Tuesday, January 17, 2012

Today’s big challenge: From abundance to shortage.


From abundance to shortage.
Reading Andres Pérez post titled “It’s that I don’t see myself” and thinking about the many conversations I have had with friends and business owners in which we frequently talk about those long gone days that aren’t coming back, I couldn’t keep myself from thinking about that phrase: “It’s that I don’t see myself”. It’s something like “I cannot adapt to this brand new situation in which I’m making much less money than what I made before”, or “it’s that I can’t picture myself working more hours than I did before”.

If you find yourself among those who “don’t see themselves”, the situation is crystal clear: We have switched from living in a market of abundance to one of shortage.

Why is it so hard to get adapted to the new situation?

But, what has happened? why is it so hard to get going again and adapt to the changes? why does it happen so often that more and more companies shut their doors and take down with them ideas that could have been sucessful?

The biggest problem facing business owners who lived in abundance, in a market where product demand was outstripping supply, is that, unfortunately, they did become used to being passive, to be "order takers" and left on the side developing and nurturing one of the most fundamental business activities for any company: business development, the pursuit of orders, cold call selling.

The problems generated by living in abundance.

For sure you're wondering: "But Joel, how wealth can generate problems?". There are habits that develop during our life in abundance that become real problems during the shortage times. I'll try to enumerate those that, in my opinion, are obvious:

  • There is a huge bunch of customers going after you: so you don’t mind too much about losing one or two, because you know within ten minutes time, somebody will come through the door and buy. During wealthy times you don’t tend to care too much about customer’s loyalty and most of your efforts are focused on attracting new buyers.
  • Product prices are directly set by you and not the market itself:  since there are so many customers out there willing to buy, you can afford to raise your prices as high as you want, because, in the end, someone will always appear and like the product enough to pay the price you’re asking for. The direct relationship between supply and demand just isn’t there when customers abound.
  • You’ve got money enough to do whatever you want. You plan and spend your advertising money without too much concern, you keep more inventory than you really need because you know you're going to sell it along the road, you get into financial commitments, loans, buy equipment, increase your assets, as a matter of fact, you’ve got the money, so why bother?
  • You spend a lot and save very little, if any: You never thought (and if you did, then you didn’t pay attention to it) that abundance doesn’t last forever and that what goes up must come down. If you take a look at Mother Nature, during certain times of the year, some animals put aside food, nuts, seeds, for the winter, knowing that food will be hard to find during the rough days. However, when we, human beings, have plenty of something tend to waste instead of saving it.

The great challenges we face during shortages.

However, there comes the pinch, sales go down, the economy is depressed, money is not enough, then the problems begin to pile up.Why is it so difficult to adapt to scarcity? I’ll mention just a few of the reasons why:

  • You have to go out looking for your clients, the dreaded cold calling, which should always have been part of your plan, now becomes your only ally, and it’s now when you realize that you didn’t prepare yourself at any time to go out looking for your customers but instead were completely focused on "taking orders".
  • The price war is killing you because you were used to having full control of your pricing policy and build your business based on a high profit margin, perhaps, too high for what the market could really afford. It is now when you quite clearly see that supply and demand are closely related to price.
  • You need to strengthen your cash flow, but now you find out banks are not lending money, customers do not buy as regularly as they did before, your sales projections (if you do project) don’t reflect the reality and you just have to play it day by day.

What do we have to do now? what do you have to do as it refers to your business? We must start by understanding that our main problem is that we’re living on a different environment where there isn’t as much money as there was before and customers are not waiting for you in line as you open your shop.

It’s now time to turn passivity into proactivity, it’s time to leave the desk and go out of your comfort area, stop being "takers" to be "developers" of orders, new customers. If you didn’t see yourself doing it before, now it’s time and it should be your top priority. Others do it, why not you?

Related post: Vision and planning: Are you adapting to the changes?


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