and Sam’s Clubs do well when people are watching their dollars. But you don’t have to be the cheapest to be a value buy. Offer guarantees and let them know they are buying a product or service that does what it says it does and performs well. Remember decisions are emotional first, then buyers justify their decision logically.
Quality sells – Ford advertised “Quality is Job 1” and it really is. People will pay for better quality. Toyota and Honda have made the best quality cars over the last twenty years, and look how their sales are worldwide. Toyota is about to be the bigger than GM.
Simplicity sells – Easy to use products and services always do better than competitors. Lower priced products and services with fewer features do well when people are being frugal. Design new versions to make a basic and simple product or service as possible. Your higher end customers will still want the old features and pay more, but get new customers into your base now and upgrade them later. Existing customers you can offer sensible upgrades and extras for more.
Luxury sells – the very wealthy are immune to slow economies unless the stock market drops precipitously. They want to impress friends and enjoy what they get. However they are less likely to buy the ostentatious instead of more subtle beauty. They don’t want to offend as much as impress. Green mansions still have cache since you look responsible, green, and have something unique compared to the merely rich in their regular McMansions. The wealthy will still travel but may justify it to themselves being combined with another purpose – “since we were in Greece on business, we visited Athens”. There are less people feeling wealthy, so you have to target and appeal to the really well off. This market is wiser about value and will negotiate more, but purchases are still emotional decisions.
Design sells – often the real decision maker between competitors is design. Better performance, distinctive appearance, new colors, fashion, different fragrances, and artistic design do sell strongly. Does the product fit the hand, easy to use, and the curves look appealing? Cadillac has recovered it name with better design products. How do the competitors look? People will pay a little more for a Target styled product than a cheaper Kmart or Wal-Mart product. They want what will impress them and their friends.
Love Sells – seriously there is no greater need for people than to love and be loved. This is where advertising has always succeeded. The original Mustang “makes it happen”, “every kiss begins with Kay” Jewelers, beer ads making you look attractive, Victoria’s Secret, and Match.com are example of how you can make it easier for romance and family. Family is often a stronger bond to support. How can you make it easier or appeal to singles and families?
Humor sells – Seriously we buy from people we like. Look at the successful Miller Lite’s ads which were making people laugh at celebrities. Some of the most famous ads were from two football players making fun of the perception football player are dumb. Playing dumb sold a lot of beer and got these guys into the movies as actors. Make sure your clients know they will have a good time with your product and service. Southwest Airlines built a great business making passengers enjoy the trip.
Novelty sells – something cute, cheap, funny and easy to talk about always sell well. A good video on YouTube.com can create insane demand. Pet Rocks with those silly directions on ‘How to Care for Your Pet Rock”, Superballs (where did mine go?), the Wallcrawlers which were funny looking octopuses that flopped down the walls, the Slinky which still fascinate kids, and the hula hoop all still sell.
Security sells – people still have desires, but with less opportunity to earn it a small percentage will take what doesn’t belong to them. Incidences of crime, especially locally, can be used that so people want to protect what they have. The tendency is already there for consumers, just get them to look at a risk they ignore to get them motivated. If you sell security advertise to your market using fear.
Advertising sells – Most businesses cut advertising first when times are tight. This is when you want to expand your advertising and take market share from competitors. Make sure to track results, and watch your budget. Negotiate better deals from your media while they are losing other business. Successful companies often expand advertising in slow economies. Save by expand internet marketing and focusing your print, radio and television advertising. Consider switching to cable television in focused markets versus broadcast ads. Send postcards instead of sale letters to save postage. Have the postcards get customers to go websites with shopping carts. Call old customers regularly. Stay in the selling mode no matter what the market is.
Follow these ideas and you may not have a recession in your business. These ideas generally work in most economies, but will work better during slow times. What can you sell now?
January 17, 2008
Business Predictions for 2008
Everyone makes a fool of themselves by predicting the future at this time of the year. So I will badly make a fool of myself by expressing my opinions on the difficult business market for 2008. Please be aware opinions do not affect the future, and your mileage will vary. So here we go…
Housing will drop big due to credit crunch. If you can’t get financing very easily, how do you buy from someone? Since it is harder to get loans, fewer buyers are available with good credit and money down to buy houses and condo. Investors buy at the value of the net income they can rent a property for, and look for bargains. Neither the lack of buyers and investors caution is good for supporting prices in housing.
Disclosure here: I have done residential and commercial real estate appraisal in California and assisted in Nevada, so actually have real estate analysis expertise. The rise in residential values ran 9 years in southern California from 1997 to 2006, and went years too far. Values could really drop back hard. Las Vegas and Arizona have already dropped prices around 30% and could go lower with so many new homes. The Inland Empire and San Diego values have dropped over 20% in 2007, so Los Angeles and Orange County are behind the curve and may fall 20% in 2008. I have predicted prices to fall off the peak 20% to 30%, and up to 50% if the economy really fell. So I tend to be regarded as pessimistic since I think the boom went far too long. Recovery should start around mid 2009 to 2010, but it is very hard to pick the bottom. If your housing prices have been falling since 2005 you are closer to the bottom than we are here in southern California.
Your area housing values will vary based on local conditions, but I expect a national average to fall by 10% without crazy loans, easy money and speculators to inflate home values. Best analysis I have read is from JP Morgan predicting land values will return to 2002 – 2003 levels, and near the east and west coasts the land may be up to 80% of home values. Location, location and location still rule when it comes to evaluating properties. Look for investment opportunities this year and in 2009.
Commercial property values will go down since it is harder to get credit here as well. It is early in this correction, locations, and property use varies so much will not predict how much values will fall. Commercial prices did not go up as crazily as they did in housing, but value depends on income and cost to borrow. A ten to twenty percent retreat would not surprise me this year in some areas.
Economy will recession early, and start the recovery before end of 2008. The credit crunch will hurt borrowing for businesses, but the hallmark of the American economy is how quickly capitalists adapt to change. China’s currency is increasing in value to the dollar, which will increase inflation as well. Consumers will cut back slightly, but most spending will continue to be stable. Styles will move away from excess to value, so imports may be hurt with higher prices of the now lower dollar. However booming economies internationally especially in India and China will improve American exports. In all, the diverse and adaptable economy will be recovering this year.
Employment will only drop mildly in the US. Finance, automobile and housing industries will be significantly hurt in 2008, but the rest of the economy should grow needing good employees. Your local conditions will vary. I will be looking for a new position in 2008, so understand personal concerns depend on your situation and industry. I expect to be with a business unit growing quickly or turning around by mid year.
Oil will fall from $90 – $100 per barrel to $60 – $70 per barrel in 2009. Politics in unstable countries can have a tremendous affect on supply making timetables hard to guess. So this is the riskiest prediction I am making. Have no special information here, but let’s look at history. Recently it took many years to go from $20 to $30 per barrel. Prices were stuck in the $15 to $20 range for over a decade. The sudden jump in oil prices from $30 to $90 per barrel happened way too quickly from a historical perspective. The cause was speculators and fears driving gains with increase international demand. The value of the dollar fell about 30% over the last few years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall with current prices, and alternative sources are cost effective above $30 per barrel further reducing demand. Politics will have an effect with a president elect promising a program to reduce oil imports could speed the price reduction. Overall I expect a gradual reductions happening with jumps and falls starting in 2008.
Stock market will fall early and start recovery about mid 2008. The recovery will be mild and I like John Mauldin’s description of the “muddle through” economy. The stock market often acts as a predictor of the market and it has had a lot of growth. The question is how far we are going to correct recess or depress the market? More importantly which business sections are going to fall the most. My record here is poor historically, so do your own research. Falling should be finance companies, housing, and consumer related businesses. Everything else depends on design, innovation and value to grow businesses.
The election in November is too close to call right now. The Democrats are likely to have either Hilary or Obama, and they would be wise to have a joint ticket. Republicans have five good candidates, and possibly no one will come with a majority to the convention. Voters usually look at experience, positions, leadership and pandering. Could be another close election based on the experience of the Republican candidate versus the changes proposed by the Democrats. There is a lot of potential changes based on the economy, world events, Terrorists, Iraq and Afghanistan. In the final election the most moderate candidates between the Democrats and Republicans usually win, so that is my prediction.
Okay, this is enough predictions for me to reasonably make in 2008. Lets see how wrong I am since my record has never been perfect. Black swans events make predictions more of an art than a science. Use your own judgment about the validity of these guesses and how they may affect you.
Recommend Forbes, marketwatch.com, John Mauldin, Doug Fabian and Mark Skousen for research and information.
Housing will drop big due to credit crunch. If you can’t get financing very easily, how do you buy from someone? Since it is harder to get loans, fewer buyers are available with good credit and money down to buy houses and condo. Investors buy at the value of the net income they can rent a property for, and look for bargains. Neither the lack of buyers and investors caution is good for supporting prices in housing.
Disclosure here: I have done residential and commercial real estate appraisal in California and assisted in Nevada, so actually have real estate analysis expertise. The rise in residential values ran 9 years in southern California from 1997 to 2006, and went years too far. Values could really drop back hard. Las Vegas and Arizona have already dropped prices around 30% and could go lower with so many new homes. The Inland Empire and San Diego values have dropped over 20% in 2007, so Los Angeles and Orange County are behind the curve and may fall 20% in 2008. I have predicted prices to fall off the peak 20% to 30%, and up to 50% if the economy really fell. So I tend to be regarded as pessimistic since I think the boom went far too long. Recovery should start around mid 2009 to 2010, but it is very hard to pick the bottom. If your housing prices have been falling since 2005 you are closer to the bottom than we are here in southern California.
Your area housing values will vary based on local conditions, but I expect a national average to fall by 10% without crazy loans, easy money and speculators to inflate home values. Best analysis I have read is from JP Morgan predicting land values will return to 2002 – 2003 levels, and near the east and west coasts the land may be up to 80% of home values. Location, location and location still rule when it comes to evaluating properties. Look for investment opportunities this year and in 2009.
Commercial property values will go down since it is harder to get credit here as well. It is early in this correction, locations, and property use varies so much will not predict how much values will fall. Commercial prices did not go up as crazily as they did in housing, but value depends on income and cost to borrow. A ten to twenty percent retreat would not surprise me this year in some areas.
Economy will recession early, and start the recovery before end of 2008. The credit crunch will hurt borrowing for businesses, but the hallmark of the American economy is how quickly capitalists adapt to change. China’s currency is increasing in value to the dollar, which will increase inflation as well. Consumers will cut back slightly, but most spending will continue to be stable. Styles will move away from excess to value, so imports may be hurt with higher prices of the now lower dollar. However booming economies internationally especially in India and China will improve American exports. In all, the diverse and adaptable economy will be recovering this year.
Employment will only drop mildly in the US. Finance, automobile and housing industries will be significantly hurt in 2008, but the rest of the economy should grow needing good employees. Your local conditions will vary. I will be looking for a new position in 2008, so understand personal concerns depend on your situation and industry. I expect to be with a business unit growing quickly or turning around by mid year.
Oil will fall from $90 – $100 per barrel to $60 – $70 per barrel in 2009. Politics in unstable countries can have a tremendous affect on supply making timetables hard to guess. So this is the riskiest prediction I am making. Have no special information here, but let’s look at history. Recently it took many years to go from $20 to $30 per barrel. Prices were stuck in the $15 to $20 range for over a decade. The sudden jump in oil prices from $30 to $90 per barrel happened way too quickly from a historical perspective. The cause was speculators and fears driving gains with increase international demand. The value of the dollar fell about 30% over the last few years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall with current prices, and alternative sources are cost effective above $30 per barrel further reducing demand. Politics will have an effect with a president elect promising a program to reduce oil imports could speed the price reduction. Overall I expect a gradual reductions happening with jumps and falls starting in 2008.
Stock market will fall early and start recovery about mid 2008. The recovery will be mild and I like John Mauldin’s description of the “muddle through” economy. The stock market often acts as a predictor of the market and it has had a lot of growth. The question is how far we are going to correct recess or depress the market? More importantly which business sections are going to fall the most. My record here is poor historically, so do your own research. Falling should be finance companies, housing, and consumer related businesses. Everything else depends on design, innovation and value to grow businesses.
The election in November is too close to call right now. The Democrats are likely to have either Hilary or Obama, and they would be wise to have a joint ticket. Republicans have five good candidates, and possibly no one will come with a majority to the convention. Voters usually look at experience, positions, leadership and pandering. Could be another close election based on the experience of the Republican candidate versus the changes proposed by the Democrats. There is a lot of potential changes based on the economy, world events, Terrorists, Iraq and Afghanistan. In the final election the most moderate candidates between the Democrats and Republicans usually win, so that is my prediction.
Okay, this is enough predictions for me to reasonably make in 2008. Lets see how wrong I am since my record has never been perfect. Black swans events make predictions more of an art than a science. Use your own judgment about the validity of these guesses and how they may affect you.
Recommend Forbes, marketwatch.com, John Mauldin, Doug Fabian and Mark Skousen for research and information.
January 1, 2008
What To Do During 2008 Recession
Hate to be the bearer of bad news, but the credit crunch is bringing a recession to the US in 2008. If you are managing or owning a business, now is the time to plan for this year’s recession.
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
Export
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
Export
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.
November 22, 2007
Thanksgiving Thoughts
Have been researching what to do about when business enters the recession cycle. Taking a longer than anticipated to consolidate the research into a useful article for you.
Today’s blog is about being grateful. There is so much we have to be grateful for. The country we live in, the people in our lives, and our businesses.
Be grateful for the customers and clients you already have. Be grateful for the work you do, the skills you have learned, and the benefits of working. You work with good people, benefit society, get self esteem from your business, get new challenges to stretch yourself, and your income pays for your family and life.
We waste a lot of our life on the annoyances. We focus on this has to be done, traffic was bad, this machine is broken, we have to meet on this product, the quality is bad, or other daily problems. Have you ever noticed 90 percent of business gets done without any supervision or special effort? Be grateful!
Our lives are getting better by new services and better products. Cars today are much better and safer than just 20 years ago and they continually improve. Homes use less energy. The internet is a group of great tools. Cell phones, VOIP, instant messages and email give us more freedom to travel and stay in touch. Clothes and furniture cost less. Be grateful for how much easier it is.
So enjoy your weekend, and think how much we have to be grateful for.
Today’s blog is about being grateful. There is so much we have to be grateful for. The country we live in, the people in our lives, and our businesses.
Be grateful for the customers and clients you already have. Be grateful for the work you do, the skills you have learned, and the benefits of working. You work with good people, benefit society, get self esteem from your business, get new challenges to stretch yourself, and your income pays for your family and life.
We waste a lot of our life on the annoyances. We focus on this has to be done, traffic was bad, this machine is broken, we have to meet on this product, the quality is bad, or other daily problems. Have you ever noticed 90 percent of business gets done without any supervision or special effort? Be grateful!
Our lives are getting better by new services and better products. Cars today are much better and safer than just 20 years ago and they continually improve. Homes use less energy. The internet is a group of great tools. Cell phones, VOIP, instant messages and email give us more freedom to travel and stay in touch. Clothes and furniture cost less. Be grateful for how much easier it is.
So enjoy your weekend, and think how much we have to be grateful for.
October 24, 2007
Self Insuring Your Home or Neighborhood
Tonight I get to unpack the car and put the important papers back in my unit. The wind has died down and I am far enough away to be safe from my local Orange County CA fire. My apartment would have likely survived because of location and construction. We do not back up to a canyon nor have woods surrounding us. But the closeness of the disaster and my cousin evacuating in San Diego has me thinking about protecting your home or business. In the western US, we have fires every year ore so.
Your home or business is a big investment. Firemen can get overwhelmed during a big fire. They can’t be everywhere. You don’t want to be one of those heroic people trying to save their property against a 50 foot wall of flames with a garden. Your life is not worth the risk. Evacuate when you are told to!
It would be great buy the right house or pick the right business building. Get a fire proof roof if possible. Tile and metal roofs are best choices. If you have a shake roof, replace it! You can get modern tiles that look like a shake roof.
You want the walls to be Stucco, Cement or Brick. These materials will resist burning best, and should be good long term investments.
View homes have wonderful appeal, and living trees are great shade for summer comfort. I want a home like this too, but fires love to climb hills and travel through treetops. Location will affect your risk.
Most homes burn from the fire getting into the attic. The fire licks the side of the house, and the embers find their way through the vents or eves. Make sure you clear brush, woodpiles, and other fuel away from the house. At least 30 to 100 feet are recommended.
Some experts recommend sealing under the overhangs. I am not sure how to let air circulate and block the embers, but this is worth investigating. Would love to hear from someone how.
Have or install a sprinkler system. Make sure the attic is covered. Water will keep the fire from expanding although I would expect some water damage.
Above is wonderful advice if you are choosing a place, but what if you already own property? So what else can you do? Invest in a fireproof foam system. The fire is nearby and you have to start packing your important papers. Close the windows and doors. Park the car in the driveway with the engine running, get out your hose and ladder and start spraying under the eves, over the walls and windows. Spray trees too close to the house, the tank on the barbecue, and any car or truck to be left behind. Leave the sprayer tool soaking in a bucket of water. Then leave as soon as you can or you are told to.
The firemen will not have to risk their lives to save you home. If the fire comes too fast, your place is still safe.
Find out more by going to the following websites:
Barricade Gel www.barricadegel.com
No Char www.nochar.com
Thermo Gel www.thermogel.com
There is some downside to these products. Your outside walls will probably discolor and the foams can remove oxidized paint. So you may wind up repainting. If the fire isn’t right there, you have to water them to keep them moist and effective. The foams are very slippery, so you have a good chance to fall while applying the foam.
Kits start around $300 and neighborhood associations can protect ten to twelve houses for $2,000 to $3,000. The chemical does age and have to be replaced.
Note: I have no financial interest, nor am receiving no reimbursement for writing this. Just want you to be aware foams are available. I heard about Barricade Gel in Florida a few years ago when visiting family in the Daytona Beach area.
Consider investing in foam to insure yourself. Who wants to lose all those memories inside?
Your home or business is a big investment. Firemen can get overwhelmed during a big fire. They can’t be everywhere. You don’t want to be one of those heroic people trying to save their property against a 50 foot wall of flames with a garden. Your life is not worth the risk. Evacuate when you are told to!
It would be great buy the right house or pick the right business building. Get a fire proof roof if possible. Tile and metal roofs are best choices. If you have a shake roof, replace it! You can get modern tiles that look like a shake roof.
You want the walls to be Stucco, Cement or Brick. These materials will resist burning best, and should be good long term investments.
View homes have wonderful appeal, and living trees are great shade for summer comfort. I want a home like this too, but fires love to climb hills and travel through treetops. Location will affect your risk.
Most homes burn from the fire getting into the attic. The fire licks the side of the house, and the embers find their way through the vents or eves. Make sure you clear brush, woodpiles, and other fuel away from the house. At least 30 to 100 feet are recommended.
Some experts recommend sealing under the overhangs. I am not sure how to let air circulate and block the embers, but this is worth investigating. Would love to hear from someone how.
Have or install a sprinkler system. Make sure the attic is covered. Water will keep the fire from expanding although I would expect some water damage.
Above is wonderful advice if you are choosing a place, but what if you already own property? So what else can you do? Invest in a fireproof foam system. The fire is nearby and you have to start packing your important papers. Close the windows and doors. Park the car in the driveway with the engine running, get out your hose and ladder and start spraying under the eves, over the walls and windows. Spray trees too close to the house, the tank on the barbecue, and any car or truck to be left behind. Leave the sprayer tool soaking in a bucket of water. Then leave as soon as you can or you are told to.
The firemen will not have to risk their lives to save you home. If the fire comes too fast, your place is still safe.
Find out more by going to the following websites:
Barricade Gel www.barricadegel.com
No Char www.nochar.com
Thermo Gel www.thermogel.com
There is some downside to these products. Your outside walls will probably discolor and the foams can remove oxidized paint. So you may wind up repainting. If the fire isn’t right there, you have to water them to keep them moist and effective. The foams are very slippery, so you have a good chance to fall while applying the foam.
Kits start around $300 and neighborhood associations can protect ten to twelve houses for $2,000 to $3,000. The chemical does age and have to be replaced.
Note: I have no financial interest, nor am receiving no reimbursement for writing this. Just want you to be aware foams are available. I heard about Barricade Gel in Florida a few years ago when visiting family in the Daytona Beach area.
Consider investing in foam to insure yourself. Who wants to lose all those memories inside?
October 16, 2007
Real Strategy Versus Planning
Too many companies do their year end planning and call it strategy. Often the discussion at these meeting is simply how to incrementally improve the business. Everyone predicts they will sell slightly more product this year. It is a good business practice to have long term resource plans, but that is not strategic business development.
Real strategy is focusing your business. Strategy is finding potential opportunities, and enabling your resources to produce and sell new products, and services to grow.
Continuing operations have to be profitable and products updated. Equally important is to discontinue or outsource products and services no longer key to your success. The important idea is to concentrate your resources where the profits are. Work less and make more.
The best opportunities are market disrupters. All innovation flows from the unexpected combination of two or more things. You need to spot and exploited a change whose time has come. Not necessarily being the first mover, but be the first to get it right.
Steve Jobs says, “I am going to wait for the next big thing." Then he develops a position to take advantage of the opportunity. Look at the iPod. Lots of people in and out of the industry knew about music downloading, and people knew that MP3 players were coming along. The music companies and the music retailers had asset positions that were being threatened, and didn’t want to act. It was not a fantastic leap of imagination into the far future. He found a set of ideas that needed to be quickly and decisively acted upon.
A value denial is a business opportunity. Every change and innovation creates new value denials. These are products or services that are both desired and feasible but are not being supplied to the market.
What makes a business unit healthy? Operating efficiently and having a good strategy. A good strategy, in turn, is one that is responsive to change and that builds, builds upon, and stretches the resources that yield competitive advantage. Be focused on going after changes.
How do you actually plan strategy? For that, you need a small group of smart people. Strategic insight is essentially the solution to a puzzle. Puzzles are solved by individuals or tight-knit teams. With big groups and complex processes you can select the better solution to the puzzle, and you can get consensus and buy-in and even commitment. But that comes later.
Start with a SWOT analysis. It is time to look at your strengths, weaknesses, opportunities and threats. Basically as a group evaluate your business internally and externally. Where do you have advantages, and where do you have to improve? What opportunities are there and what weaknesses do you have?
Write three coherent paragraphs about what is changing in your industry and why. Having to link your thoughts, giving reasons and qualifications, makes you a more careful thinker and a better communicator. No bullet points.
Other questions to ask include: Where are the profits too low? Are the margins low? Can we increase margin with a new design? Can we partner with a competitor? Does someone else do it better? Can we minimize expenses on mature products? Do we just raise prices and give up market share? Do not underestimate the inertia of buyers. Can we sell part of the business without damaging the whole unit? How will the customers react?
Speculative judgments are the essence of strategic thinking, and they can be the starting points for taking a position. Strategic thinking is essentially a substitute for having clear connections between the positions we take and their economic outcomes. You have to determine where to invest in projects with a goal.
Companies create competencies by making bets, and putting the right resources in place to develop those competencies. Companies get good at something by doing it, and that give you a sustainable advantage.
You job is to figure where your resources are best spent. The most important job of any manager is to break down a situation into challenges that subordinates can handle. Absorbs a lot of the ambiguity in the situation and gives less ambiguous problems to others. That is the heart of strategy.
This article is based on the research and studies of Richard Rumelt.
Real strategy is focusing your business. Strategy is finding potential opportunities, and enabling your resources to produce and sell new products, and services to grow.
Continuing operations have to be profitable and products updated. Equally important is to discontinue or outsource products and services no longer key to your success. The important idea is to concentrate your resources where the profits are. Work less and make more.
The best opportunities are market disrupters. All innovation flows from the unexpected combination of two or more things. You need to spot and exploited a change whose time has come. Not necessarily being the first mover, but be the first to get it right.
Steve Jobs says, “I am going to wait for the next big thing." Then he develops a position to take advantage of the opportunity. Look at the iPod. Lots of people in and out of the industry knew about music downloading, and people knew that MP3 players were coming along. The music companies and the music retailers had asset positions that were being threatened, and didn’t want to act. It was not a fantastic leap of imagination into the far future. He found a set of ideas that needed to be quickly and decisively acted upon.
A value denial is a business opportunity. Every change and innovation creates new value denials. These are products or services that are both desired and feasible but are not being supplied to the market.
What makes a business unit healthy? Operating efficiently and having a good strategy. A good strategy, in turn, is one that is responsive to change and that builds, builds upon, and stretches the resources that yield competitive advantage. Be focused on going after changes.
How do you actually plan strategy? For that, you need a small group of smart people. Strategic insight is essentially the solution to a puzzle. Puzzles are solved by individuals or tight-knit teams. With big groups and complex processes you can select the better solution to the puzzle, and you can get consensus and buy-in and even commitment. But that comes later.
Start with a SWOT analysis. It is time to look at your strengths, weaknesses, opportunities and threats. Basically as a group evaluate your business internally and externally. Where do you have advantages, and where do you have to improve? What opportunities are there and what weaknesses do you have?
Write three coherent paragraphs about what is changing in your industry and why. Having to link your thoughts, giving reasons and qualifications, makes you a more careful thinker and a better communicator. No bullet points.
Other questions to ask include: Where are the profits too low? Are the margins low? Can we increase margin with a new design? Can we partner with a competitor? Does someone else do it better? Can we minimize expenses on mature products? Do we just raise prices and give up market share? Do not underestimate the inertia of buyers. Can we sell part of the business without damaging the whole unit? How will the customers react?
Speculative judgments are the essence of strategic thinking, and they can be the starting points for taking a position. Strategic thinking is essentially a substitute for having clear connections between the positions we take and their economic outcomes. You have to determine where to invest in projects with a goal.
Companies create competencies by making bets, and putting the right resources in place to develop those competencies. Companies get good at something by doing it, and that give you a sustainable advantage.
You job is to figure where your resources are best spent. The most important job of any manager is to break down a situation into challenges that subordinates can handle. Absorbs a lot of the ambiguity in the situation and gives less ambiguous problems to others. That is the heart of strategy.
This article is based on the research and studies of Richard Rumelt.
October 5, 2007
Miserable at Work
You spend massive time at work, work gives you status, your income comes from your work, the income supports your family, and most of your problems come from work.
You work with demanding customers, coworkers of all cultures, political persuasions, religions, strange foods, irritating manners, and all types bosses that range from smooth salesmen to irrational dictators.
Most people do not get fired from jobs for incompetence. They wear out their welcome. Poor attendance, regularly coming in late, leaving early or at the minute, maintaining the welcoming attitude of an ogre or at least the neighborhood grouch, and eventually being left out of the daily give and take. Job performance of course follows this attitude with missed deadlines, sloppy work, and others beginning to take over your workload.
How We Get Miserable
First of all, remember when you got the job? You wanted it, begged for it and said “Pick me, Pick me! I will do a good job.” Think how thrilled you were to get your job? Were you ecstatic? Proud? You told everyone about your new job and company.
Gradually thing are not as new and fresh. There are problems. Grumpy coworkers, complaining customers, poor suppliers, and a ton of attitude. After a while, you’re now complaining about the alarm, the commute, the grind, the workload, his mess, her perfume, the weather (even though you work inside), the politics, the decisions, the demanding customers and the boss. What don’t you complain about?
Now you are in the rut that leads to getting passed over for new assignments, raises and promotions. The downward spiral gets worse when others are getting ahead and you stay right where you are. Be honest, are you thrilled with your performance.
You can be Happy at Work
Look for where you can make a difference. How are the customers happier? How are sales increasing? What you accomplished?
Fall in love with your profession again. Read business journals, magazines, and websites. Compare your products and services with competitors and see where you can improve. The difference between top performers and the average is top performers often give 1% more. Brian Tracy points out the difference is less than you would think. Persistence, service and a little extra often make all the difference.
Mentor coworkers, especially newer employees. They will appreciate the help and you will not believe how much you learn teaching.
Create business relationships. Let other people be right. Respect their contribution and ignore their unimportant shortcomings. Who is perfect? Learn about your coworkers and find out what you can respect about them. The biggest donor to charities at a small plant I worked with was a third shift machine operator who had adopted four kids. Would have never know him if I did not volunteer to help a charity drive. Take pride in where you work, and who you work with.
Have a little humor when things don’t go right. Humor often makes the daily trials livable. Laugh at yourself. In this politically correct world, you can always make fun of you, and others will love you for it.
You will be surprised in a few months how much more fun and productive work is with the right attitude. So go and enjoy work, and start looking forward to Mondays.
Wolfgang Christoph, Brian Tracy and Dr. Roberta Shaler deserve credit for the ideas presented in this article.
You work with demanding customers, coworkers of all cultures, political persuasions, religions, strange foods, irritating manners, and all types bosses that range from smooth salesmen to irrational dictators.
Most people do not get fired from jobs for incompetence. They wear out their welcome. Poor attendance, regularly coming in late, leaving early or at the minute, maintaining the welcoming attitude of an ogre or at least the neighborhood grouch, and eventually being left out of the daily give and take. Job performance of course follows this attitude with missed deadlines, sloppy work, and others beginning to take over your workload.
How We Get Miserable
First of all, remember when you got the job? You wanted it, begged for it and said “Pick me, Pick me! I will do a good job.” Think how thrilled you were to get your job? Were you ecstatic? Proud? You told everyone about your new job and company.
Gradually thing are not as new and fresh. There are problems. Grumpy coworkers, complaining customers, poor suppliers, and a ton of attitude. After a while, you’re now complaining about the alarm, the commute, the grind, the workload, his mess, her perfume, the weather (even though you work inside), the politics, the decisions, the demanding customers and the boss. What don’t you complain about?
Now you are in the rut that leads to getting passed over for new assignments, raises and promotions. The downward spiral gets worse when others are getting ahead and you stay right where you are. Be honest, are you thrilled with your performance.
You can be Happy at Work
Look for where you can make a difference. How are the customers happier? How are sales increasing? What you accomplished?
Fall in love with your profession again. Read business journals, magazines, and websites. Compare your products and services with competitors and see where you can improve. The difference between top performers and the average is top performers often give 1% more. Brian Tracy points out the difference is less than you would think. Persistence, service and a little extra often make all the difference.
Mentor coworkers, especially newer employees. They will appreciate the help and you will not believe how much you learn teaching.
Create business relationships. Let other people be right. Respect their contribution and ignore their unimportant shortcomings. Who is perfect? Learn about your coworkers and find out what you can respect about them. The biggest donor to charities at a small plant I worked with was a third shift machine operator who had adopted four kids. Would have never know him if I did not volunteer to help a charity drive. Take pride in where you work, and who you work with.
Have a little humor when things don’t go right. Humor often makes the daily trials livable. Laugh at yourself. In this politically correct world, you can always make fun of you, and others will love you for it.
You will be surprised in a few months how much more fun and productive work is with the right attitude. So go and enjoy work, and start looking forward to Mondays.
Wolfgang Christoph, Brian Tracy and Dr. Roberta Shaler deserve credit for the ideas presented in this article.
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