The Frugality Horse Has Left the Barn -- Time to Switch Horses

A friend of mine regularly says, "You can't save your way to success." If your company is still standing and you're even slightly cash positive, you can stop nailing the cost reduction barn door shut -- that horse has left the barn. Frugality has its limitations. It's time to focus on investing (yes, spending) some money to take advantage of the economic recovery.

In case you're still wondering, the US economy is indeed recovering. Not at a rapid rate (thankfully, that would have been an inflation worry), but steadily, and on a broadening basis. Consider the number of broad economic indicators that have recently turned:

• Industrial production is up (2 months running)
• Capacity utilization is up (2 months running)
• The housing market index is up (3 months running)
• Consumer debt is flat (people are not paying down debt vs.spending as previously thought)
• Rail carloadings are up - highest since December 2008 (Warren Buffet watches this key indicator)
• Retail sales are up (August)
• Monetary policy is keeping interest rates low (stimulative)
• History suggests a "double-dip" recession is unlikely unless the Fed pushes us into one (by reducing money supply, thereby raising interest rates)

Yes, rising unemployment is still in the news (sells papers). In fact, you'll probably see unemployment in the news for a while longer. But unemployment is a lagging indicator, and doesn't generally turn until the final leg of most recoveries.

So, if you're still focused on reducing expenses, you're behind the curve. That horse has left the barn. Were you quick enough on the downturn with your cutbacks? No? Are you going to be late again in stepping up your investments to take advantage of the recovery?

Granted, the timing of economic recovery will be slightly different from sector to sector. Some have been improving for several months. Others will lag another few months -- perhaps another quarter.

The time to switch gears is now (if not now, it's really close). If you're anywhere near cash breakeven to cash positive, it's time to make a move. Refocus your attention from cutting expenses and saving money to making some strategic investments in growing your business -- grabbing some market share on the upturn while your competitors are still napping.

You might want to consider some scenario planning. What would it take, for example, to get the orders and step up your run rates by 10%? By 15%? By 25%? What would it be worth spending to accomplish each of those scenarios?

So, do you think I'm right or wrong? Please click Comments below and share your opinion.

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Terry Weaver


CEO
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