The Next Major Challenge

The Next Major Challenge

The Next Major Challenge

John R. Daley

June 19, 2009

Seasoned companies either fail during a recession, ownership transition or during growth.
So we have survived the economic collapse.  We are battered and torn, less talent, less capacity, reduced cash reserves and fewer customers buying less… but we are still upright!  Just anemic.  We get to choose how this continues. 

The next potential cliff to beat will be the growth and hyper inflation phase.  In order to compete we will have to reinvent ourselves to make up for lost sales due to customer value changes.  Customer buying patterns are probably changed for the long term.   Markets are consolidating and evolving. We have to reinvent our offering to earn business.  That means market analysis is required which takes time, talent and money. Our cash reserves were used to make up for a loss of 40 to 60 percent of our normal profits so we have to rebuild our reserves.   Inflation will mean that the reduced cash reserves you have will be worth less.  Bank loans are few and far between even if you had predicable sales and assets in demand.  Asset based loans are available at about 8 to 12 percent if you have unencumbered assets and predictable cash flow.  Mezzanine loans are available at about 16 to 18%, Wow! They do have a place.

We are truly back to the basics of lending:  Appropriate Collateral, Target Market, Competitive Advantage, Strong Business Plan and a Strong Management Team that can deliver despite the market challenges.  Money is available for those prepared and that know where to look.

Some of us are about to run a marathon and we are anemic.  We just have difficulty admitting we don’t know what we don’t know.  

During this recovery the strong and financially well off companies will be sourcing contractor and employee top talent, preparing for growth.  Some are planning to grow organically and some are shopping for deals on capacity, customer lists, mergers and acquisitions.   The best are analyzing the markets to see were their capabilities will earn them profitable sales.  Where can they pick off weaker players?  Our freshman year of business school we were taught that was called asset and resource reallocation to more efficient uses. We will truly see who has what it takes and chooses success. 

The bottom line is you will either be a more efficient and stronger competitor or have more efficient stronger competitors.  You will either have cash, talent and capacity to compete or you will be running the marathon anemic.  The next few months will truly tell who will survive and thrive!
My take away from all this besides all of the above, never forget the cycles, they are just like the seasons, plan for them!