The best go down first
Downturns can bring down the best of companies. But the first ones to go are not the best of companies. They might be among the most admired, the most talked about, the most adored, but they are not the best. Excessive risk, unfavourable business conditions, extended downward business cycles, uncontrolled volatility – the list of reasons for justifying their current state is endless – but that still does not make them the best of companies.
Why? Because the best of companies always prepare themselves for unfavourable business conditions. They understand the effects of extended downward cycles. They know where to draw the line when it comes to taking risks. They look to areas with less volatility well in advance of uncontrollable volatility setting into their traditional business areas.
And, most importantly, they know the importance of the bottom line. They don’t drown in their pursuit of the top line. They know where required growth ends and excessive growth starts.
And if you are wondering where to find these firms, I would suggest looking at some of India’s traditional logistics firms – the age old freight forwarders, the larger transportation houses, the warehousing providers. Most of these firms have been cautious enough to maintain high cash reserves, despite the high growth they have been facing. They have been prudent enough to balance their growth in high investment, credit intensive activities with those having high cash returns and shorter return cycles.
So don’t be surprised when you come across the traditional transportation and warehousing company that despite venturing into value added services, has been smart enough to have a ‘packers and movers’ division that has been cashing in on the prosperous Indian middle class. Or the not-so-polished newbie complete logistics solutions provider, being careful enough to not lose steam in its older express logistics business.
These are not the most optimistic of companies, they keep a constant eye on the bottom line, and in the process fall off most people’s radar while the most admired, adorable “optimistic” lot remains on it. But as Raymond Aron once wrote, “What passes for optimism is most often the effect of an intellectual error.”
And while their high flying trading partners (many of them reputed multinationals) have been holding on to their freight bills for well over six months now, this cautious traditional bunch has been patiently preparing for the worst – the write-offs!
Still wondering what happened to the “best” of companies?