Yesterday's headlines weren't unexpected, but they had to be a bit disconcerting for anyone for whom memories of the '08-09 market turmoil are still poignant.
But it reminded me of a conversation I had with an entrepreneur once who told me that he would never put money in the stock market because by his estimation it was entirely too risky. His preferred vehicle instead? Concentrating his wealth in his successful small business.
Well that small business eventually became distressed and not too long ago filed for reorganization.....
Manage your business like a portfolio?There's a lot of risk, a lot of uncertainty, and a lot of science inherent in successfully managing either an investment portfolio or a manufacturing SMB. And some of the fundamental approaches which are appropriate for both are sometimes ignored in both.
Global diversification is a great example. Here's an excerpt from a recent Moneywatch article by Larry Swedroe (@larryswedroe.)
"Don't get stuck in your own backyard. Investors should consider building globally diversified equity portfolios that avoid the persistent and worldwide phenomenon of home-country bias. That's when you allocate a greater weight to your home-country stocks than their percentage of total global market capitalization.I speak with a number of brilliant product folks who run successful manufacturing businesses and who are plagued by this home country bias in assessing growth and market opportunities for their companies.
Among the reasons investors around the world exhibit this bias is that they confuse the familiar with the safe. Unfortunately, Lake Wobegon -- home of the perennially above-average -- exists only in fiction. It cannot be that every developed country is safer than the others.
Compounding the problem is that investors tend to believe not only that their home country is a safer place to invest, but also that their home country will produce higher returns. This belief defies the basic financial concept that risk and expected return are related."
Many of the same rationale for global diversification in investing (e.g. 'It cannot be that every developed country is safer than the others.') apply to business development.
Sure there are differences - you don't have a Fidelity research team and manager to find and vet your global channel partners for instance. I understand. But if the principle applies, then the reaction should be to find a reasonable solution - rather than justify inaction.
"Self Attribution Bias" which basically says that business owners who have been successful (by whatever metric they consider an appropriate benchmark) will attribute that success to their own capability.
Now clearly it's not all luck. The right person at the right time and place with solid instincts can't be discounted - but it's not the sole factor. Some research indicates it might not even be, typically, the primary factor.
So is that a reason for owners of B2B manufacturing companies to plunge blithely into emerging markets? Of course not. But it does mean that the inclination to try to solve evolving challenges with renewed application of traditional solutions may feel appropriate but is unlikely to work. Keep at it long enough and eventually momentum fades and a feeling of confusion and dejection replaces the exuberance of early business growth.
Just as companies embrace improvements in their operations (e.g. lean and six sigma programs) they should similarly embrace evolved approaches to business development.
Primary among those is global diversification. Similarly digital marketing offers expanded horizons well beyond the traditional B2B direct sales model common among manufacturing companies.
Wondering whether it's the right time for your company to begin to consider global expansion? Check out our free eBook on choosing the right time.