Summer 2002
Turbulence Treasures & Traumas
For twenty years, I’ve tracked an economic model known as the “Kondratieff Wave” or the “Long Wave Theory” or the “56-Year Cycle.” Some in the business world are fans of the theory; some think it’s nonsense. Like many models, however, if it provides you with some insights or clarity — even if it’s not a panacea — it can be useful.
In the 1920s, Nicolai Kondratieff gathered economic indicator data for many capital-based countries — U.S., England, Sweden, etc. — and as far back as 1790. Then he looked for repeating cycles — and finally found one that re-peated roughly every 56 years (which he presented at a major international economics conference, to little acclaim.)
The wave’s consistency is intriguing. While it won’t say in what exact month or year something will happen, it has served as a reliable trends predictor. For example …
We’re currently near the end of the fourth cycle, which began in 1948. The expansion phase of the wave has two phases that, together, total about 25 years … a generation. (Boomers.) In expansion phases, people tend to be more comfortable, look forward, and are more progressive in seeking for new things. Politicians tend to be more liberal. Little effort is spent in preserving “old stuff” … so many historic structures vanish. Art forms – painting, music, furniture design, architecture – typically feature new forms of expression, with little ornamentation …
“Less is more.”
The expansion phase ended in 1973, with a recession that lasted 1½ years. (Down times usually begin in October and end in the spring.) The ensuing period, known as the “Plateau” lasts about 8-10 years. While real needs are relatively stable, after the recession, people and businesses act as though a considerable growth rate has resumed …
“The recession’s over; back to business!”
Plateau periods are euphoric, as people can’t feel the actual market demand. Interest rates soar, due to the speculative nature of the times … the 70s (or Roaring 20s.)
In October, 1982, we hit the start of a contraction phase, which also lasts over 20 years and has two phases. The first, “Depression,” has bankruptcies and bank failures … which we saw for 10+ years. (Better media management, so no “D” word.)
The second part of the contraction phases, “Recovery,” involves people search-ing for the real demand. You’ll see less bankruptcy … but more mergers and acquisitions. You’ll see a lot of inventions and new service types — which were developed in the depression — with some taking off and others failing. Booms and busts (and wheeler-dealer corruption) — as you’ve seen with independent power producers, global wireless telecommunications, DotComs … like a gold rush frenzy of the old west.
While this phase feels more positive, it’s still turbulent and uncomfortable …
Markets fluctuate constantly. While many firms have been “comfortable” … backlogs can be deceiving. They can quickly dry up as projects are put on hold. As backlog lessens, firms scramble to increase sales efforts …better Mandeville skills, proposals and presentations, etc. However, even great sales skills in a slow (overly competitive) market will still lead to high marketing costs and low profit margins.
The solution?
Constant monitoring of alternative markets. Those you’re in … to be sure they will still be okay over the next 6-12 months. And those into which you might diversify.
The biggest problem we’ve seen is not getting into new markets. It’s people not willing to let go of their long-time (but declining) “bread & butter” markets. Clients in slower markets, have an oversupply of good firms. They’ll see you as more of a commodity, and will more often use price as a differentiator. (Clients in high growth markets more often just want to know how quickly you can get the work done!)
Five actions to consider …
- Trends reading by your firm’s leaders, to stay abreast of marketplace ebbs and flows … before you get caught in a downturn.
- Client focus groups. Get 6-10 clients in one of your current markets to come together and share perceptions of trends they see happening in their market 5-10 years down the road. You’ll avoid surprises, and learn about unique service opportunities. (3 hrs @ breakfast.)
- Client focus group to explore a wide market spectrum — just one guest per market. 18-24 guests …clients or 3rd parties (e.g. economic development directors, lenders, politicians, etc.) You’ll get a more reliable picture of what to expect over the coming 3-5 years.
- Feedback and nurturing of your best clients. (When we’re busy, we get sloppy.) If a market slows, other firms come after your clients … who need to be so wonderfully happy they won’t consider anyone else.
- Market Research, done internally or outsourced. Once you have an “inclination” that some market may be hot … invest to be sure. It’s the cheapest insurance you can buy. Then develop tactical actions that position your firm in the markets you know will be growing.
Many firms grew during the 90s. When an economy slows, it doesn’t cease. But — some markets slow dramatically, while others surge. Firms that hit sur-ges — power or telecommunications — do well. Those who come later, compete for scraps with the ones who got in early. Turbulence holds business and personal growth opportunities … for those who find them. The steps can help. (If you have questions … call.)
“Stu’s News” is now exactly that … news. Rather than regularly scheduled intervals, as we see major events affect a lot of firms, you’ll get an electronic issue.