Tuesday, December 29, 2009

Bucking the Trend- how SMEs can beat the recession.

An often ignored fact is that small businesses are the largest group of employers in Ireland.These small businesses or SMEs, defined as companies with 50 or less employees,comprise the largest numerical group of tax payers in the state. The real question for our economy,given the current preoccupation with tax revenue, is how does a small to medium sized business grow during a downturn?

The advice from Harvard Business school on this subject is to "plan strategically to be primed for growth" when the upturn comes. Large corporations strategise for growth by investment in R and D. Translating to small business, this means figuring out what you are best at and then continuing to do it- but figure out how to do it better and cheaper.

Competition is still the name of the game.Recession is an opportune time to look at what your weakest and strongest competitors are doing. Learn from both.
If you have a strong market size, then scour the market place and learn about the customers of your weakest competitors.What are these customers seeking that you do NOT provide? Look also at your largest competitors. Are they managing to hold market share in recession? Can you emulate any aspect of their service to become a real alternative for THEIR customers?Your competitors may be working all out to save their big accounts but that means there are smaller accounts you can go after.

In this climate customers' criteria have altered.Many now only shop for low price.But many also want quality AND value. In a sense your business challenge will be to help customers have their cake AND eat it. To do that you will need to manage the trick of cutting your costs without compromising service to customers.
You might call this challenge the "not throwing the baby out with the bath water" challenge. But DO throw out your prior assumptions and embrace new business practices, products, habits as well as those new customers.

If you are a small player you CAN gain ground.Bigger firms tend to have higher costs.They may also have clients disillusioned with a customised service. Perhaps you can work closely with that client and provide the personalised service they need. If you are a smaller player you should have less overheads and for that reason competing on price may be an option.

One vital point is this: don't forget to focus on your own existing clients, if you want to buck the trend you have to increase your client base, but if you do this at the expense of your existing clients then you will have only filled a void rather than gained ground. If you find that you want to gain more clients ensure that you don't do so to the detriment of what you have already worked so hard for.

Cut costs and look at your suppliers. Do you have any critical suppliers? If so get binding contracts in place so that they don't pass on any woes to their client base.
Many Irish subsidiaries of global players have passed the burden of shouldering stock equity losses down the line to you and I. I had two large global suppliers try to pass on four percent increases in early 09.By the end of 09 both were offering two for one on the same stock.

Oil prices are going to affect logistics and if you are in that business having set contracts in place would make a huge difference.Having a contract doesn't mean much if people refuse to honour it, but at least you are starting from a position of strength. If any of your suppliers are in danger of collapse, then you need to look for alternative suppliers should they be required or find ways to work with the present ones given different scenarios.Do not become over-dependent on any one source or product line.

Look out for talent!This may be an opportunity to get great talent at a great price. If you can access the labour market right now you may be pleasantly surprised by just how much 'bang for your buck' you get. If cashflow is an issue think about ways of keeping your own talent on board. A downturn will often make people re-think their tenure; last years demotivated employee may have a changed attitude today. Remember also that your hungriest and best performer is open to poaching by a market rival in survival mode. The last thing you want to see is your best employee leave because they are disenchanted or insecure.

You may have let some staff go. You need those who are left to work harder and assume new skills or responsibilities. Perhaps you need to promote by stealth, with salespeople or general operatives sharing management duties. You cant expect them to see the light at the end of the tunnel which only you have the belief in your business to see.Therefore even your best people will become jittery unless you communicate your vision, your destination; the where and the when it will all end. Leadership is about that vision, but mostly about communication.NOW more than ever, strong leadership is the asset you must bring to your business.

Get into the public eye. Nothing gives greater return on investment than some publicity. If you can talk about your business topic, then pass some information or public interest stories on to radio or paper correspondents. The media have a difficult job to do. They have to take any amount of information and turn that into digestible stories that are of public interest.'Newsworthy' is probably more important than 'news'.

Smart spending is key. Finding ways to really control your outgoings is vital. In terms of some online presence, a blog is a great tool for attracting web traffic that is interested in your area of specialty. Other sites may link to you on that basis and when they do that will help drive more traffic towards your site.

Look at sites you like then learn from their good features. Ensure that your phone number is clearly visible on every page and that contacting you is very simple. Clear easily found contact details are a must. As well, if your product or service can be bought over the web ensure that the process is easy. Paypal are great for the SME adding a web sale dimension.

Perhaps the single most important message in all of this is to keep marketing. Try new things.It's never too late to change your business model or to find a new angle. This doesn't mean being the cheapest. In fact that race to the bottom is expensive and creates more losers than winners.Locally focussed advertising yields strong dividends over time. You may not be able to gauge the results. What is important is for your business to become part of the local fabric of your town or community by your constant low grade public presence. Name recognition is your aim which is, after all,the essence of branding

Examine your business closely and try to find out what it is about you that makes clients come to you. Then do that again and again. Who isn't in the service industry to some degree? Imagine you got a carpenter to do a small job in your house. He shows up on time, does the job, accepts credit card, cleans up after himself and even uses a hoover to make sure all the dust is gone. Would he/she go on your phone for future reference? You bet they would!

Downturns mean people are looking for bargains. If you have stock that hasn't moved, then sell it as low as cash flow allows and use this to generate traffic to your business.Cash flow is the name of the game. Choose a " pay on demand" client over a credit client every time. Unless you feel you must do a job on credit ias a loyal favour to a good old customer. But dont be too loyal.

ISME's quarterly surveys pinpoint delays in payment as a critical problem for SMEs. Banks have stripped away overdrafts from those who werent using them. If you were using your overdraft, even depending on it, you have probably had your core debt put on term loan. We all give each other too much credit.Consider inviting your client to use a credit card to pay you; MBNA are in the credit card business, you are not.
Its a peculiarly Irish problem as credit is not expected, taken for granted or abused in many other countries to the extent that it is here.

The global recession has thrown up a new paradigm of marketing for customer expectation.Marketing gurus have commented for a decade or so on the phenomenon of the customer jaded by mass production.The demand for personalisation of service should have given the smaller businesses a larger niche but instead the large multinationals expanded choice and personalised their marketing strategies to keep ahead.The internet also empowered some customers by giving both knowledge and control over price and choice. What the internet lacks is the thrill and immediacy of a personal purchase. Big business has kept ahead because the honeypot of convenience and perceived value has allowed them to influence consumers to purchase high value goods or services with the bait of marketed loss leaders.

The good news for SMEs is that a new paradigm of consumer power is now emerging to add to the other five forces of business.Research shows that consumers will now pick and choose what and where to buy by new discerning ctiteria:whatever your niche is, IF you shout from the rooftops about it you have a better chance than ever of YOUR customer bypassing that aisle in the supermarket to selectively purchase from YOU. Shoppers will choose Tesco for some things, LIDL for others and now more than ever the farmers market for others. The principle of consumer power works for every sector. If I dont answer that nuisance ten pm call, a competitor will; my customer is now less likely to wait for me to suit myself. The SME which chooses to embrace the pros and cons of consumer power, to grasp the new paradigm, can use its own strengths of service and attention to detail to thrive through and grow out of recession.

Monday, December 28, 2009

FW: letter to editor- Brian Cowen,

This letter was printed in the Sunday independent on 3rd Jan.
Not so much a defence of Cowen but a comment on the interviewer.

The indo carried a full page interview with An Taoiseach in which Brian Cowen to be fair was very straight talking and came across as a very human, modest, team-building type of manager. The sort who would probably be a safe pair of hands in any organisation. I happen to believe that his pace of decision making has been too slow for the gravity of situation the country has faced. I believe his responses to the horror and hypocrisy revealed by the Murphy report were far too lukewarm. I believe his ambivalence to the Corporate malgovernance at Anglo-Irish leaves a lot open to suspicion.BUT political journalists in this country have gotten far too opinionated in the last few years and scarcely disguise their partisan leanings at this stage. A fact that they collectively need to be challenged on.
This letter to the Sunday INdo hopefully does that...
I refer to Sunday Independent 27/12/09, analysis p29.
Jody Corcoran's feature analysis on Brian Cowen's toughest year was indeed revealing, not for its insight into Cowen's philosophy of power broking but for its explanation of how a political journalist, such as Jody Corcoran, feels a politician should or shouldnt use the media.

Corcoran cites Cowen's leadership style as " the antithesis of grandstanding" and puts it to Cowen that maybe he should grandstand now and again " for effect".
Cowen replies that he leads as straight as he can and deals with "the substance of the issues and gets on with the job".

Corcoran's exasperation, evident through his line of questioning, seemed to be at Cowen's obliviousness to political spindoctoring, media impression and populist showman politics. I dont believe I have ever read a journalist ask (a politician) would behaving in a particular way not be better POLITICALLY for you?

Has the wheel of political journalism in this country come full circle? Since the advent of the printing press, media have criticised politicians in general for a lack of sincerity and conviction. Is Cowen now being criticised for NOT playing the game, not grandstanding, not spindoctoring?

Readers, voters, the public at large have a choice. Listen to or read what the man Cowen says and does. Or rely on the interpretation of an exasperated professional media needing a media friendly, impression-managed Taoiseach to suit their presentation of events.

Cowen may be his own worst enemy in the game of words and images, but he is nothing if not consistent. Remember the triumphant return to Clara after the Taoiseach's appointment? What was the song he sang on the back of the flatbed truck? "I did it my way"!

Des Groome,
Kilcumney House,
Kildare town.

Thursday, December 24, 2009

FW:Call to Investigate the banking Crisis by oireachtas Committee

A young journalist named Gavin Sheridan keeps a weblog I follow, simply titled gavinsblog.com. Gavin has the tenacity, curiosity and hunger of a true investigative journalist. I dont agree with a lot of his political views. I suspect his vision of Ireland's future is of a society a lot more left-leaning and interventionist than my vision.I believe in a future ideal of an efficient, productive, food and technology driven, pro-enterprise and small-government, island. We are at the mercy of global economic tides. We are strategically positioned but on a global scale we are no more relevant than a filling station on the Mullingar bypass; It is our passing traffic and footfall that matters. Should we cease to give global travellers what they need they will keep moving to the next turnpike. Our economy is "open". What does this mean? It means we rely on imports and exports to give all of us the wherewithal to maintain a first world society. It is in that context that the analogy of Ireland as a global petrol station must be viewed. We have to adopt the flexibility and all the other characteristics of a small well-positioned business setting out our stall for passing trade.  
Most of my posts are informed by this vision of Ireland's best future and by the view that we need to get more productive, get our people working usefully, use the assets we have of good land, good food and great entrepreneurs. THAT future of Ireland, the lean global trader depends on better corporate governance, accountability in public life, social pluralism and a state with moral as well as civil authority.
gavinsbolg 21/12/09 is worth a look. He catalogues a trail of investigative journalism into bad banking practice and irresponsible regulatory inaction tracing back to 2005.
I have set up a facebook page Call to investigate the Banking Crisis by Oireachtas Committee. I am sick of the party that I once felt an ideological affinity with, responding inadequately or equivocally to the moral ambiguities that have typified much of Ireland's social structures. Colloquially I have recently commented that the country needs to be now taken apart and rebuilt. In a manner of speaking I do believe that reforms of government, civil service, church, banking, corporate governance are now needed on a scale that will change the shape of an already rapidly changing society. These are reforms that need to be led by the moral, tolerant, Right-centred, decent and enterprising people of Irish society. have a look at my facebook page and join this debate.


Date: Tue, 22 Dec 2009 07:13:09 +0000
From: gavinsblog@gmail.com
To: groomevet@hotmail.com

The Regulator

Posted: 21 Dec 2009 02:41 PM PST

I don't want this post to seem like an "I told you so" post. But it might appear that way. I started irishcorruption.com/publicinquiry.eu back in 2005. One of the biggest issues myself and my uncle Anthony covered, and still cover on that blog, is the lack of regulation of the banks. And when the country was in a credit boom, and nobody, or at least very few, were asking questions about regulation of the banks, myself, and to a much deeper degree Anthony where highlighting this issue ad nauseum. Almost all of these posts were also copied to the office of the Financial Regulator.
August 22, 2005 Toothless IFSRA
August 25, 2005 Allied Irish Banks investigates itself
September 28, 2005 Banana Republic
October 10, 2005 Irish/Italian accountability
November 15, 2005 The sheriff is not for the good guys
December 13, 2005 Irish (Banks) Mafia
December 23, 2005 Legal actions, dodgy dealings and resignations
January 9, 2006 The (Irish financial) Wild West Show
March 24, 2006 Still waiting for law enforcement
March 26, 2006 Former AIB executives settle with Revenue for €323,313
June 7, 2006 Ireland – The Wild West of European finance

August 1, 2006 Irish Financial Regulator – Bizarre and toothless
August 2, 2006 Rampant corruption – rampant profits
September 28, 2006 A corrupt state
October 13, 2006 Bank robbers and bank robbers
December 12, 2006 Failing to make connections
December 14, 2006 Maintaining the illusion
January 23, 2007 State contempt for consumers
March 20, 2007 Irish Financial Regulator – Betraying the consumer
April 4, 2007 The Financial Regulator, banks and credit unions
April 25, 2007 Insider watchdog
May 3, 2007 It's all in the mind
June 17, 2007 AIB: Still ripping off customers with impunity
June 13, 2007 Man of steel turns to straw
August 23, 2007 A corrupt and secretive financial market
August 21, 2007 Dublin – A conduit for dodgy deals?
August 27, 2007 Dublin operation – A sloppily-run pig sty
And that's just the first two years of blog posts. Never let anyone tell you that no one could have seen what was coming.
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Friday, December 11, 2009

The giant pool

This post is a speech I gave at Kildare Communicators last week. It is the true tale of the growth of the American credit system which led to the subprime crisis in the US. Reading this may put Ireland's economic fall from grace into global context. Acknowledgement to the US today show.

My story begins with the global pool of money. But where does it end? Bear with me. This, a giant global pool of all the money in the world contains all the pension funds, insurance funds, private savings. When my story begins, 1998, the global pool sums 36 trillion Dollars. Thats a million euro on the day of Christ's birth, a million the next day for you and every day since- with a couple of trillion left.
That giant pool is watched over nervously by an army of investors whose job it is to make it grow, to keep it safe.
Between 1998 and 2000, two things happened. First around 1998 the global pool of money began to grow very suddenly. All sorts of unexpected countries like Abu Dhabi, Korea, China began to globalise their money. second, Alan Greenspan, the head of the US fed reserve made a speech announcing that US government bonds would stay at 1%- very low interest- for a very long time.
Suddenly, that army of investors began to have more money than they knew what to do with and needed more SAFE places to put that money.
So- Wall Street created a new financial product called a mortgage backed security. What's safer than houses?
At this point I want to introduce you to the three Mikes.
The first Mike, Mike Soden, works for Bear Stern. He is an investment banker.He looks after the global pool of money. He buys mortgage securities with other people's money and nets his clients a few modest % return. It's safe as houses.
Next meet Mike Garder, head of silverstone Mortgage bank Nevada. They sell loans to people like you and I. They borrow millions from bigger wall street banks to sell us mortgages to buy houses. Then they take back the mortgages ,gather them together in bundles of 2 to 300 and sell them back to wall street in mortgage backed securities.
Before long Mike in Wall Street owns little pieces of thousands of mortgages sold by Mike in Nevada.
By 2003 everybody who qualified for a home loan OR already had one was in the pool. BUT Wall Street couldnt get enough of these mortgage backed securities.
So month by month guidelines got looser until Mike in Nevada says they were literally pulling people in off the street and offering them home loans.
Lets look at he different loan types-
First you had a verifed income, verified asset loan- a VIVA. Then you had a Stated income Verified asset loan- a SIVA.
These are triple AAAs.
But soon you just needed an accountants letter to get yourself a No income verified asset loan. Finally they started giving out the loan you know you are going to default on- the NINA ! NO income NO asset home loan!
You see it was a new era- banks didnt hold the loan for 30 years anymore. They just bundled them up into triple AAA securities and sold them back to Wall
Now you would be right to ask- Where was the regulator? and yes there were ratings agencies. But they had no DATA for these new loan types. They relied on historical DATA about how safe home loans WERE. They gave virtually all these securities triple AAA ratings. They were rated as safe as government bonds.
Year by year if Mike Garder doesnt give a guy a loan , the next broker will. If Mike Soden doesnt buy the latest scurities the next banker will.
Year by year market forces took over. But how do you turn a NINA- a No income loan which is set to default from day one- into a security?
Because they are not all triple AAA. You have double B and triple B in there as well. How do they fly?
Meet the third Mike. Mike Francis. Mike Francis runs Dynamic Finance, Ohio.
He buys some triple AAAs from Mike Garder. He buys a LOT of double BBs and a LOT of triple BBBs.
He grades them, values them, sorts them. Then he shuffles them.
He splits them into bundles of 2to300 called tranches to create a new financial product, a new type of "security".
They are called collateralised debt obligations. CDOs. And Wall Street cant get enough of them.
Because by this stage the global pool of money had reached 70 trillion.
Some of these loans are ToXic Waste. But Mike Francis is an alchemist. He turns bad loans into good securities. Bad money into Good.
Mike Francis is an alchemist. But by the end of 2005 you could almost smell the sulphur.
Meanwhile Mike Soden in Wall Street watches his screen every day and all these securities and all these CDOs perform. Nobody misses a payment. Mike sends his investors a little dividend every month and everyones happy. These are Performing Loans.
But Mike now admits it was the triumph of Data over common sense.
Because by mid 2006 the average American home loan was over 4.5 times the average American annual salary. That ratio historically used to be 2.5. A leverage of 2.5 is the ratio you and I are safely able to pay back. Mike says what Wall Street didnt know was that the toxic loans hidden in the CDOs were propped up in the malls and on the high street by another loan product- the home equity credit line. People were taking out another loan to pay their mortgage. Now that didnt matter as long as house prices kept rising because we are all property speculators by this stage. You are going to sell the house next year anyway!
But by mid 2006 house prices reached a critical level and stopped rising. House sales faltered. The loans stopped moving.
Mike says he remembers the day it happened, just before Halloween 2006. Some of the numbers on his screen started to blip. Some repayments were missed.
Mike's boss said" would you look at that.... What are the fed offering on bonds today?"
Wall Street stopped buying CDOs and securities. Mike Francis in Ohio was stuck with a load of CDOs. He packed up his chemistry set and stopped buying loans from Mike Garder.
There followed a winter of discontent as the cycle of lend-speculate slowly ground to a halt.
Mike Garder in Nevada was stuck with a load of mortgages and soon keys started coming in the door. No one was buying homes even if you did repossess as home owners here and there began to default.
Around february 07 when the bank itself defaulted on a couple of big repayments to Citibank, Silverstone Bank Nevada declared itself bankrupt.
Staff were told and then people began to literally wheel photocopiers out the door.
Mike says his boss called it the valentines day massacre.
To everyone else it was the subprime crisis.
Mike Francis in Dynamic Finance, Ohio, who had split up and sold on shares in some 16 million home loans simply filled in all the paperwork, sent it to Wall Street and pulled the door closed behind him.
By mid 07 the language changed. They stopped referring to it as a subprime crisis. The problem became known as a CREDIT crisis.
This is because Mike and the rest of Wall Street had lost half the global pool of money.
They have been badly stung and their investors are mad as hell.
So now they want NO RISK. Suddenly government bonds at 1% look very attractive again. Suddenly no one wants to lend.
This is why Hungary, Turkey and lots of other places are paying 15% and Ireland's interest rate is rising rapidly also.
We are mixed right up in it because the trail of CDOs reaches all the way to OUR banks who borrowed and hedged and sold on securities, who used securities AS security on risky Dublin site sales. A trail that culminated in a late night phone call to the minister for Finance in September 08.
My three Mikes, NOT the three wise Mikes, are my seasonal tale of the decade.
To put this into perspective, this IS where we are. Its NOT the great depression. Wall Street says its more like back to the 70s.
We are stuck in neutral for a while. You can take Uriah Heep's view- he was Charles Dickens fictional stingy accountant- " Happiness is a surplus, misery is a deficit" OR you can hold onto my final word from the Dalai Lama
" This world is not perfect. But things like happiness and unhappiness are relative. Realizing this gives you hope. "