Whiteboard

Regular readers will have noticed that there has been no blog posting for six weeks – against all the rules of blogging where you should really post frequently if you are to retain credibility.

However, there is another rule of business that trumps blogging – if clients need servicing, then servicing comes first and we have seen a surge of business amongst existing and new clients in the last two months that has surprised us.

Friends in the City are also adamant that January will see a spike of IPOs pent-up by eighteen months or so of gloom and doom so we may see a mini-boom in confidence in the services sector in the first quarter of 2010.

A lot of businesses may find themselves with the same problem that we have found in the last few weeks. We pared ourselves down, ensured no debt and no dilution of shareholder equity – and we survived. There is no way we are going to go through that again!

So when a major client commits to sustained activity that takes up 80% of a key executive’s time, an important new client emerges requiring top-level marketing strategy support and we get a project that involves building a major campaign – Right2Link – in under five weeks then the blogging has to give.

The temptation is to start spending again on these signs of growth. This year our budgeting process for the next operational year (we have operational budgets for the calendar year separate from financial reporting budgets because there is a natural flow of activity that reaches a culmination at Christmas) has never been so intense. It has made us think carefully about future risk in the market.

No-one predicted the Lehman Brothers bust (though we knew something was up long before most others seemed to have done) but our extremely conservative business approach during the last days of the boom certainly paid off subsequently with no sleepless nights after the worst point of uncertainty in Q2 2009.

The question is – having been conservative for some time when do we start being entrepreneurial again? When can we start taking calculated risks? And what would be the hidden cost to us of not investing if the boomlet does become a sustained boom for which we have not tooled up? And, like everyone else, we are still recovering ground as much as seeking new territory.

Our instinct is to hedge – to be cautiously entrepreneurial – and to concentrate on investing for quality control and upgrading our offer for improved pricing but not to let any fat or major long term commitments into our system. So why both the preparedness to take some risks and the caution?

The preparedness for taking risks comes not from a sense that the economy is going to flourish in the round (that is just foolish!) but because we are now on the right side of a divide between a minority of new economy-linked companies that will prosper regardless of Governmental misjudgements (we hope) and the majority of old economy companies who are going to be struggling for some time to come.

We have invested in new products and services and in a new economy positioning where others are still trying to reconstruct their old business model.

The Right2Link Campaign, which defends your right to link on the internet – to create, forward and follow links – against old economy special interests and the possibility that government will seek to buttress the old at the expense of the new, is where we wanted to be at the end of the crisis when we saw that the credit crunch would speed up the creative destruction of the pre-internet economy.

Our caution lies in the concern that the process of creative destruction may be so painful that Government will blunder in to defend the old and merely destroy the fledgling new economy before it can get off the ground in the process.

Fears in the market now all surround sovereign debt – Greece, Ireland, Latvia are the lines which must be held before we and the Spanish are threatened with international investor anxiety and ire. There has been some fierce fighting already in these trenches after the collapse of the lines at Dubai and, long before that, Iceland.

Government has also constructed the current boomlet-in-the-making out of a half truth. Part of the boomlet is created out of Government’s legitimate determination to adopt a Keynesian commitment to the economy through quantitative easing but part of it is blatant and cynical electioneering so that they can be retained in office on distrust of untried incomers.

Unfortunately, this latter component has deeply dangerous aspects. A boomlet with no fundamentals underpinning it merely buttresses bad businesses, causes less sophisticated players to re-invest in failing models and takes no account of the fact that, after the election, the international investment community will demand its pound of flesh – swingeing public sector cuts and major tax rises.

There is a serious danger that politicians will concentrate on preserving what exists instead of creating new economic opportunities (i.e. accepting short term pain for long term gain). Add to this the possibility of stagflation in the second half of 2010 as the rest of the world, recovering more swiftly, drives up commodity prices and you have a possible worst case scenario of struggling old economy businesses economically subsidised at the expense of the new economy.

So, taking undue risks seems stupid until two political effects have been resolved – the nature of the next Government and the next Government’s commitment to sorting out our near-busted national finances without stifling innovation and creativity at source.

Until then, we will be preparing to invest in growth but we will not actually be investing until the way is clear. We imagine many others will have come to similar conclusions.