Businomics Blog

Business Decisions in an Uncertain Environment

Business leaders make decisions in an uncertain economy. Technology, social attitudes, government policies and competition are also uncertain. This interview, with a poker player who touches on football among other issues, displays wisdom about the choices that executives must make.

 

Finding Qualified Workers Top Concern for Small Business

“Finding qualified workers now exceeds taxes and regulations as the top concern for small businesses,” said Juanita Duggan, head of the National Federation of Independent Business in their latest report on small business optimism.

My previous post shows videos on the topic of employee retention and recruitment. More videos have been added to my playlist "Leadership in Today's Tight Labor Market."

For those who prefer written format, check out my articles on Forbes.com:

How to Reduce Employee Turnover

How to Increase Flexibility in Employment

Why the Tight Labor Market Will Not Go Away

Shoot me a message if there are other labor market questions you wish I would answer.

 

Leadership in Today's Tight Labor Market

CEOs across the country are telling me that employee retention and recruitment is their biggest challenge. To help business leaders cope with the challenge of employee turnover and employee hiring, I have produced a series of videos on today's staffing challenges--and how great leaders position their companies to beat the competition for talent.

 

Videos:

The Tight Labor Market: Why the Problem Is Not Going Away

Employee Retention, the key to thriving in today's tight labor market

Employee Retention and Money: people usually quit because of the boss, but sometimes it is about money.

Employee Recruiting Ideas: Where to Look for New Workers

Hiring for Employee Retention

Speaking Clip about Leadership in Today's Tight Labor Market

 

Business New Year’s Resolution: Skip The Financial News

In the depths of the last recession, I met a business person who had just had the most productive six weeks in his career. It was hard to believe, so I asked how he had done it. “I stopped watching the news,” he told me. Skipped Fox and CNN, skipped online news feeds, ignored the physical newspaper, except for sports. “I acted like customers could benefit from our services. I sold them on the value of our services. I didn’t get caught up in the gloom and doom of the news.”

But - there’s a headline telling me this story could be crucial! My market could be collapsing, consumers could be in for a disaster, business bankruptcies could be about to soar.

Here’s the key to financial headlines (as well as all other news): The headline does not appear because there’s an important story. The story appears to justify the sale of advertising. And the headline appears to lead readers to the story. Sometimes the story is truly newsworthy, but what happens if there is nothing that’s newsworthy? A story is written anyway, along with a lurid headline demanding your attention.

Back when our ancestors were not quite homo sapiens, two hominids were walking across the savannah and heard a rustle in the bush. One hominid ran away, fearing a lion, a tiger or a snake. The other hominid thought it was probably just the wind, and kept on walking past the bush. Which of these two fellows is our ancestor? I’m pretty sure it was the fraidy-cat; the other one got eaten up, if not that day, then some other day. We are all descended from fraidy-cats. And the news media know it. The headlines trigger that old fear lurking in all of us.

But it’s worse than being tempted to look at bad news. Looking at news also offers an opportunity for confirmation bias. That’s when we notice information that confirms our prior belief, but ignore information contradicting our belief. We humans do that all the time. And subordinates frequently do this for their bosses, presenting news that the boss will find comforting.

If you avoid confirmation bias, you’re still prone to being whipsawed, as one report implies going west, then another suggests opportunity in the east, while the next one extols the virtues of the south. (Does anybody ever see good things in the north? I don’t think so.)

New reports can be misleading, but business leaders need to understand the environment in which they operate. Sometimes customer groups are spending more, sometimes less. At certain times costs will rise, while at other times they will fall. Credit may be more available or less available. The uninformed executive will zig when the economy calls for a zag.

The solution is an economics dashboard. Select the economic indicators most relevant to your business. Include measure that reflect your customers, your suppliers, interest rates and inflation specific to your business. Update the data monthly. (The FRED database is a great tool.) Discuss the dashboard regularly with your managers, asking the following questions:

Does the dashboard reflect what we are seeing in our own sales and costs?

Does the dashboard reflect the planning assumptions we set out at the beginning of the year?

Should we stick with our plan or revise it now?

Setting up an economic dashboard is explained in Chapter 6 of Businomics, or you could use an economic consultant for help. A good start is my monthly economics newsletter.

Whatever approach you take consistency is the key to success. Pick the most relevant indicators, watch them regularly, and ignore the news.

What State Government Can Do About Economic Uncertainty

I testified before the Oregon legislature regarding uncertainty about the economy and state revenue forecast.

The entire session, including two great fellow economists, Tim Duy and Andrew Dyke, can be seen here.

Or watch just me below:

Questions About Recessions

What will cause the next recession? In 2014 I wrote The Next Recession: Cause and Timing and said, “The Federal Reserve’s unwinding of its stimulus is the most likely cause of the next recession. For a while Europe was the most troubling threat. Although risk still comes to use from Europe and the Middle East, the Fed is now the greatest concern.” I continue to believe that European financial instability is a risk, along with and China’s economic deceleration. At this point, November 2016, though, the greatest risk to the U.S. economy is that businesses hold off spending and hiring until the Trump administration’s policies are clear. (That is not the same as saying that Trump’s policies are bad, just that companies may delay decisions until future policies are more certain.)

How likely is a recession? In October 2016 I wrote Recession Likely in the Next Four Years using “likely” as more than 50-50 odds, but not certain. I continue to believe that. I think the probability of a recession beginning in the next 12 months is about 20 percent, but that’s a judgment call.

Are we already in a recession? I wrote Are We Already In A Recession? (2012 Edition) because I was reading people argue that way. Because of time lags in publication of data, it’s possible for the economy to be in recession before the data show it. And there’s always somebody saying that we are already in a recession. In January 2016 I wrote another such article Are We In Recession Now? quoting a couple of analysts who thought the worst. And since that article was written, we’ve learned 2015 4^th quarter had positive growth, as did the first three quarters of 2016. So no, we weren’t in recession already.

How to prepare for recession? Back in 2008 I was quoted by The Florida Times-Union: “For Conerly, preparation should include evaluating how vulnerable your business or family is to a recession, understanding where you are in your own economic cycle and figuring out what you'll do if things get worse.” And then, of course, I wrote a book on this theme, The Flexible Stance: Thriving in a Boom/Bust Economy.

Update: I just answered the question What Is A Recession on my Forbes.com blog.

New Business Competitors: Lessons from Leicester City

Is there a small competitor about to clean your business’s clock? Will your sales be Amazoned, iPhoned or Ubered? Is there a Leicester in your league?

The Leicester City Football Club just won the Barclay’s English Premier League, the world’s top soccer league. Over the years they have bounced back and forth between the Premier League and minor leagues. (In England the worst teams are relegated to a lower level and the best teams are promoted to a higher league.) Leicester have been playing since 1884 and this is their first championship. (The English refer to the team in the plural, so they write “Leicester have ….”)

At the beginning of the season, bettors and pundits predicted victory by one of the perennial favorites: Arsenal, Chelsea, Manchester City or Manchester United. Leicester City was doomed to another relegation to the minor leagues according to the experts. Under the category “surprises,” Barney Ronay of The Guardian wrote, “The Premier League doesn’t do surprises.” He predicted Leicester would “probably” by relegated.

And now Leicester is on top. Surprise.

This reminds me of the building supplies dealer who told me that contractors would never buy from Home Depot. Of the fight for cellphone dominance between Nokia and Blackberry.

You can’t run your business worrying about every start-up in every garage, but you can wonder what would drive your customers to an alternative supplier. Try to ignore current structure of the market and ask what the customers or end-users really want to accomplish. Are there other ways to achieve those goals or aspirations? Is there an off-the-wall approach that just might work?

Upstart competitors have an easier time than ever today. Capital needs for startups are lower. New technology allows companies to test the market with small production runs, and globalization enables foreign competitors to more easily enter you market. (These forces are explained in more detail in The Flexible Stance.)

The possibility of new competition should be considered in developing strategic plans. Key risk areas can be identified and contingency plans developed. The failure to do so is most often due to executive hubris: the belief that management knows what will happen in the future.

The key lesson from Leicester City and successful business startups is humility. The top experts on English soccer mostly put Leicester in the bottom three places in the league, with optimists predicting a 15^th place finish. The fans of Leicester City are today celebrating total victory, and the rest of us should be looking over our shoulders at what other forecasts could go wrong.

Get Ready for President Clinton

We're still months away from the election, but my favorite political forecaster, Larry Sabato, has drilled down to important realities in The Electoral College: The Only Thing That Matters. He notes that it's too early to call the contest, but he finds Hillary Clinton to have a strong lead over either Donald Trump or Ted Cruz.

As I noted in my Forbes.com article, How Bad Will The New President Be For The Economy, a President Clinton would have difficulty implementing her program if at least one house of Congress is held by Republicans. If Clinton has coattails long enough to pull both houses to the Democrats, then it's time to re-think our economic and investment forecasts. But I'm not there yet.

What Corporate CEOs Need To Know About Big Data

Steve Levitt, author of Freakonomics, gave a presentation on big data in corporations. It should be watched by all CEOs and wanna-be CEOs. It's discouraging in that it shows many companies' unwillingness to use the data they have, but it's encouraging. You don't need to be perfect to beat your competition, just have a willingness to make decisions with data, and spend a little in resources to make it happen. It's also a fun presentation with lots of chuckles.

 

Business Economics Posts On My Forbes.com Blog

Most of my work is going onto my Forbes.com blog. Here are my recent posts that have gotten a lot of attention:

What's Next For The Stock Market After A Big Drop?

Manufacturing Has Come Back And More Gains To Come

Four Strategies Businesses Will Use To Cope With Higher Minimum Wages

Misleading Productivity Measures: We Really Are Better Off

You might also check out my forthcoming book about business strategy with an uncertain future.