Friday, October 24, 2008

Where Angels Fear to Tread

The stock market continues its downward spiral as fears grow that the U.S. recession is taking on a more global scope. Companies of all sizes hold on to their cash, batten down the hatches, and prepare to ride the storm out as they curtail new growth opportunities and slash costs.

That's too bad, really, as this is the best time for opportunity. Ask anyone in finance when is the best time to buy stock and they'll most likely tell you to buy when everyone else is selling. Why? Because stocks are under valued in a bear market. The key to profitability is to buy low and sell high. It's pretty simple, really. However, that time honored strategy takes nerves of steel as you are most likely not going to buy in at the bottom. So, you get to watch your investment lose money and hope that it turns around before it's too late. No one said that the market is for the weak or the timid.

The same is true for any venture into a market and not just for the stock market. The time for any company to enter into a new market is when everyone else is leaving. Why? Same reason as for the stock market. The market is undervalued when everyone else is leaving. Now is the time to get good deals. Also, you will have a lot less competition as you gobble up market share.

Easier said than done, of course. You see, there's this little thing called cash flow. It's no good to dump a lot of cash to enter in to a market if you end up not being able to make payroll before you get your ROI. You still have to be prudent. You still have to make every dollar count. The best time to enter into a new market is the worst time for you to spend money which is precisely what you have to do in order to make your entrance. So do it but do it tight fisted.

That is why it behooves good company officers to reconsider out-sourcing to local startups.

This may seem counter-intuitive but start ups are in the best position for growth during a recession. Their costs are already low and, with fewer commitments, they are in a better position to cut costs even more so their pricing is more flexible downwards than their more established brethren.

It's not prudent to use any startup, of course. Some will not be able to weather the storm. Before out-sourcing to a start up, you've got to evaluate them to see just how recession proof it is. Some startups even thrive in a bad economy.

So, look for opportunity in crisis times. It may not be easy but the rewards can be great to those who are quick on their feet and willing to change the way they do business in order to adapt to the times. Remember to leverage the little guy who is hungry and more willing to make a deal happen.

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