The industry analyst business makes its living providing guidance on where companies will find potential opportunities for products and services. Reports produced by analysts and market research firms generally conclude that “X” industry will grow as some % CAGR over Y number of years and will be worth some large pile of money at some point. The messaging usually leads with note of a large market opportunity at some point in the future. The formula mostly works as companies are happy to purchase the products that validate business plans and industry messaging. But what happens when conditions change?
At this time of writing, the global economy is showing signs of distress. Various key indices are flashing warning signs left and right due to a host of issues including governmental trade spats, central bank actions to prolong a tired “expansion”, business cycle pressures and shifting technology landscape. Regardless of the impetuses though, once the slowdowns happen, how do the practitioners transition their operations, product offerings and messaging to reflect the changing times? Can they get ahead of it in time before it happens?
Shifting from optimism to reality. Analysts have a tendency to play a role of Pollyanna for clients, i.e., looking for the positive. Optimism bias is another aspect to this condition since research businesses rely upon the positive to produce findings and opinions that mirror the hopes of their clients. After all, no one, aside from the doom and gloom crowd, short sellers and opposition political parties, who wants to have a downturn?
There are also the analysts who have fallen hard for the technologies and markets they have been covering and don’t easily shift from a positive outlook. Perhaps they believe in the value propositions of the technologies or they simply see the trends as unstoppable. More advocate than analyst, they miss the contraindicators which leaves them looking foolish when the music stops.
Tightened spending and suspicion. When conditions begin to worsen companies adopt a far more defensive posture and as such simply curtail spending. There is also the realization that the market research business has been providing then with roadmaps for riches that are not materializing. Those reports selling opportunities are met with far more skepticism.
Messaging. When times are good the story is usually positive. The markets are seemingly robust, or soon will be, and growth is positive for the next several years. As no one can predict the next downturn it makes sense to just pick a growth rate and adjust for some believability factor. Yet, when the market turns the firm cannot keep telling everyone that things are great or talking about what is going to happen in five years, the customer base isn’t buying it. But confirming that things aren’t a robust or even negative isn’t likely to convince anyone to spend.
Product mix no longer suitable. Expensive services and reports are an easier sell when conditions are good, and optimism abounds. When markets tighten decisions take longer, additional layers of approval often required, skipping this year’s data update vs annual purchase is common decision by clients. And endless growth numbers I must again say, aren’t
Competitive landscape changes. You can expect that there will be new people entering the markets as they are released from their firms or deciding to start up a practice after being in industry. You can also expect that you will have a smaller market to draw revenues from as companies fold, merge or are purchased.
Plenty of other issues to resolve including personnel, market coverage, partnering, outsourcing, finding new markets, new messaging strategies and the like. And there is the process of painful cost reductions, potential laying off staff and for principals, tightening their own belts.
Every market goes through cycles, but it has been quite some time since the last time we saw a recession. Can’t predict when it will happen but as the foundation for one has been set, isn’t it time to start thinking ahead for when it does?