“The only thing that is constant is change.” — Heraclitus
On Friday June 12, the balloon popped, marking the beginning of the Chinese stock market crash. Within one month, a third of the value of Class A shares on the Shanghai Stock Exchange had been wiped off. Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall. After three stable weeks, the Shanghai index fell again on July 27 by 8,5%, marking the largest fall since 2007. On August 24, the Shanghai main share index lost another 8,49%. Billions of dollars have been lost on international stock markets, with some international commentators labelling the day 2015 Black Monday. The carnage affected global companies doing business in China. Orders worth billions of dollars have been cancelled. South African ore mining company, Kumba Iron Ore, had to eliminate its dividends after reporting a 61% loss of profit because of reduced orders from China and the resultant falling mineral prices. Many businesses had made big investments relying on the huge appetite for raw materials by the fast-growing Chinese industry. Although business people know that whatever rises must eventually come down, very few actually thought the Chinese growth would slow down so soon. The cause of the stock market crash has widely been described by many commentators as being a result of Chinese investors speculating on the stock market. Many borrowed money from banks to buy stocks, assuming that the prices would continue rising and they would be able to pay back the loans and remain with hefty profits. The assumptions were wrong. And there is a lesson for entrepreneurs from that. Eugene Lewis Fordsworth once said, “Assumption is the mother of all screw-ups.” We all make assumptions about many things in our businesses. When starting a new business, or introducing a new product in the market, business owners usually make the following assumptions: l Customers will love their products. l Customers will choose their products over competitors’ offerings. l There will be enough customers wanting their products and who will be willing and able to pay for them to enable the business to make a profit. l Competitors will not keep pace with their offerings, in product quality, service or delivery, or some other value proposition their company might possess. l Costs of raw materials and production will remain favourable to enable them to make profit for a long time to come. Existing businesses also make assumptions, including the following: l Their customers are happy and will not leave them and thus their market share is safe for a long time. l Supplies of raw materials and production costs will remain favourable for a long time to come. l No new competitors will be able to beat them in the market. l Laws and regulations will remain favourable. l The support they enjoy from their business partners will not end. I once watched a football game where a usually brilliant goalkeeper made an assumption that cost the team a game. As the opposing team’s attackers were closing in to his side of the goal, the goalkeeper saw two of his defenders right in front of him. He assumed that his defenders would stop the attack and thus he stood at his goal post. A weak ball passed right through the defenders; presumably they also thought their keeper had seen it, only for the ball to flow into the nets with the goalkeeper watching in disbelief. Fordsworth’s saying that assumption is the mother of all mistakes might be too harsh. We all need to make decisions based on assumptions; otherwise we will not be able to make important decisions on time. What is probably the mother of all screw-ups is a set of outdated assumptions.
How can you avoid outdated assumptions? There are many tools used in business planning in order to come up with more accurate and valid assumptions, including a SWOT analysis. The key to succeeding in using these tools is regular and consistent analysis. You must be reviewing all your assumptions regularly to see if they are still valid and current. SWOT analysis gives businesses a unique way of re-evaluating their positions. The ideal outcome of a SWOT analysis is accurate data that can be utilised to create a solid action plan for addressing weaknesses and threats, and highlighting or positively exploiting your strengths and opportunities. This analysis leads to business awareness and is the cornerstone of any successful strategic plan. It is impossible to accurately map out a business’ future without first evaluating it from all angles, which includes an exhaustive look at all internal and external resources and threats. Avoid using outdated assumptions by regularly analysing your business’ strengths and weaknesses, and planning strategies to deal with threats that could trip your business. Also make full use of opportunities that pass your way. Until next week, keep on accelerating your growth.
l Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, [email protected]. You can also visit http://smebusinesslink.com
