The Day The Economy Flowed Backward
On February 7, 1812, perhaps the greatest earthquake to hit North America occurred along what is now called the New Madrid fault, named for the Missouri town under which its epicenter lies. The quake was so violent that on that day, it created a 13,000-acre body of water in Northwest Tennessee called the Reelfoot Lake, named for a Chickasaw Indian Chief. The sudden filling of this instant lake actually caused the mighty Mississippi River to flow backwards for a time.Almost 190 years later, on September 11, 2001, terrorist attacks on the epicenter of the civilized world were so violent that, simultaneous with the unprecedented single day loss of life and property in the U.S., the impact of such an event seemed to make our economy flow backward for a time.
Past acts of terror typically involved a handful of criminals terrorizing a few, or at worst, a few hundred innocent people. But in a couple of hours one beautiful Tuesday morning, a relatively few demoniacs succeeded in striking terror in the hearts of every civilized human being on the planet.
On some levels, almost three weeks later, we still feel terrorized. Could there be another dastardly act yet to take place? And while we are anxious for armed forces to exact retribution on those who perpetrated this nightmare-come-true, we fear these sociopathic sub-humans may strike again in retaliation.
Back To The Marketplace
All of these feelings, plus constant news coverage of "America's New War," as CNN calls it, have the tendency to take our minds off of two of our most important roles as members of a free market economy: producers and consumers. And when frightened and anxious, producers and consumers cannot effectively fulfill the critical task of maintaining the flow of the economy.
For capitalism to work, that little four-letter word - flow - must be omni-present and unimpeded. The economy operates on a time continuum that I like to think of as a pipeline, where work is put in on one end and business flows out somewhere down the line.
Each day in the marketplace is like a faucet hooked up to this pipeline. We show up for work, turn the faucet on, and if we have taken the preparatory steps to put something in the pipeline days, months, or even years before, like a sales call, a proposal, an ad campaign, etc., we expect some level of business to flow out.
Correspondingly, any day we fail to put something in the pipeline, regardless of the reason, is a day in the future when the flow of business will be interrupted. That's why the economy has some resilience today. The work we put in the pipeline months ago is still producing some business, and will for a little while.
For that reason, the next couple of months are not what concerns me most, even though many of us are currently experiencing challenges, and even though I think this holiday season is going to be even more austere than last. Because of the recent disruption of the flow of business in the pipeline, I'm frankly more worried about six months from now, perhaps as early as first quarter 2002. Here are some examples of why my concern is more for the out quarters:
Selling Cycles
Every business operates on a selling cycle, which represents the time between when a contact to do business is first made and the product or service is sold to the end-user. A cycle can be any period of time: a day, week, month, or even years, and can be determined by calendar, season, product life, production runs, or even a fad.
Every industry has a different selling cycle, and being in synch with the flow of that cycle is fundamental to success in each industry. When the selling cycle is interrupted, such as is currently happening in many industries, work is not put in the pipeline, which manifests in a dry faucet one day in the future. That opportunity is lost forever.
Production Cycles
Many products are purchased "in season." These products were likely contracted for in the previous reciprocal season, and manufactured between the time of the sale and pre-season delivery. Lawn mowers, for example, are ordered in the fall, made in the winter, delivered in the spring, and sold through the summer.
When the headwaters of the production process, the initial orders, are disrupted, so is everything else that flows down the line. I wonder how many "lawn mowers" are being ordered right now? And since time and tide wait for no man, when a season is missed, that opportunity is gone forever.
Cash Flow
Flow is the verb that, when tacked on to that other four-letter word so critical to capitalism - cash - becomes the lifeblood of free markets. When sales and production cycles are disrupted, cash stops flowing.
A business without profits dies a slow death. But a business without cash flow dies quickly. I predict cash flow challenges, especially for small businesses, will be significant for at least the next three quarters.
Off The Scale
When I help clients write business plans, we always create two sets of financial projections: an aggressive one that we have reason to believe we can achieve, and a conservative model that represents a worst-case scenario, in case something happens beyond our control. In terms of worst-case, what happened on 9-11, plus the economic residual, was off the business planning Richter Scale, and something that not even the most ultra-conservative business owner would have been prepared for.
I encourage you to do what EVERY large company is doing right now: revisit your business plan for next year and reconsider your conservative scenario. If you don't have a conservative scenario, create one.
Make sure you focus on how your business's pipeline works, and the three examples of business flow identified above.
Identify potential exposures, while simultaneously searching for opportunities. The first will be easy to find, the second is there if you look hard enough.
Small business has a BIG job to do to help keep the flow of business in our economy's pipeline. Indeed, the key to national economic recovery will depend largely on the viability of small business.
Write this on a rock... The struggle will be worth the effort. Those organizations that make the crossover to when the economy flows normally will be infinitely stronger, and significantly more successful in the future.
