By nature I am a ‘glass half full’ sort of guy so I am always looking for the positives in any situation although I do realise the current economic conditions have never occurred before in my lifetime and consequently present challenges which are outside the span of reference of my four decade career in business.

Given the lack of directly relevant personal experience to draw on I have been casting around for information or insights that may assist me or my business to not only survive in the near-to-medium term but also to grow in the more prosperous years of the future.

What are the fundamentals history has revealed?

Firstly, factors we have no direct control over:

• Recessions don’t last forever

• The turning point of the cycle usually quickly follows from when the majority of people think the adverse economic conditions will never improve

• Above average growth occurs in the years immediately after the end of a recession

• Immediately conditions start to improve above average inflation will kick in (possibly hyper inflation)

• The best opportunities for capital gain (property or shares) come from buying at the bottom, or at least near the bottom, of the cycle

• Bank interest rates will increase dramatically

Secondly, given survival is the one and only strategic imperative,
there are factors we do have direct control over:

• Reduce operating costs to a minimum

• Maximise cash flow

• Businesses still have to be promoted – downturns are a major opportunity to increase market share

• Don’t rely on word of mouth - make sure your advertising or media produces the maximum ROI

• Seek all forms of government support

• Keep your bank on side

• Talk to your creditors  - extend payment terms

• Follow up all debtors

• Examine your business model

• Milk your cash cows

• Don’t crystalise short term losses on good long term assets (e.g. family homes)

What new opportunities occur in a recession?

The good news is downturns foster regeneration with new industries and business models blossoming in these periods at the same time as older and more established industries are struggling to survive.  The two most recent examples in the IT field being Bill Gates’s Microsoft and Google in Silicon Valley, who hit its straps right in the middle of the Dot Com crash.

In pre-crash times outdated models such as newspapers held on because they were historically very profitable. These days the fabled ‘rivers of gold’ have finally been reduced to a dribble and financiers and investors are now leaving in droves.

What has changed? The GFC has finally shaken the supposed objective finance professionals out of their cocoons and made them really examine the fundamentals of all business models not just look at the historic earnings in less turbulent times.

What caused the GFC?

I do not claim to know all or any of the answers here – even the ‘uber investor’ Warren Buffett is flummoxed. But what I do know is that the share market has got to start examining the real ‘long term’ value of companies listed – not just the predicted quarterly earnings. The short term focus might have made sense when all stocks increased uniformly month on month but in times of uncertainty far deeper analysis is required.

The whole investment mentality has to change

The rape and pillage, or what I call ‘pirate’, syndrome, has to be replaced by the perhaps more boring, but sustainable ‘farmer’ alternative.

The man on the land has to plan his crops, sow the seeds, spray and weed, wait for rain, whatever, and only then, finally harvest.  As we know, better than most countries, it sometimes takes years to rain, but we all have to eat and the most basic understanding of our present eco problems demonstrate unequivocally that the world simply cannot continue to meet all our basic needs without consistent replenishment or enlightened land management.

When it comes to encouraging and developing business ‘crops’ R&D and commercialising IP are skills most knowledgeable observers would agree are sadly neglected in this country.

I believe it is imperative struggling local companies that do in fact think long term and invest their R&D in markets with global prospects, gain wider recognition and win favour with both the investing public and all levels of government. 

Things like ready access to venture capital, the spread of industry clusters, improved co-operation between our universities and industry bodies are also some of the critical requirements to foster the types of 21st century companies which Australia will need to rely on in future years to underpin our economy post GFC.