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17 January 2019
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Business cycles are just a natural progression

13 May 2013

I wrote some lines a few weeks ago about the classic business cycle: today’s fad is tomorrow’s derided practice.

And next year’s 'big thing' is pretty much exactly what we used to do, albeit after a tidy rebrand to make it look new and exciting. What goes around comes around, as my American friends say. Having been asked about the same thing again last week gives me the chance to expand on this a little.

The context here is in how a few big companies will dominate a market and swallow up smaller companies to present a limited supply market to potential clients. This is a natural progression; you find it in nature among flora and fauna for a start, so to find it in business should be no surprise. But does it stifle competition?

To a degree, yes. This is due, in part, to the actions and desires of the buyer, as well as the seller; we consumers demand cost reduction more than we do value (we may say that we want 'value', but mostly we want 'cheap'). The 'pile it high and sell it cheap' concept works in most sectors because the bigger you are, the greater the economies of scale you can bring to whatever it is that you are peddling. This is the primary driver for allowing cost reduction, while sustaining a reasonable margin.

There will always be big fish in every pond, but in a business sense, there will also be people with vision who can challenge the status quo. It could be a better product offering or it could be in exploiting a change in the way that things work. For example, 'mail order' was dying until the internet came along. So too, on-line shopping has been blamed for the demise of several high street names in recent times. Business has adapted to these opportunities, but it is the behaviour of the consumer that has made the change happen; if they did not embrace the opportunity that the market presents, the market will stop offering it. Woolworths, HMV, Jessops et al have all suffered or vanished because we preferred to buy elsewhere.

In whatever sector you look at, the big fish may dominate, but they never have the entire market to themselves. There will always be some who will buy elsewhere by choice, or because the big companies are just too big for that type of client. If you operate a vehicle you will buy it off a local dealer; if you need a few vehicles, then you can work with leasing companies. Get a bigger fleet and there is another tier of suppliers that you can work with to get a good deal and fleet support, but get big enough and you talk direct to the manufacturer. This is again basic business practice and you can apply it to any business service or product.

There are often complaints from SMEs that they can’t break into the big markets. But why should they be able to? Unless they have the capacity and capability they will not be able to compete, and that is the way that it should be. If they are ambitious enough and have the right people on board then they can grow organically until they are ready to compete at a higher level. That might well mean that they have to swallow some rivals along the way, and it could mean that they themselves will get swallowed at some point, but that is how things work.

And some of the big outfits will fall along the way when they get too big, too complacent or make one error too many – and that will open doors lower down the order. It’s the way of the world, and it’s why it is so vital for any business to strive to be ahead of the change curve, even if that does mean recycling the odd good idea from the past.

John Bowen is an FM consultant