The Norman Transcript

July 27, 2013

Economic winter won’t last forever

By Nick Massey
The Norman Transcript

NORMAN — Over the years, I’ve given a lot of speeches across the country and talked with many business owners. In doing so, I get a sense of what people really want to know, which is, “When will things turn around?” or “When will things get back to how they used to be?”

Some businesses are seeing increased traffic and rising sales, but it’s not anywhere near what it used to be. As one business owner recently told me, “Business is good. There’s just not as much of it.” People want to know about interest rates, possible inflation and what is most likely to happen to their customer base.

This is where I start asking questions of my own: What terms are your banks offering for financing? Is your average sale still around 75 percent of what it used to be? Are terms from your suppliers still tight? Are your customers more interested in servicing old items rather than buying new ones? Are your clients fearful?

If you look at long-term economic cycles, you will see that economies go through seasons similar to spring, summer, fall and winter and it happens during an almost 80-year cycle. And just as spring follows winter, winter follows fall. While some may not like winter, including me, winter is necessary because that is when nature rests, recovers, purges out the weak and gets ready to start new in the spring.

This is where economist Joseph Schumpeter’s famous comment about creative destruction comes into play. It is the time where weak or no longer relevant companies die or get acquired. As much as central banks and governments would like to avoid it, you can’t have spring without a winter first.

From an economic cycle standpoint, I believe we are in the winter season, and it’s not over yet. We are simply getting used to the new, lower level of activity. More importantly, many of the business people I talk to are, by virtue of the fact that they are still around, the shakeout winter season winners. They just don’t know it yet.

I recently spoke to a group I’ve seen several times over the years. As we talked, the questions revolved around how their businesses might grow in the years to come.

At one point I said to a gentleman in the room, “Let me guess … your business has rotated to more service than sales, as clients keep existing equipment longer, and you’ve rearranged your business to do more work with less people … is that accurate?” When he agreed, I said, “Welcome to the future.”

Shakeout winners are those businesses that have adapted to their new level of sales by adjusting what they make or provide so it is profitable today. These companies are not holding out hope that the business model of yesterday will suddenly work again. They recognized the need to change or die.

The good news is that this economic season, this cold economic winter, doesn’t last forever. I think we are six years into a 10- to 12-year stretch.

The companies that are winners, those that have remained flexible and adjusted their offerings to match their sales, are poised to grow dramatically in the next economic phase — the spring season. That’s where the survivors and the strong really take off and prosper. If you’re still standing today, you are likely one of them.

Nick Massey is a financial adviser and columnist for the Edmond Sun in Edmond, Okla. You can reach him through nickmassey.com.