Crises and opportunity
The world stood still as we witnessed the devastation and loss of lives from the tsunami and earthquake in Japan. Its aftermath raises a lot of questions for all of us. Natural (or unnatural) disasters can put things in perspective. We often get so caught up in the daily grind that we lose sight of what is really important. Amid a sea of destruction one fully realizes the value of life. It is an unfortunate but perhaps inexplicable part of human nature, to value what is lost, and to take for granted what one has.
As we entered 2011 we witnessed the New Zealand earthquake, and now the Japan earthquake and tsunami. Many cultures have words describing such events: Armageddon, Ragnarok, or the end of the world. The Mayans (derived from the Mayan calendar) believed that 2012 was the end of the world or the prevalent form of civilization. It is interesting that the Bible identifies guardian angels for a given time period. In 2011 and 2012 we are guarded by Uriel, the guardian angel during the time of Noah’s Ark, which was also somewhat apocalyptic. There seem to be many different methods of divination in predicting that next year is likely going to be volatile, and prone to mini-crises around the world.
Most people react defensively when discussions veer towards doomsday scenarios. I think one has to better explore the intricacies of the unexpected to properly plan strategic moves and seize opportunities not available under normal conditions. One of the Chinese characters forming the word “crisis” is also used in the characters for the word “opportunity.” Ever the opportunists, the Chinese have long canonized the wisdom of pragmatism. They don’t see the glass as half full or half empty, only that the glass needs more filling — how to fill it and how much can I make in the process?
I think entrepreneurs have to emotionally prepare themselves for leading during times of crises, and navigating their ships through such stormy weather. Asian entrepreneurs, I find, have a much higher crises quotient (CQ) than their Western counterparts. Of course I am generalizing here, but Asian entrepreneurs have grown up and lived in third-world conditions, which breed a certain kind of hardiness and immunity to political upheavals, riots, and for some, natural disasters.
There are many examples of families and entrepreneurs that have made it, lost it, and made it again — the Manour family of Egypt, for example. The two brothers have an estimated wealth of close to US$1billion each. They lost their fortunes during the Nasser revolution. One of the brothers was forced to work as a busboy but quietly rebuilt the company from scratch into a leading conglomerate. Their group owns the largest supermarket chain (Metro), McDonald’s, Palm Hills Development (the second largest real estate firm) and GM cars and trucks. The group’s turnover was approximately $4.2 billion, and profits of $450 million. Members of their family served in the Mubarak administration. The recent crises relating to Mubarak and how Egypt rebuilds from hereon will heavily affect how their fortunes play out. Their recovery, though, is a testament that it can be done. They are arguably wealthier now (after having lost it), than if they didn’t lose it and plateau-ed into complacency.
At the risk of sounding opportunistic, which I want to assure you I’m not, I’d like to make five key points re: opportunity-seeking during times of crisis:
1. Focus while your competition is distracted. There is nothing like blood on the streets to distract competition. It is human nature to forget work and run for your lives. If you have nerves of steel and able personnel with you, you can seize opportunities not available during normal operating environments. Competition might sell cheaply, competitors’ distribution chains might wobble, etc. There are lots of opportunistic scenarios here.
2. Growth rates: what goes down must go up. It’s the opposite of Newton’s law of gravity. I call it “the rebound.” It’s like throwing a rubber ball hard against the floor. Economies and people work the same way. Time has proven this. Invest at the bottom and you will be laughing your way to the bank as you enjoy those crazy, once-in-a-lifetime growth rates.
3. Wealth creation: what immediately follows hyper-growth is hyper-wealth creation. This is when you see overnight billionaires who happened to be sitting in the right place at the right time. Once-in-a-lifetime opportunities can happen during and shortly after times of crisis. The stock market is a simple barometer of this. If you invest at the height of any crisis and sell a year later (or many years later) after recovery has set in, you easily make money hand over fist.
4. Battle-hardened management: there is nothing like tested management to see it through. You will also see the best and worst traits of people during times of crisis. You will know who to reward and promote after such events.
5. Expect the unexpected, and prepare your moves accordingly. Probably the most important facet of this exercise is how to plan for a given scenario and execute it quickly should it happen. We all wish we could predict the future so we would know how to match our moves against actual outcomes, or capitalize on event-driven opportunities. Forecasting for the unexpected, and having a crisis-opportunity plan is important. If there is anything we have learned from the last global financial crisis, anyone buying companies and stocks near the bottom has made a multiple of their money two years later. Always reserve cash on the balance sheet for these kinds of situations.
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Any questions? E-mail me at egtheplayer@gmail.com.
