Business is good for most companies and has been for quite some time. And yet, the economic signals are there; we are nearing the end (are perhaps at the end?) of this long economic recovery.
Your industry may have more runway, or you may be in an industry that is a leading indicator. Regardless of your industry position, an equal perhaps more important question to ask is, what percentage of your customers fall into each of these categories and those in-between?
In short, are we diversified?
Anyone who has hired an investment advisor knows, all of them advise first and foremost, to build a diversified portfolio. And, despite all the data supporting the long term benefit of diversification, some investors believe they can pick the winner or time the market. There are LOTS of stories in the investment press about the risks and consequences of these choices.
Those of you who are frequent readers know that my background is in financial services and investments and I often compare running a business to managing an investment portfolio. And, as with some stock market investors, when it comes to our companies, we frequently ignore our advisors and the diversification advice they give. We have a great product or service; our biggest client is giving us more and more business; we are making money, we think “if it ain’t broke, why fix it?”.
Over the years, I have worked with a number of businesses and watched this process unfold…
Business is good, there are industry measures that indicate the product, service or economic cycle is maturing, perhaps margins are tightening, but revenue remains strong. Then suddenly (one could argue it wasn’t suddenly), it isn’t strong anymore, in fact, the business has gone from significant profits to losses, seemingly overnight.
The thing about income statements is they are lagging indicators. If we ignore other key indicators, especially the external industry trends, it is easy to be lulled into market timing behavior. And as with market timers, by the time the CEO realizes the market has turned, it is often too late to adjust without incurring significant losses.
As you continue your planning for 2019 strategic actions, I encourage you to pause and ask yourself the following questions:
- What are the trends in our industry; where is our industry in its business life cycle and in the economic cycle?
- How does our product/service compare to others in the industry; are we a leader or a follower?
- What is our current level of product/service/customer diversification; where would we like it to be?
- What new product or service can we start developing now that will replace our core offerings in the future?
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