Economic Fluctuations

By: Santi Chacon

Denver, Colorado

Business Coach

An economic fluctuation is a sequence of economic activity typically characterized by recession, fiscal recovery, growth, and fiscal decline.

We know a recession is coming again once you get back on your feet financially. The only question is When?  If you managed to keep a cash-flow positive business during this recession I applaud your efforts but what happens next time under another instance of economic strain? What will you do or avoid doing altogether? You have the chance to reconsider cash reserves, infrastructure, and investments with the aim of reducing risk.

You can prepare by diversifying your offerings, creating more cash reserves, focusing on core competencies, thinking lean, expanding, and building new partnerships that will help to sustain you or assist you in a quicker financial recovery. If you are just attempting to get through the current tremors of economic disaster without regrouping and planning you are gambling on your financial future.

Cliff Notes On Business Cycles

• During economic contractions businesses experience declines in sales and profits.
• Recessions do not come at regular intervals.
• Some recessions are close together (called a double dipped recession). An economy can go many years without a bust (or the bottom of a business cycle).
• The longest period in U.S. history without a recession was the economic expansion from 1991 to 2001. Because business cycles are economy-wide phenomena, they show up in many sources of macroeconomic data http://www.bea.gov.
• When economic conditions deteriorate, much of the decline is attributable to reductions in spending on new factories (capital spending), housing, and inventories.

Consider the inferences of the cliff notes. What are the implications on your industry and business? As a professional have your fingers on the pulse of economic indicators, industry, and your own business.

Musical Chairs

You do not want to be the only one standing when the music stops and your seat of industry is taken. Do not be fooled by your current level of comfort; what you think is secure isn't. The next recession may hit you harder and if you don't decide to play a different game you will be standing alone without anyone to blame but yourself.

Last Word About Business Cycles

The only predictable element about a business cycle is that it experience fluctuation again. Recessions by definition are short-term. The good news is that you will only have to weather the storm for a couple of years.

Opportunity Costs

By: Santi Chacon

Denver, Colorado

Business Coach

Trade Offs:

Business executives should observe costs more in terms of trade offs. The opportunity costs is what the company can not benefit from because of the law of scarcity that govern economics. If an executive hires someone, that investment is now tied up to pay the salary of the new hire. The opportunity costs in this case could be performance bonuses or a raise for existing employees or investing in needed software packages to increase department productivity.

The most important question that business owners must answer is:

What are the implications of my business choices?

A characteristic of a seasoned business executive is the ability to understand the implications of his decisions. 'Implication' insinuates foresight and prudence in a business. Can you take the next year off from your business and still profit from it? If you are far from this ideal consider your time and financial investments and opportunity costs. You could be costing your company market share.

Core Competencies

Business Coaching | Small Business Economics

By: Santi Chacon
Business Coach

Core Capability: is a specific area in a business that is central to the way it delivers value to the consumer. Examples of a these type of aptitudes can be the infrastructure or technologies centered on customer service, marketing, sales, management, logistics, manufacturing etc...

Executives need to learn to be profitable before they pursue the monetization of its' unique strengths. Organizations in the social media and technology industries exemplify such inadequacies. Many of these corporations are dependent on investors to survive and would fail if funding stopped. Business leaders that can't produce a profitable business model are incapable of discovering core capabilities; this is the wasteful story of throwing shit against the wall to see what sticks.

Rolls Royce

Companies such as Rolls Royce exemplify what may occur when a company focuses on its strengths. Under the leadership of Sir John Reese the business sold off its' car subsidiaries and moved out of the car business and focused it resources on designing, manufacturing, and providing maintenance on its' aircraft engines. Executives then increased revenues by over 500% and are now number two in their industry.

Factors that will assist a company in industry leadership are found in the executives ability to learn to identify relevance, difficulties with imitation, and market potential in its own infrastructure.

Relevance: the factor must strongly influence and be relevant to your consumers.

Difficulty of Imitation: the core competence should be difficult to imitate.

Market Potential: this strength should be something that opens up a good number of potential markets.

What are Yours?

Core Competencies are what make your organization unique.
Core Competencies are sources of competitive advantages.
Core Competencies are the building blocks to future opportunities and earned income ventures.

As you develop your business over time key capabilities will develop. These organizational skills and talent may not be evident in the beginning and may be different from your core products. Evaluate what customers are demanding or enjoying, in which is or could easily be profitable.

What factors that are important to your clients?
What does your business do well that is related to the value you are now delivering to your consumers?
What are the organization’s area of specialization and/or expertise?
What complex streams of business activity across the organization’s value chain does it do well?
What intangible strengths does the organization possess that brings it success in the market?
Is the competency applicable to a wide variety of markets?
Does the competency enable the organization to develop new products and services which deliver fundamental benefits to customers?
Does the competency make a significant contribution to the perceived benefits of end products / services?
Is the competency unique and difficult to imitate by competitors?

Efficient Versus Effective

Business Coaching | Small Business Economics

By: Santi Chacon

Business Coach

Profitability: Efficiency and Effectiveness

As company’s owners expect its managers to behave entrepreneurially, that is, to search for opportunities to develop better, more profitable goods and services. At a managerial level profitability is often viewed from two related perspectives—in terms of efficiency and effectiveness.

Efficiency is a measure of how well or how productively a company’s resources are being used to produce goods and services.

What are you doing to work on efficiencies?

It is of great importance to create processes or systems that carry production.

What is your plan to make better use of your resources?

Businesses grow out of necessity, not necessarily out of design.  The goal is to go back to the begining and re-design for profitability.

Efficiency is directed at the cost side of the profit equation. By becoming more efficient and increasing productivity, a company can become more profitable over time. By contrast, effectiveness is attention directed at the revenue side of the profit equation. Effectiveness is a measure of the competitiveness of the firm’s business model and its ability to meet its sales goals. By becoming more effective, a company can also

increase its profitability.

When was the last time you re-evaluated your business model, sales model, or technological infrastructure?

Profits Versus Profitability

Business Coaching and Small Business Economics

By: Santi Chacon
Business Coach

What is the difference between profits and profitability?

When a company earns profits it is said to earn more sales revenue over the cost of operations.  This just means that it earns more than it spends.  Profitability, however measures how well a company invests back into itself with the intention of seeing long-term profits.

What areas do you need to invest in to be profitable?

This question demands that you to see beyond your business today and to begin to think strategically. 

Thinking Strategically

• One area a executives could invest in that will ensure profitability is in their employees.  In this example a company can provide continual education, free health benefits, or free breakfast, lunch, and dinner for those staying late.  This type of investment will ensure that employees will stick around and work hard.  

• Another area of investment might be in marketing.  Executives may see potential in the use of social media for company branding. 

• A third investment could be found in creating a different product line or subsidiary that can assist the company in its goal to diversify, so it can be financially stable during tough economic conditions. 

• And yet another one could be an investment in your own database or existing customer base; research into the needs and desires of your customers could make all the difference in being profitable for years to come.

Let me ask the question again, just in case you missed it: What areas do you need to invest in to be more profitable?

A Little That Says A Lot

There are a million and one areas you can invest in, just think strategically.  Both profits and profitability are quite important in measuring the ongoing health of a company. Although a company needs to sustain itself long-term by making good decisions it also needs to sustain itself today.

Good questions we as future business professionals need to ask is how do we balance profitability and profits? and what specifically do we need to focus on for long-term sustainability? 

The Power of Information:

Think about an organization and how it operates and learn to gravitate toward the information that is going to give you a perspective on how a company is using it's resources and how it is earning an immediate profit. Locate the key indicators in your business that will provide vital data such as your cash-flow statement or sales, or reports that cover customer retention, or customer attrition. 

Re-framing:

A profitable company needs to focus on its' investments, which means that executives should be asking, with every purchasing decision, what is the long-term consequence of my purchase/investment? Executives should also learn to identify investments geared toward developing a long-term competitive advantage.

What Business Investments Are You Making?

Comparative Advantage

Business Coaching and Small Business Economics

By: Santi Chacon

Business Coach

Comparative Advantage is a situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor.

As a CEO starting a business or attempting to establish your small business in your dream industry, what are the barriers of entry? What do you have to invest in terms of time, energy, financial and human capital to play the business game in your dream industry? or what must you continue to invest to earn the right to sell your products or services profitably? Can you afford to pay the price the market is asking over time?

Barriers to Entry

For example: there are industries that cost $40 (network marketing) to enter and industries that would cost multiple millions (McDonalds' Franchise) and still others that have tremendous barriers to entry, in which the price of admission make it impossible to enter, such as cartels (OPEC) and monopolies.

Is there an industry that is better suited for your knowledge, talents, and investment? or which your comparative advantage is much higher? or opportunity costs are much lower?

The Gift of Time

Regardless of what industry or business you choose, if you can overcome the barrier to entry and sustain your business for the next couple of years you are in a winning position. As you spend time in that industry you will eventually find ways of producing more with less, if that is your intention. The more you can work to lower your opportunity costs the greater your profits can be.

80% of businesses fail within the first two years. Executives lack prudence when it comes to counting the cost. These are gifted men and women who perhaps could have succeeded if they understood comparative advantages and opportunity costs. When a person takes time to gather insights regarding industry and competitors before entering into a market, then the chances at success increase.

What are you giving up to produce your product or service? Could you produce a product or service at lower opportunity costs than your competition? Or is your comparative advantage too low? And most important, are you in the right industry?

A FREE evaluation with a business coach is a value of $500.