We’re in for a rough ride, folks.
At present, the U.S and world econpmy is generally doing well.
But there are massive imbalances building, mainly through debt (government, corporate/business, personal, unfunded pentions obligations, margin debt), but also through things like delayed infrastructure upgrades and improvements.
Couple these with unfavorable demographics in especially the developed world (aging population that is working less and fewer young people working to pay for the social needs of the former).
And in the U.S., there are “The Two Economies: The Top 40% and the Bottom 60%, which is feeding into our current dysfunctional political state and will get worse.
I keep track of these and other trends in the Trends Analysis section of my Lean & Agile Framework
So, how can an entrepreneur manage through all of this, which we will have to collectively deal with in the coming decade or two (and probably beyond)?
Here are the things I am focused on.
Exceptional products with defensible IP
One of the things I advocate in my Growth Stack and harp on constantly is to have WOW products that capture attention. But it goes beyond that. As I outlined in this post, you want defensible intellectual property, like a process, a patent, data, expertise or a product.
By defensible, I mean you can defend it from competitors copying, reverse engineering or getting around it.
And, your IP creates a significant enough differentiation to your target customers that they want to buy your product and not direct or substitute competitors. They are captive to you and only you.
We hear more and more about the massive changes to to our jobs that robotics, automation and artificial intelligence/machine learning will cause in the next few decades.
But if you own something that is defensible from copying, then you might have a measure of protection.
Creating WOW products that capture attention is really hard to do. But you want to keep working on that because everything else – operations, marketing, sales, revenue and net income – is built on this foundation.
Without an exceptional product and captive customers, everything else is at risk of falling apart.
Have a thorough grasp on marketing acquisition and retention costs
This means having robust data collection and analysis and solid financial reporting. I have invested a lot in my infrastructure, which really helps me stick with marketing that works and drop off that which does not work.
Own your customers and develop relationships with them.
By owning, I mean that you sell direct to them and not through third parties. This allows you to collect their contact information so you can remarket to them.
You develop relationships with them through retention marketing.
This means you want a robust information infrastructure that allows you to slice and dice your customer data to create segments for more targeted retention marketing.
I built a database (and associated systems) that allows me to collect a great deal of interaction information on my customers. I also append it with demographic data that I purchase from data brokers.
In addition to using this data for retention marketing, I also gain a detailed understanding of my target customer so that I can focus my marketing on acquiring only these potential customers.
Pick your focus
In general I am seeing a barbell grouping in consumer markets: either you are the cheapest, or you are the most expensive.
Being somewhere in the middle is getting hard to operate in because you are trying to be a little bit of both. So, either be one or the other, and make sure you can defend it.
I don’t like cheap because it is harder to defend if a competitor has better economies of scale. So, I focus on high quality, expensive products, which also limits me to targeting people who are able and willing to afford my offerings.
Take small risks
Don’t swing for the fences unless you have really proven your product, marketing and operations.
Keep finances in check
Keep debt levels and expenses low and cash levels high. Make sure you can access your cash quickly.
Its not just that you might need it in a recession, but tremendous buying and investment opportunities usually arise in a recession because others are desperate to raise cash.
I have become more vertically integrated, owning the entire process from supply chain, through manufacturing and marketing
It use to be that you want to outsource a lot of this, and that may still be the case, but you might be able to squeeze out a lot of costs via the profit margin that is found in your outsourcing partners.
That is what I have done. I also end up with higher quality products because I manage my supply chain and production.
Adopt new methods of outsourcing
A lot of platforms have emerged to give you world class work at a fraction of the cost.
I use Upwork a lot.
But as AI and machine learning grow, there are more and more human-centered functions that will be be taken over.
So, I will be keen to use these if they make sense.
Invest in technology to make you efficient.
Technology is becoming so cheap and easy to use that investing in it to increase productivity and efficiency is a no brainier with a short pay back period.
I have found this to be the case with me.