Your business plan is your narrative or story about how you will act to accomplish you personal ambitions and business mission. I encourage you to study and do the work to develop a rigorous, thorough business plan – a plan that you can continuously refresh as you execute. Such a plan is the blueprint for achieving increased enterprise value in your company. My purpose is to provoke your thinking a bit as you engage in your work on planning, not to provide the detailed guidance of doing a complete plan.
The US economy is growing steadily but not robustly with a current real GDP growth rate of 1.5 - 2.0%. I do not anticipate any significant increase in growth until/unless we get better tax, fiscal, monetary and regulatory policies resulting in a smaller government. We have very serious problems with regard to funding the entitlements we have committed to for the future. A sovereign nation ultimately has to spend within a portion of GDP that does not stymie the real economy. Remember, government does not produce but rather redistributes some of the production of its citizens. Art Laffer often illustrates this point by pointing to an economy of two farmers. If one farmer gets money from the government, it must come from the other farmer. All government spending is taxation, either today or in the future.
"It does not do to leave a live dragon out of your calculations, if you live near him." J.R.R. Tolkien (The Hobbit)
Key Economic Anticipations for 2014
Relevant to developing and executing our plans as private enterprises seeking to first maintain and secondly increase enterprise value, I assess the economic drifts most impactful on the 2014 plan to be:
Tax policy and rules will remain largely unchanged. There’s talk in the media about tax reform and a grand budget bargain. It is my view that there is insufficient alignment or ability to collaborate for this to become an opportunity earlier than 2015. I am certain that a modest, broadly applicable tax rate, with few if any exceptions, would both raise sufficient revenues for the government services the majority of the country favors and significantly increase GDP real growth. Unfortunately I do not anticipate seeing such tax policy during my career.
Regulatory policy and rules will continue to increase. Our government is dominated by elected representatives (of both parties) who think more controls will improve the economy in ways they favor. Politicians from different parties and factions disagree on what controls, but the notion of having more and more of the economy government controlled or influenced is evident in the speaking and actions of a large majority. An example is the SEC’s current proposed rule 506(c) for under Regulation D. While the stated intention of the JOBs act was to make it easier for private companies to raise capital from investors, this proposed rule will significantly increase costs and likely reduce investment by accredited investors into private companies.
Government spending in real terms will continue to shrink. Spending must shrink as our ability to fund deficit spending continues to reduce. Expect to see increased costs in time, energy, money and lost opportunities in dealing with government entities, particularly federal. The increased regulations require more interaction by businesses with government, and the reduced real budgets reduce the supply of “help” to service those interactions.
Breaking the debt ceiling will produce major negative consequences. Currencies and borrowing are all based in trust. I think that breaking the debt ceiling would quickly lead to drops in asset values and GDP contraction likely into another recession. This is one to watch as we approach the January deadline for the next debt ceiling increase.
Intense Competitive Presssures. I doubt you or anyone you know is planning to produce only 2% real growth next year – the anticipated growth rate for the whole economy. Some firms will grow at rates significantly above overall GDP, and others will grow less or shrink, partly as a result. The US economy is not zero sum – increased profits come from revenue growth, and from reducing costs and expenses. In the competitive environment I anticipate your competitors will be working as hard as they can to both increase revenues and lower costs.
Some Possibilities to Consider
We all have limited and finite time and resources. As you plan, I encourage you to push you and your term to think rigorously and thoroughly to generate and develop high-leverage strategic objectives that will produce the results you’re committed to.
"When turmoil rules, go in." Lau Tzu
- Specify the profitability you must meet for 2014 to be on track for your personal ambitions and business mission. Use this declaration as the outcome your plan must accomplish.
- Refresh and deepen your narratives the describe your core offer(s).
- Generate new specific offers that you assess will be major or radical innovations in your marketplace.
- Think and work with your team to assess what the economic anticipations I’ve articulated mean for your business. What must you change to compete successfully? What threats must you anticipate and act to mitigate?
- Assess the revenues you are confident you can produce from your offers.
- Design a budget for costs of fulfillment and operations that spends no more than the difference between the profitability commitment and the revenue level the team commits to. If you see a strong likelihood of greater revenues, begin to design how you would increase capabilities when those transactions are closed.
- Examine carefully existing narratives and practices working to assess where they can be improved, where they should be discarded and where you need to invent new narratives and practices to fulfill your commitments. Every business must improve every year just to remain as competitive as it was previously. When I ran Insync, we had a strategic objective to reduce costs/improve productivity by at least 10% annually. Commitments produce the design thinking required for compete successfully.
- Design you plan to have both flexibility – the capacity to respond quickly to unanticipated threats, obligations and opportunities – and redundancy – multiple offers, strategies and narratives for producing transactions and enterprise value.
"The measure of intelligence is the ability to change." Albert Einstein
Relevant Prior Posts
Photo Credit: Flickr User Julius.Hibbert