19/2015 – Adjusting to meet challenging times

by Tan Thiam Hock

Saturday, 7 November 2015

A week ago, I saw a posting of clear skies amidst the Kuala Lumpur landscape on Facebook with the simple message of ‘ I can see clearly now ‘.

The political gloom of the last few months was followed by gloomy skies filled with acrid smelling haze and news of widespread job cuts in the banking sector, both international and domestic.

Financial institutions are always the first to react when they see trouble ahead, property asset bubbles and slowing consumption demand. Handbrakes are instantly applied, cutting off the supply of much needed funds to consumers and businesses alike. With the benefit of hindsight, you cannot really blame the banks, the last financial crisis was catastrophic and nearly cause the collapse of the world economy.

I am now of the view that our current set of ruling politicians are clueless as to how to manage our economy in turbulent times. Lower export revenue and slowing domestic consumption compounded by extreme increase in cost of living all pointing to a hard landing for our economy in the next two years.

GST is a consumption based tax so if consumption is down so will be the tax revenue. The full impact of imported inflation due to our devalued currency will be felt in full force next year further dampening consumption. Domestic transportation cost is up, from toll to buses to trains, massive price increases that will further burden the working class.

So will salaries increase by 10-15% to cover the similar increase in cost of living? With the prospect of a slowing economy next year, businesses will be hard pressed to even offer a salary increase of 4-6% which means the salaried staff starts with negative earnings come 2016.

We will see lifestyle adjustment and major shift in consumption patterns as priorities are realigned with reality. And no sight of any improvement or solution on our political front. The future clearly does not look good.

So how should entrepreneurs react?

Experienced entrepreneurs have seen many bust and boom economic cycles and with the benefits of hindsight would have foreseen the road bumps ahead. It is the young entrepreneurs and the wannabes that I worry for. Bold and fearless, their vision is clouded by their dreams of instant success. Nothing is impossible and they see a market for every product that they can dream of.

Just as you cannot fight against the force of nature, businesses cannot fight against the tide of market forces. Entrepreneurs have to adjust and go with the flow as the market adjust itself. Sometimes you might even need to turn back instead of peddling furiously against a raging river. Fighting a fight that you have no chance of winning is silly and wasteful.

Not realizing that the project is a non starter is even worse as the market is unforgiving and unkind. The blue ocean suddenly turned red and you are stuck in the middle of the Dead Sea without a paddle of a hope.
All entrepreneurs sees opportunities as they want to see it. It is always a big wide blue ocean with limitless potential. Nine in ten ideas normally end up stuck in a murky pond. The one bright idea might survive and thrive if the business model is sound and sustainable. One in hundred ideas is probably scalable thus making it worthwhile for the entrepreneur to pursue further.

I have no advice for digital entrepreneurs who developed new apps and new concepts in the hope of selling it to Google and Facebook. Since you will not share your new ideas with experienced digital entrepreneurs for fear it being stolen, I can only wish you much luck as you compete with millions of digital geeks out there.

For those entrepreneurs who still believe in the old economy of supplying goods and services, may I suggest you seek advice from experienced entrepreneurs who will ask you a few pertinent questions that might just save you from a journey of frustration and sufferings.

What is your realistic ambition of starting this new business? Must be happy-make some money-just to survive or willing to suffer-make loads of money-grow big?

Your business idea must be considered in terms of scalability and sustainability. If you have small ambition and just want to kill time, then I suggest you start a small business and stay small. Small business will stay small because it is not scalable.

If your business idea is scalable, is it sustainable? Will it be just a fad with a short life cycle and what possible disruption can happen to your business model? Scalability means bigger investments and higher risk so always look ahead and watch out for early signs of fad fatigue or new disrupters to your business.

Is your product or service offering well differentiated? Is your blue ocean strategy truly blue?

Trying to predict new trends and fads is high risk and high reward strategy. Sometimes it works, most times it is just a time bomb. If only you can travel to the future or have hindsight experience from experienced entrepreneurs.

Disrupting a successful business model is always a safer bet. Consumption patterns and habits are established, just do it better, faster and smarter. You will need to navigate nimbly through an established value chain highway and if you have waze (wisdom) to help you, it will be a smoother journey.

I have advised my children to first gain experience by working outside the family business. Since my eldest son is going to join the salaried workforce, I have advised him to wake up at 3 am, tend to the vegetable farms in our backyard, feed the chickens and ducks before leaving the house at 5 am to avoid traffic jams on non toll roads. Hopefully he can catch a nap or two after getting a car park space in one of the open car parks near his office and enjoy a GST free nasi lemak breakfast in the nearby food stalls. City living at its best.

Monsoon season is here. Political thunderstorms and heavy economic rainfalls are clouding vision of the road ahead. Bring out your umbrellas and try to stay dry and safe.

Entrepreneurs can only see clearly when the rain is gone..

Published: http://www.thestar.com.my/business/business-news/2015/11/07/adjusting-to-meet-challenging-times/

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