Recessions get rid of the idiots!

Anthony Hilton at MPN 2009In my previous post about last week’s Microsoft Partner Network 2009 event, I mentioned that the London Evening Standard’s Anthony Hilton (who claims that he helped the BBC’s Robert Peston start his career and says that “he was an irritating little s*d even then”) gave a very interesting talk on why recession is not necessarily bad for business.

I’m no economist but I found the talk fascinating – and highly relevant to the times in which we are living – so I thought I’d share some of Mr. Hilton’s comments a little further…

I’m not sure what his original views on the current recession were but he claims to have changed his mind after the collapse of Lehmann Brothers.  The last downturn in the UK was in 1992-3, so no-one under 40 had really experienced the effects in their adult life but Hilton reckons more and more companies will be short-lived.  To put this into context, the FTSE 100 index, recognised as a list of the UK’s top 100 companies and frequently used as a measure of business prosperity, was created in 1984 and fewer than 20 of its constituents have stayed on the index throughout its life. Not all of the companies that have dropped off the index have disappeared but their businesses have changed.  It’s the same story for the Sunday Times Rich List – only 7 out of the original 200 featured individuals are still on it, proving that we all need to raise our game.

Looking forward for the next few years in the UK economy, Hilton draws parallels with the 1970s where we saw 2 years of easy money and rising property prices before a crash, the doubling of the stock market in the first half of 1975 and then in 1976 the government’s finances collapsed, inflation took hold, and the IMF was called in.  This is the W-shaped recession that many commentators speak of and it’s not necessarily going to be the same this time around but the message is clear: don’t always believe what the stock market is telling you.

So, will we have a double-dip (W-shaped) recession? Anthony Hilton argues that’s not really the point – what we can expect to see is a period of much tighter, slower growth.  For the first time, a credit crunch has been based on consumers, not businesses.  Until recently, we were all spending 105% of our income with the extra 5% sucked out of rising house prices so, for the next 10 years or so we need to spend 95% to redress that balance, leading to subdued consumption and a low growth rate in the economy of around 1.5% (i.e. not enough to remove unemployment).

1.5% growth doesn’t sound too bad though but it’s worth considering it is an average.  Within that 1.5% are some dynamic parts of the economy and some that are pretty much dead – indeed a newspaper would be very happy for 1.5 growth but is more likely to shrink by 10% and the same is true for construction, the automotive industry and property, which will all contract.  On the other side of the balance are businesses growing at 10, 15, or even 20%.  Even if the overall position is flat, dull and depressing, there are still some opportunities and many really successful businesses have been launched in difficult times – if one believes in a business enough to invest in it during difficult times then that’s probably a good thing!

Indeed, Hilton goes further as recessions can be good news because they get rid of the idiots!

To explain that a little further, consider that peoples’ mindsets change.  When times are hard, they will generally try anything to get out of a sticky situation but, when things are a little easier, companies are reluctant to gamble.  Meanwhile, customers favour those who are willing to change.  But the real productivity and innovation is made up of a lot of small, incremental change, rather than a big bang – and these small changes add up to major changes across the board.

Those businesses that are flexible, nimble, and open will prosper – saving money, driving innovation and getting more for less.

To close, Anthony Hilton drew from Charles Darwin, born 200 years ago and whose ideas of natural selection are often described as “the survival of the fittest”.  This tells us that those species that are successful are not the biggest, strongest, or the best resourced… but are the most adaptable.  In business the same holds true: if your business can adapt then the opportunities presented should be well worth the effort.

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