If they were given only one sentence and they do not even know you, they would say your company is cyclical. In fact they say everything on this earth is cyclical. The time lines may be short or long, the highs may be a little high or very high but we are all living a cycle.
This is important – and should be important to you because this gives us more of an opportunity to predict the future. I’m sure you’ve hear the phrase “Leading economic indicator.” If you’re like me, that is mostly stuff that goes in one ear and out the other. But that is a mistake.
Dr. Jeff Dietrich is an economist with ITR Economics. They are a firm of very smart people and their product consists of reports predicting the future. And if history is accurate, they are very good at it. I attended a presentation by Mr. Dietrich and it changed the entire way I look at my clients businesses.
Government agencies along with private companies – big and small – pay economists for their predictions. And in doing so, these companies are able to get a jump on their competition. If you knew exactly what your sales were going to be next March, would that be beneficial? If you knew exactly what the economy in general – or maybe your industry was going to look like the 4th quarter of 2016, wouldn’t that give you a competitive edge. While the word exactly only lives in theory, these guys really do a good job with their predictions. There are a lot of people that made a lot of money in 2008-2009. Not because they were lucky. It was because they were watching the leading indicators.
I don’t want to get too far into the weeds but please take a look at this graph.
It is a set of leading indicators that predict a company’s sales growth over time. Let’s call the two indicators Orange and Blue.
Please look at the red arrows. Every time the orange crossed the blue line, there was a change in the company’s sales volume. These are actual numbers of a real company. The prediction of either increasing sales velocity or decreasing sales velocity over time was 100% accurate. This gives management great insights into future building.
- Do we grow our staff or stay at this level?
- Do we spend money on capital or do we sit tight?
- Is there anything we can do to reverse the effects of the downward trend?
There is so much data available and there are so many really smart people analyzing this data. Because of fast and cheap computers, this data is available to small businesses. If you want to grow your company into something really big and really good, you need to include leading economic indicators in the analysis of your business.
This is a very technical subject and a lot of business owners are not numbers oriented. And very few of you have spent any time in the world of leading economic indicators. Please give me a call if you would like to know more about how this can help your business.