Often small businesses can tap into opportunities that arise out of government policy change, project work or new schemes that have uncertain longevity. Billions of dollars of this happens in the economy each year. In recent years the stimulus in the G20 economies has resulted in many new opportunities which businesses are now tapping. The big catch is that a fleeting start can have a fleeting end. I refer to these as pen-stroke opportunities.
As an example in the UK the construction of 5 billion dollar aircraft carrier is in doubt as quickly as it was planned. In Australia there was an insulation scheme with good environmental intentions that recently collapsed highlighting the inherent risks and subsequent systemic business failures.
The problem is that while you swim in a sea of cash a storm may be brewing. Politicians might be changing their minds, funding may be ending, new technologies might be about to make your business model irrelevant. Any business model based on a temporary market opportunities requires a agile business model. In doing this some simple strategies can be employed.
It must be a low capital structure.
Make sure the CapEx you have to make is commensurate with the risks of the opportunity ending and that you can sell that CapEx when and if it happens. The inability to shift old or redundant inventory is one of the biggest problems I see in business.
Keep your human resource needs off balance sheet
Outsourcing, sub-contracting and services (vs. self-service) can help keep headcount down in the business. Thinking more like a film producer that pulls people together for a project rather than thinking like a traditional business owner. Pull the right people together and know that filming will stop and you need a simple dismantling strategy for your business and it’s crew. Set the expectations in the staff as such, they have families and responsibilities and need to know where the risks are around longevity.
Preferably hold near zero or just-in-time inventory levels.
This is simply so you can dance near the door. If you don’t and the party ends you don’t want to get trampled in the rush for the door. If you are holding a big capital investment or high levels of stock you risk not achieving a good exit when forced to sell it back into the wholesale market.
Don’t expect the government to pick up the pieces.
They love cutting projects with the stroke of a pen. We all know this and little compensation is ever forthcoming. Even when the Government is clearly the party that has messed things up there is little sympathy from the electorate or other businesses because opportunism for high returns is understood to have higher risk. If the change in the scheme or project is due to a government change post election then the new government doesn’t need to act in your interests for at least another 3 or 4 years until the next election comes along. They know your cries will be long forgotten.
Structure a low CapEx and instead higher OpEx model
Keep leases and contracts short or flexible. Keep creditors as short as possible. Don’t run your capital structure with long term debt or intensive plant and equipment capital purchases. As an example opt for pay-as-you-go mobile phone plans instead of 2 or 3 year contracts. Buy Saasu on subscription instead paying upfront for old style accounting software!
Gap management
Make sure you OpEx matches you revenue side of the business. This gap management is critical. If considered it will ensure you don’t load expense into the business without having contracted or committed the revenue side.
Put your opportunistic hat on but make sure it’s the right hat for the job.
