A CEO’s preparation guide: How to maximize profit in any economic cycle
What if you could predict the economy 12 months ahead with 94.7% accuracy?
According to ITR Economics, macroeconomic growth as measured by US industrial production is beginning to recover. Yet, two of ITR’s core economic indicators show “recession” while the other four indicate “slow growth.” So, how does your specific business in your specific industry prepare? If you’re like most companies we work with, you’d agree it would be nice to know the state of the overall economy and especially the sectors most relevant to your business not only today, but at least a quarter or two before they happen. That’s precisely why more and more companies are relying upon the data and forecasting made available from ITR Economics (the only economic trends forecaster that has a 94.7% accuracy rate and 60 years of correct calls) to anticipate what’s around the corner. In fact, Chief Outsiders is an ITR Economics client. Their monthly Trends Report has given us the confidence to increase our growth investments in the last nine months because we could see it was time to prepare for a growth spurt. The results? An 85% growth rate over this period. And we’re still pressing ahead.
Company growth – not a straight line
Previously, I had it all wrong. My view of economic and business growth was “up and to the right.” That’s unless there’s a recession, when there’d be a setback until we catch back up to previous levels, then continue up and to the right. It wasn’t until I heard ITR Economics’ Brian Beaulieu and his brother Alan speak about economic cycles using “rate of change” charts. Turns out, if you plot most any economic or business cycle comparing rates of change (e.g., three months compared to three months a year ago, and 12 months, compared to 12 months a year ago) you typically end up with cyclical patterns. With enough history (perhaps seven years of sales?), your business’ rate of change cycles can be correlated to a number of leading economic indicators and as a result, a forecast of your growth cycles can be estimated.
Predictions and preparations
Again, it’s not the actual growth or decline or level of your revenues as much as the rates of change over time that lead to these powerful and ultimately predictable insights. As a result, businesses – even small and mid-sized companies – have the opportunity to “see around the corner” of their specific economic situation. That means you can anticipate your upturns or downturns allowing you to capitalize on growth, or make alternative plans to avert undue pressure on your profitability.
What about 2016? Seems like we’re in a wind tunnel of change
Many sectors of our national and global economy experienced recessionary trends in 2015, and that caught many of us by surprise. For many businesses, it’s hard to tell if 2016 has brought any significant change to stability in this uncertainty. The truth is, when some sectors are experiencing growth, others are in a decline. How does a CEO know what to expect, and then given their stage in a particular economic cycle, then prepare their business to capitalize on the growth, or protect profits if they’re in a downturn? One way to think of this challenge is using a sailing analogy. If you know you’re going to experience a tailwind, how should you set the sails to maximize the thrust forward? Even more tricky, if you’re going to experience a headwind, how should you tack to allow your business to keep some velocity, even if it requires heading in a direction not directly aligned to your prior expectations?
Look around the corner, be prepared
Chief Outsiders highly recommends that CEOs and their executive teams subscribe to the best economic forecasting tools available. That includes ITR Economics’ monthly Trends Report (about $1,000 annual subscription). We also recommend reading their two related books “Make Your Move” and “Prosperity in the Age of Decline.” This will help CEOs see the big picture, learn how to use the economic insights they receive, and build powerful action plans to “sail” forward. In addition, CEOs will find our own “The Growth Gears” book a useful companion for developing your organization’s ability to align with your markets to define and execute strategic growth plans.