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How to Grow Your Business in a Flat Market; V-shaped or W-shaped?

Mon, 03 December 2012

W-shaped?

Remember the boom of 2007?

We can all think back to those heady days… except that 2007 wasn’t a true boom.

Flat, flat, flat

It’s a shock to realise that the markets have actually been flat since 1999.  Any ‘booms’ we witnessed were only an illusion.  The 1984-2011 FTSE 100 index chart shows the highest point occurring in 1999, while the ‘boom’ of 2007 was actually a lower value.  The economy wasn’t really thriving in 2007 after all.

‘The FTSE 100 index began in January 1984 with a base of 1,000, reaching its highest value of 6,950.6 in December 1999. Other notable points: June 2007 peak of 6,730, March 2009 fall to below 3,500, February 2011 peak of 6,091.33, September 2011 fall to below 5,000.’

We experienced a down cycle from 1999 to 2003, then a rise. But the 2003-2007 rise simply recovered ground lost between 1999 and 2003. As the markets fell away, the banks effectively pumped the economy up through over-leveraging. That in turn created the 2003-2007 bubble. The markets fell away again before heading up, but only to previous peaks.

Flat versus boom

2007 saw analysts debating whether we would experience a V-shaped or W-shaped recovery. Back
then we wrote several articles based on our market observations, which suggested a W-shaped recovery rather than a V-shaped one.

The term ‘V-shaped’ is misleading because this type of economic recovery more closely resembles a tick than a symmetrical ‘V’. A tick ends at a higher point than it starts, whereas ‘W’ starts and ends at the same height. Place a ruler across a ‘W’ and you can draw a flat line – like the late 1960s-1981 and 1999-2012. In a W-shaped recovery markets simply recover to their start point. Do the same with a ‘tick’ and you can draw a rising 45° line – like the boom markets of 1981-1999

Focus on business assets in a flat economy

When your business operates in a boom – the ‘tick’ – shaped economy – growth is easy through sales and marketing because you can always find new customers. But this approach doesn’t work so well in a flat market, although it might seem like the logical choice.

Today’s flat market demands a different business strategy – one that creates asset extension, rather than concentrating on the P&L.  Extending your business assets will create more growth now you are operating in a flat market than sticking with traditional approaches that worked in boom times.

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