By Larry Alton
When you plan a business, you generally plan around existing variables in the economy. Those variables, however, are subject to change, and if you don’t change your business with them, you could end up failing.
Economies depend on too many interdependent factors for any sole variable to remain consistent for too long, and even a small change can result in a kind of “butterfly effect,” with progressively more significant results stemming from the initial root cause. This is why stock market trading conditions can change rapidly from day to day, even though the conditions of the economy as a whole don’t fluctuate nearly as dramatically.
How a Market Shift Could Affect Your Business
So what kind of external factors could affect your business?
- Consumer preferences. Consumer preferences can jump around for a number of reasons, and sometimes for no reason at all. Imagine you’re selling an energy drink. Your research may have indicated that teenage boys consume, on average, one energy drink per day. Next year, however, this number may drop. This could be precipitated by new findings on energy drink safety, new regulations on energy drink marketing or even by a sudden disinterest in the general product. In any case, a sudden lack of interest in something—even if it’s a product tangentially related your business, specifically—could drastically change your business sales.
- A new competitor. You’ll feel significant pressure if a new competitor enters the field. Hopefully, your original business plan did a suitable job of identifying and describing the competitors that already existed for your business—but that won’t do you much good if a new company comes along with a cheaper version of your product.
- A declining fad. Some businesses build themselves on fads, and they tend to die by those fads unless they find a way to change. For example, companies that capitalize on new diets tend to fail after just a few years unless they come up with a better long-term vision. Fads will almost always die out—the problem is determining when that fade out will happen and how fast.
- General economic trends. The state of the overall economy can also affect your business, especially if you’ve taken advantage of current economic conditions. For example, if your business depended on spending and startup developments associated with an economic boom, a recession could stifle your revenue significantly.
- New conditions that affect product value. You might also see conditions that affect the value of your product. For example, if you sell lawn irrigation systems to residential consumers, a sudden increase in rainfall could significantly lower demand for your product. There are countless variables to consider here, and some of them are bound to blindside you.
Bracing for Volatility
It’s always possible to respond to a market change with a change in your own business, but this strategy isn’t nearly as effective as proactively protecting your business against volatility, and changing as you anticipate market conditions.
These are some of the best ways to protect your business against volatility:
- Pay close attention to your surroundings. Know the key variables on which your business depends, and monitor them closely. Read the news, both inside and outside your industry, and try to be as proactive as possible about management.
- Incorporate gradual changes. Instead of changing reactively, or all at once, change your business one piece at a time. Big changes are far riskier and could make your business even more vulnerable. Don’t be afraid to experiment with new strategies, especially if you anticipate big changes on the horizon. There’s always room to learn and grow.
- Diversify your income streams. Diversification is the key to protecting your investments; make sure you have multiple income streams established for your business, whether that’s in the form of multiple product lines or multiple ways to generate income.
- Diversify your suppliers and partners. Work with a mix of different suppliers and partners, and always have backups in mind.
With a bit of foresight and proactive management, it’s possible to protect your business against almost anything that can result from even a major economic change. Those changes are hard to predict, and sometimes hard to notice, but you’ll need to be aware of them, and consider them while you’re updating your business plan.