With recent discussions regarding the economy and increased volatility in the stock market, it would be understandable if you were to think a foul-smelling economic cycle was on its way. You needn’t feel that way though, yet. It would be smart to look ahead and get your ducks in a row so-to-speak. That unpleasant odor you smell could be a downturn in the offing.
What the experts are saying (it’s good)
I have said this before, and I’m repeating it here for emphasis. WE are not economists. We don’t predict economic or business cycles. We acknowledge that they exist, however. And we listen to experts and take our cues from them.
And by them, I mean Dr. Peter Linneman. Dr. Linneman served as the founding chairman of Wharton's Real Estate Department and is son of a Lima, Ohio-native success story. Dr. Linneman has created a lot of value over the years, particularly in real estate. He is also an astute student of the economy. Four times a year he publishes a newsletter, The Linneman Letter, that we use to avoid surprises. In his newsletter, he uses a canary system to describe how many canaries are alive in the coal mine of the economy. The more canaries, the healthier the economy and the further we are from a recession.
Dr. Linneman tracks five canaries in eight different categories giving us a total of 40 canaries. And in his summer newsletter he counted 19 dead and 21 still thriving. So lots of strength left in the economy. Probably enough momentum to carry us through 2020 before a retrospective Fed would report that we had entered a recession. This is an extension of conventional wisdom over the last 24 months, which has said late 2019, early 2020 for a recession. We consider that good news indeed.
So don’t just stand there, plan. You know we advocate strategic planning and I’m going to say it now in plain terms. If you don’t conduct strategic planning for your firm, you deserve what you get. Economic cycles don’t usually flip on a dime and if you’re even logical (you don’t even have to be wise) you can set yourself up to not only hunker down and survive, but to thrive during an economic inflection.
Each segment is different and within segments individual firms’ prospects and strengths and weaknesses are different so I can’t give you general advice that would serve each of you well. Some of our clients are divesting of surplus real estate, some are making changes in transportation and logistic networks that need rebalanced. Each of you will have different opportunities and the one thing I say to you all is; conduct strategic planning this fall. You will be glad you did.
Eisenhour provides some of my favorite quotes about planning. I’m paraphrasing but essentially he said that plans are useless but planning is priceless. Why? Because our assumptions and imagination will fail to anticipate exactly what is going to happen. And our competition will do what they can to foil our plans. However, the process of going through the planning effort will inform us and our teams about the challenges to come and we will have thought them through before the circumstances arrive. When they do arrive, we can immediately take stock and determine either this is what we planned for and we can just follow our plan or this isn’t what we planned for and our plans will need revision. In either case we are ahead of the curve when compared to someone just trying to work it out in the moment, when emotions are high and some of our options will already be off the table.
Develop your strategic planning cycle
Take stock of the business; what’s working and what’s not.
Develop a small set of scenarios (three or so) and rank them from most to least likely.
Determine earnings impact value estimates for each of the scenarios.
Develop near term 12-24 months and long term 24-60-month action plans to capitalize on or mitigate each of the scenarios and to deliver the earnings potential of each one.
Assign each action plan to a person with specific dates and deliverables to achieve.