What will be the X-Factor in 2009?

What is hiding ‘out there'' this year that will affect your business?

At this time of the year many small business owners and managers are making resolutions for the year ahead. But in doing so how many think about what is happening outside their business outside in so doing.

So as a timely reminder each year at this time I write of Joe, a second generation businessman who had taken over control of the family business from his father.
When asked where his business would be in the next three years Joe relied "I dunno, haven''t thought about it yet". True story.

Like so many business owner and managers Joe never looked beyond the next job. Sure, he looked at the profitability of each job but not at what was happening outside the business that overall might impact on his bottom line.

Joe was making a fundamental error based on an erroneous assumption!
The error he was making was in not think about what factors in his business environment over the next few years were going to impact on his business, and therefore on his profits.

The erroneous assumption
that "allowed" Joe to make that error was to expect the years ahead to be a simple repeat of the recent past. Why think about the future if it is just going to be more of the same? Perhaps the events of 2008 have shown this to be a very shaky basis on which to base the future of your business.

One would hope that in 2009 our business environment, and our market place, is not likely to be a repeat of the past year. The market is very rarely the same year after year. When looking at the year ahead the big question is: how, and by how much, will the next year differ from the past one? Perpetual steady growth which is what has been happening in many areas is the least likely of all possible outcomes, as has been so vividly illustrated in 2008.

But will the year ahead be as dismal for some as some suggest.

Factor X is the key influence that comes out of the woodwork, as it were, to have a powerful influence on the business environment and markets that was not predicted, or perhaps even mentioned, when the year began.

The concept of the X Factor was developed by Don Stammer, formerly Chief Economist of Deutsche Bank Australia. He has identified the annual X Factor (from an Australian perspective) in reviewing the year every year going back to 1982. Some X Factors in his list are distinctly global, others purely Australian, but none were predicted beforehand.

Sometimes Factor X can be positive (for example the resilience of the Australian economy despite some major international downturns over the last decade) or horrible (September 11). It can be global (the collapse of communism in 1989) or distinctly national (think of your own specific examples).

Acknowledging Factor X is not a cop-out from trying to predict the future. Rather, you need to see it is a necessary reminder each year is not a copy of the previous year, and that you need to watch, and be prepared for unexpected news (good or bad) that will change the likely course of the economy or your markets.

So what was Factor X for the year now ended?

In 2008 I disagreed with the learned Don''s nomination for 2007 of the increase in Australian interest rates announced by the Reserve Bank two and a half weeks before election day. It certainly had an impact on the Australian election, much as did the 2008 financial meltdown in the US impacted on the US election that year. I said last year, "the US sub-prime does it for me. The wreckage from this crisis is strewn all over the place. Amongst other things it is affecting the willingness and ability of our banks to provide credit here in Australia. And not just in Australia.

And that might have an impact on business, particularly if, as many are predicting, the US economy goes into recession. After all, as the old saying goes, "When America sneezes; the rest of the world catches cold". So for many, for 2008, the prospects are that we will see a significant slowing in economic growth in the US and Australia and many other economies."

There is little doubt about the X-Factor for 2008, and it came very late in the year. In late September and over the first half of October the willingness and ability of banks all around the world to provide credit took an explosive new form: the solvency of many major banks and leading financial institutions in the US and Europe was threatened.

The issue became whether top international banks and financial intermediaries -- many of them household names -- had enough assets to meet their liabilities and, indeed, would continue to open their doors. It has indeed been a global financial crisis - a global, negative X Factor.

So what will happen in 2009?

There is no doubt the depth and breadth of the financial crisis has surprised everyone. There had been talk that the US economy had been decoupled from the economies of the western Pacific, including Australia, that what happened in the US didn''t matter.

The boom in China, and increasingly in India, was seen as providing an increasingly important independent engine for global economic growth. This kept the demand for commodities very strong, despite the deepening recession in the US, as growth in China is extremely commodity intensive.

This turned out to be a false hope.

The very depth of the crisis has forced governments to act, when in other crises of lesser magnitude they have held back. Every major economy has been providing significant rescue packages and high stimulatory rescue packages. In fact even China announced a budget boost over the next two years the equivalent of 16 per cent of that country''s annual output of goods and services.

The rescue packages have had two different targets: one set have been aimed at keeping banks solvent and able to provide trade finance to the business world, with the stimulatory packages intended to keep consumers and businesses buying. If people continue to buy, retailers and suppliers will continue to employ people, and to order more stock.

What does all this mean for small business owners and managers? Smart business owners, as I''m sure you are, will thrive in times such as these. The only economy that matters is your economy.

Our newsletters and blogs late last year suggested some of the steps you should be taking, such as:

  • Protect and nurture those key customers of yours. They will sustain you.
  • Have a Plan B, backed by research.
  • Do what you do - well. Make sure your marketing and management is effective.
  • Look for the opportunities, because your competitors probably won''t be.

There will of course be another X Factor this year. It may be global, it may be local. It may be positive, it may be negative. Build some sensible risk management into your businesses. And keep a weather eye cocked on what might be happening outside your doors.

The past is not the future.