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Wednesday, 27 May 2009

How Businesses Can Prosper, Even Now

Rick Newman

Many Americans are hunkering down, but even a grinding recession presents chances to get ahead--and maybe even earn your fortune. The very disruptions causing pain for many workers--spending cutbacks, layoffs, and corporate bankruptcies--often create openings for others. To figure out where to look, I asked William Sahlman of Harvard Business School, an expert on entrepreneurship. Some of his observations:

Creative destruction, like we're seeing now, generates opportunities, right? Do you see new opportunities forming? There's always been a yin and yang of opportunity. One person's crisis is another's opportunity. If you're a buyer of assets in distress, for example, you're able to pick up companies you may never see again at these prices. Right now there's $8 trillion or $9 trillion of cash sitting on the sidelines. People are waiting for signs so compelling that they're willing to go back in.

What are some of the best opportunities you see? Healthcare and education are growing, in terms of fields to work in. And in terms of getting education, the opportunity cost of that is going down, since jobs are harder to find. I know that applications to Harvard Business School are up, for example.

What other fields could be good growth areas? There are enormous opportunities related to energy. Insulation: Believe it or not, that's the highest return on investment related to carbon. Solar. Improving the electrical grid. Biofuels. The biggest problem with energy is that oil's at under 60 bucks a barrel. That destroys the incentive to innovate. I'd almost rather see a fixed price for oil higher than today.

Interesting. That's something a lot of auto executives would like to see as well. With prices that go up and down, we've wiped out predictability. If you're trying to make the case for investing in alternative fuels, you'd like to be able to put a floor under the price of biofuels.

But overall I'm extremely optimistic about the future of science. There's more reason than ever to think there will be technology advances. For one thing, we need them more. Things like poverty and the environment, these are things viewed best as opportunities for technology to solve problems.

I also think you're going to see a lot more kids going into social enterprises like Year Up or Teach for America, something they wouldn't otherwise have done.

Some people are able to remake themselves during times of transition, like we're in now. Can that happen in banking and finance? That seems to be one part of the economy that's under a lot of stress, and likely to change. We will need financial institutions that are effectively restarts. More community banks. The challenge is getting money. In the short run, we're not going to see the rebuilding of the financial system. People with capital are going to put it into distressed debt, not into new banks.

Yeah, you hear of the lot of big investors talking about the riches to be made in distressed debt these days. Is there any way for ordinary people to get in on that? Not really. Unfortunately, distressed debt is a complete insiders game.

If you're trying to find opportunity on an economic landscape that looks pretty barren, what are some things you need to think about? If you can lower the cost of doing things, this may be a great time for disruptive technologies. There are also opportunities to compete on price, as long as you have an acceptable level of quality.

The challenge with retail products is, we're over-retailed. But online firms like eBay should do well, because it cuts out the middleman. Amazon is another one.

People have to cut back, use less leverage, rely on lower incomes. That means renting Kate Spade bags instead of buying them. If you can be the one who rents those bags, it will make you very competitive.

Do you think the recession will get a lot worse? Or are we getting close to a bottom? We're closer to the bottom. I'm optimistic that we'll pull out of this, but not before the housing market stabilizes. The problem is uncertainty about where house prices will go, not where they end up. And all of it is related to trust and confidence in the idea that tomorrow will be a better day.

2 comments:

Jesmi said...

good post.
Thanks

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