The Successful Entrepreneur , part 3, TIMING

1. The Successful Entrepreneur, part 3, TIMING How they gain from--not lose to--the business cycle

2. Remember, business cycles • never look brighter than near the peak • never look more bleak than near the bottom This is why businesses tend to buy high and sell low

3. We forget the certainty of the business cycle because of our rules of thumb: • You can’t time markets or events. • Market trends & events don’t really matter to our little business. • You’ll hurt more than help by trying to anticipate events. • How can we see something everyone else is blind to? I have tracked these objections throughout my career. It is rare that someone will explicitly state or even admit to believing all four.

4. P = Vu, [(Sy, U)t(1-n, 1+n)] • the Price of a thing is a combination of • its Value (usefulness), • modified by its Supply includes the supply and cost of credit, • modified by Uncertainty (sometimes radically), • as seen in times past (1-n) and by reasoning pushed forward to the future (1+n) • Examples of economic theories which apply: • High prices make for low and low prices make for high • Cheap and easy credit drives prices up and conversely • Reduced uncertainty pushes prices and also conversely • The top of the business cycle hides losses and the bottom hides profits

5. Foresight: the entrepreneur thinks theoretically • It is about his idea. He looks to the future, and the future is beyond reach of facts. He relies on economic theory • P = Vu, [(Sy, U)t(1-n, 1+n)] • Price only equals value if one accounts for the effects of S (Supply) and U (uncertainty). Management looks to industry associations, the press, and the competition for guidance. Some argue this is the correct function of management as its emphasis must be present profits, cash flow and growth.

6. History matters too • The entrepreneur mines his firm’s internal data going back at least a decade (when possible): • Stir memory • Recalibrate • Confirm or deny opinions • Observe the effects of change The busy executive’s default research rarely goes back more than one or two years, often as little as one or two quarters.

7. The successful entrepreneur acts counter-cyclically • Important things happened before his time. He mines data thirty years past and more. • By this exercise he has “seen” it all before. He extends his knowledge of business cycles and avoid traps that other don’t see until it’s too late. E is always “wrong.” He will always get out before the top and get in before, or after, the bottom. The issue is not prediction, but avoiding fixing high costs in boom times while capturing low costs in busts. This is foresight (not prediction).

8. The successful entrepreneur ignores the accusation “everybody can’t be wrong while you are right” • This pressure never goes away. The risk is that he will abandon all the preparation and default to the common strategy. He takes one more step in preparation: • Build a model of his firm to test his idea & assumptions against economic analysis The strongest forces are not reasonable. You don’t defeat them, you resist. The model is an ongoing process that keeps emotions and baseless assumptions in their place.

9. Timing • Timing is hard because it depends on doing so before the risk of mistiming is recognized by almost everyone else. • Not all the steps are necessary but all the steps are useful • The ability* to mine, crunch and model data is new to small business • But the math is over 150 years old and economics as old as mankind • Preparation is critical—think about the big game in sports *available at Praexis

10. Epilogue This is an argument for organizing your affairs based on your own view. The alternative is to default to the presumed but actually unknowable view of others. Timing not only makes you a contrarian but also a non-conformist. I say foresight to distinguish the approach from prediction. You can anticipate the seasons without needing to predict a single day’s weather. Prediction demands the unattainable: to be exactly right about the future. Foresight sets you up to be right enough to never be dead wrong.