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Oil prices are set to rise further with some commentators thinking that $200 a barrel is a possibility.
This is certainly a concern for anyone who runs even a small fleet of vehicles which leaves business owners with a stark choice. Raise prices in a receding market and risk losing custom or absorb the increased cost and reduce what might already be a shrinking margin and try to tough it out.
I am growing wheat this year and for me, despite the extortionate fertiliser price, will see a high selling price this year.
At one point recently, world grain stocks were down to a worrying 8 days!
However, although we are walking a shaky line between recession and growth, I have seen some tentative signs that a recession may have been averted.
It is still early days but lately, the world markets have rebounded and there is a bullishness returning. We will have to wait and see if this optimism is misplaced.
I have a feeling, although oil has hit another high recently (nearly $130pb) that oil could crash or certainly break down through the uptrend.
In turn, if this happens, I feel that the markets will get excited, commodity prices ease and consumer confidence return.
We are still to see a bottom in the housing market which, in my opinion, is a key indicator for consumer spending.
Garden maintenance is a necessity bordering on luxury and landscaping is nearer to a luxury so we need to see some stability before the wallets are opened up fully in my opinion.
Interesting thread you have started and one to watch.
Phil
That aside, I'm sure we're in for a rocky ride for a year or two - everything is going up, house prices are coming down, and the UK consumer is battening the hatches. The cash which might once have been for discretionary expenditure is being consumed by food and fuel bills, and whatever's left is likely to be saved in case things get worse. Luxuries like gardening seem likely to be left on the back burner.
The recent IMF report looked bleak, it spoke about a slowdown in growth - not a move backwards. And IMF reports are normally downbeat.
Employment figures (and I appreciate that statistics say what you set them out to say) are nowhere near what they were in the 90's.
The current crisis is linked to one particular sector, and the spread of contagion across the wider economy has not crystallised.
The house price bubble - like all bubbles - needed to "burst", but this has been more of a "slow leak" than an actual bang. The percentage increase in repossession figures looks scary until you consider this as a percentage of actual mortgages ... then it looks like screaming blue murder about a teeny tiny spider in the bath. I can't help but think that as people spend more time in a house they bought as a "rung on the ladder" and take to entertaining at home more, they'll get more into the idea of improving their environments... and this is where the gardener comes in.
I found last year that my advertising was drawing in the wrong type of client for my business - small, bitty pieces of work which ended up in two non-payers. I only take on the medium-sized gardens now (around 1/4 - 1/2 acre I would guess) which need regular (weekly) maintenance of a day or so. I was hoping to find at least one of those gardens this year which has just happened about a fortnight ago - the one that I'm blogging about. I recon if I can pick up one of those a year, I should be doing well and that should allow me to expand the business slowly, building on a good client base.
Don't be put off by the smaller budget - I think it helps to keep fluid if you are in and out in less time. It is the percentage net profit that really counts.
A quicker job is also good for staff moral and I always found that in the middle period of a large job (regardless of my enthusiasm) there would be a dull and less responsive period where productivity becomes sluggish.
Of course this is not always the case with all employees but even if one member utters the words 'will this job ever end' and it starts to rub off.
If your team can see a quick turnaround then response and efficiency is evident.
I felt very unimpressed with the course of my business in April, no new customers and feeling a little downbeat but it seems to have picked up a little later for my gardening business this year and I think it will be the best year on record. I sometimes think that a recession can work to the good for some businesses, if you happen to stay in business. The reason that I say this is that you may find that if you can stay afloat while others are struggling and falling foul, there is potentially a greater customer base available. Obviously, the formula only works if the percentage of firms going bust is greater than the number of customers deciding not to purchase.
What has everyone done (or not done) that will stand them in good stead for the next six to eighteen months?
It came from ValleyWag the info I think is a very useful guide to all companies. I know that our beloved politicians are making the usual complete bungle of finances. Anyway here is a paste of the document, if you don't like depressing reading hit the back button.
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Today, Sequoia Capital hosted a mandatory CEO All-Hands Meeting on Sand Hill Road (where else?). There were about 100 CEO's in attendance and let me tell you, the mood was somber. I'm not one to perpetuate doom and gloom or bad news, but let me underscore this for you: We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required.
***Here are my notes from the meeting. Keep this note in your in-box and read it every day. I'm serious folks, this is for our survival.***
Speakers:
· Mike Moritz, General Partner, Sequoia Capital (he moderated the speakers).
· Eric Upin, Partner, Sequoia Capital (Eric ran the $26-Billion Stanford Endowment Fund and knows a few things about Economics and investing.)
· Michael Beckwith, Sequoia Capital (Michael was recruited to start Sequoia's very first hedge fund, coming from Maverick Capital and Robertson Stephens. I know him from my BEA days.)
· Doug Leone, , General Partner, Sequoia Capital
Slide projected on the huge conference room screen as people assembled inside the conference center to take their seats: a gravestone with the inscription: RIP, Good Times.
Mike Moritz:
· The only time Sequoia's assembled all CEO's like this was during the dot.com crash.
· We are in drastic times. Drastic times mean drastic measures must be taken to survive. Forget about getting ahead, we're talking survive. Get this point into your heads.
· For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you're too far off of cash flow positive.
· There will be consequences for those who hesitate. Act now.
Eric Upin:
· It's always darkest before it's pitch black.
· Survival of this storm means drastic measures must be taken now, so you will have the opportunity to capitalize on this down turn in the future.
· We are in the beginning of a long cycle, what we call a "Secular Bear Market." This could be a 15 year problem. [many slides on historical charts of previous recessions, averaging 17 year cycles.]
· The credit market [versus the Equity markets] are the issue and will take time to recover.
· Inflection point: Make changes, slash expenses, cut deep and keep marching. You can't be a general if you turn back.
· This is a global issue and not a 'normal' time.
· There is significant risk to growth and your personal wealth.
· Advice:
o Manage what you can control. You can't control the economy, but you can control everything else.
§ Cut spending. Cut fat. Preserve Capital.
§ Don't trust your models and spreadsheets. All assumptions prior to today are wrong.
§ Focus on quality.
§ Reduce risk.
Michael Beckwith:
· Note: Michael had a lot of slides that were charts, data points and comparisons.
· A "V" shaped recovery is unlikely [√]
· Cuts in spending will accelerate in Q4/Q1. Look at eBay-this is just the beginning.
Doug Leone:
· This is a different animal and will take years to recover.
· Getting another round if you're not profitable will be rough.
· Do everything possible to get to cash flow positive. Now.
· Nail your Sales and Marketing message.
· Pound your competitors shortcomings. They're hurting and they will be quiet. Take the offensive.
· In a downturn, aggressive PR and Communications strategy is key.
· M&A will decrease dramatically and only lean companies, with proven sales models will be acquired.
· Spectrum discussion:
o Capital Preservation ß—-—-—-—-—-—-—-—-—-—-—--à Grab Market
o Everyone should be far to the left (capital preservation)
· Requirements of our companies:
o You must have a proven product
o You must cut expenses. Now and deep.
o Your product should reduce expenses and drive revenue [NOTE: I want to revisit this with the Management team. Our solution does both, we need to quickly and crisply define the sound bite here.]
o Honestly assess your solution vs. your competitors.
o Cash is king [have you gotten this message yet?]
o You must get to profitability as soon as possible to weather this storm and be self-sustaining.
· Operations review:
o Engineering: Since you already have a product, strongly consider reducing the number of engineers that you have.
o Product: What features are absolutely essential? Choose carefully and focus.
o Marketing: Measure everything and cut what is not working. You don't need large Product Marketing, Product Management teams.
o Sales & Business Development: What is your return on this investment? The Valley has gotten fat with Sales people: Big bases, big variables. Cut base salaries on sales people, highly leverage them with upside (increase variable) and make people pay for themselves via increased sales productivity. Don't add sales people until you've achieved your goals with sales productivity. Be disciplined.
o Pipeline: Scrub the shit out of it and be honest with yourself.
o Finance: Defer payments, what is essential? Kill cash burn.
· Death Spiral (Nobody moves fast enough in times like these, so get going and research later.)
o The death spiral sucks you in, you're in it before you know it and then you die.
o Survival of the quickest.
o Cutting deeper is the formula for survival.
o You should have at least one year's worth of cash on hand.
o Tactics:
§ Assess your situation. Drop your assumptions, start with a blank page and start zero-based budgeting.
§ Adapt quickly
§ Make your cuts
§ Review all salaries
§ Change sales comp
§ Bolster your balance sheet-if you can add $5M to your coffers, take it and save it.
§ Spend like it's your last dollar.
· Get Real or Go Home.
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