Tuesday, February 7, 2012
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Thriving in Recession

Through my athletic journey, I learned lessons that that made me a better man in the "real world".

Being a coach is an incredibly satisfying job because I can help people use athletic goals to break patterns/habits that have been limiting their success in other fields. There is no "magic" from the coach, rather, the desire of the athlete... to get to Kona, to win their agegroup, or to finish their race... provides that little extra motivation to keep going when they might have stopped in the past.

What are these fundamental lessons?

  • We consistently underestimate what is possible across a multiple year time horizon.
  • We rarely exceed the goals that we set for ourselves.
  • We achieve our expectations (both conscious and unconscious) more often than not.

More than getting what we deserve, we get what we expect.

By applying the lessons of elite athletic performance, we can become high performers in life:

  • maintenance of the body;
  • consistent action; and
  • mental conditioning (humility, patience, fortitude).

Before I explain my action plan, let me explain why there is a need to take action. Below is an estimate of the current leverage that is sitting on top of the US economy, click to enlarge.

The arrow shows the point where I started my business life -- you would have to be quite old (or "experienced") not to have had a career riding the up swing. Our collective consciousness is unable to fathom a world where liquidity falls. It has never happened.

Consider the nominal sums... $51 Trillion of debt ($51,000,000,000,000). Is it any wonder that half the TARP had limited effect?

The first big economic shock I lived through was the 1990/91 property crash in the UK. There is a massive difference on the room to maneuver this time round.

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Monetary policy is going to have a limited effect because the root problem is excessive leverage, not excessive debt service.

The US Federal Reserve, by way of reducing savings rates to zero, is tempting ordinary citizens to shift into risky assets. Is it worth risking your capital for an extra couple of percent? Not for me.

Do not risk core capital.

When I think about the World's balance sheet - not Citibanks, not the Financial Industry, not the US Government... When I think about the leverage that is sitting on top of ALL of us. I am concerned that the next two years are going to be quite difficult.

Will massive increases in public sector debt solve a problem that is a direct result of excessive private sector debt? I don't think so.

What does history tell us about the ability for governments to effectively allocate capital and spending in our economies? Perhaps we should ask Gorbachev? Obama is a good man but good intentions don't always yield good investments.

It is not possible to bail out every bank, company and citizen. There is going to be pain and dislocation. We will get past the difficulties but we will have to work through it, not borrow through it.

What to do?

I made a choice to launch a business. There are a few features of "EC LLC" that may be relevant to your own strategic considerations.

Burn Rate -- In Venture Capital speak, your burn rate is how fast you go through cash. Endurance Corner has no burn rate, we produce cash. Whether we have ten clients, or fifty, the structure of the company means that we are cash flow positive.

Up Skilling -- To make us cash flow positive, I have learned QuickBooks, PhotoShop and WebMastering. Those were relatively easy compared to having to change the way I do business. I am fortunate to be comfortable with change. Even then, there is tremendous inertia and consistency bias that works against changing in line with new conditions.

Competition -- While price competition increases in recession, outright competition decreases due to players exiting the market and increasing internal distraction.

Marketing -- Read this article. My main take away from that post is the need to be constantly spreading the message as well as the benefits from spending discipline.

The hierarchy of my business day is:

  • Questions from existing clients (our best business comes from our existing team)
  • Questions from potential new clients
  • Sign up new business (always a happy time)
  • Get out there and spread the word

Over the next five years, a personal strategy that is based on investment income will be risky and difficult to achieve. Save capital (for security and freedom) but don't expect a lot of "return".

For a number of reasons, (low savings yields, rising taxes, risk, short term deflation, long term inflation), I believe that a personal strategy that is focused on building operating earnings will outperform over the next decade.

Pulling all this together:

  • Control spending -- a high burn rate reduces personal freedom.
  • Learn new skills -- each new skill creates an option for you, options are highly valuable.
  • Stay positive -- it is a challenging environment for all, we're in this together and we will succeed together.
  • Market yourself -- get out there and work towards your goals, take one positive step each day.

The qualities that helped me achieve as an athlete: enjoyment of work; patience; and the ability to apply myself over a multi-year time horizon. I am hoping that these will make the difference for Endurance Corner.

Bit by bit, day by day, we are going to stick to message and offer our clients our best advice to help them achieve their goals.

Back next week,
gordo

I am going to keep my blog articles "clean" by shifting announcements down here as well as placing site updates on the Webmaster Blog.

When you post comments -- I will likely insert my replies (if any) inside your original post. So check back if you're interested to my replies to questions.

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