It’s January, the time for resolutions, optimism, and a bit of a reset. We’ve heard a lot about ‘unprecedented times’ lately, and whilst the unfolding economic situation isn’t unique, it will be the first time that many younger entrepreneurs look out on this kind of horizon. It may also be the time to take a fresh look at our plans for the next few years.
Two things particularly are changing around us – inflation and interest rates, and both will have an impact on small businesses and startups.
If you are a startup founder in your thirties today, you have worked with interest rates below 1% since February 2009, whilst in contrast, some of us left college at 10% and briefly saw 15% before things settled down again.
As interest rates impact access to cash, inflation has a more immediate impact on costs, and will be particularly felt by founders who are self-funding their startups.
We have grown accustomed to moderate inflation. The ONS reported the Consumer Price Index rose by 5.1% in the year to November 2021, from a long term average of about 2.9%, and many commentators expect it to remain around 5% for much of 2022. This will hit almost every aspect of the day-to-day activities of your startup, and all the other people within it.
High interest rates and inflation put pressure on planning and forecasting. A widely accepted military principle suggests that ‘no plan survives first contact with an enemy’. The intent is not to suggest that planning is pointless, but more to realise that plans cannot stay fixed over time. Good ones respond to unfolding situations, and so the parallels can be seen here too as we face up the new challenges of economic change and uncertainty.
So, how can you respond to this new and unfamiliar environment?
- Flexibility is key, and like military commanders, you need to revisit plans constantly to ensure they remain relevant and focused on achieving their primary goals. Factors of timing and secondary goals can be critically challenged to weed out or push back non-core items, pivot where necessary, and ensure the business is concentrating on truly value-adding activities.
- Act swiftly and decisively when parts of the plan must change. Implement changes quickly and cleanly and make sure you have the ways to monitor their impact. We are not going to return to last year’s conditions soon, and so every month of prevarication will cost more and more.
- Take guidance and advice, especially for the younger founders. This is a great time to do so, as conditions may be new for you, and there are many around with hard-earned experience of similar or worse. If they failed when we last faced these issues, they could recall why and guide you away from that path. Those that succeeded will have a toolkit, filled with lived experience and lessons learned. Many will be very willing to share this, and to support the next generation of wealth creators.
As I mentioned before, I have lived and worked through several financial cycles and have the tools, lessons learned, and some experience of what did and didn’t work in each case. My focus will often come back to the validity and flexibility of the business plan. If you read this and recognise some of the challenges ahead, then please get in touch and let’s talk about ways to tackle them.