This is my fourth post-recession cycle since I first starting working in industrial and distribution markets in the mid-1980s. The current cycle has been the longest for us all, but has some interesting parallels to other cycles. Here are a few thoughts from a file I keep labeled: I might just learn something if I listen hard enough. (Apologies/credit to fellow St. Louis native Yogi Berra.)
The first: The more people talk about consolidation, the more new companies come out of the woodwork. When independent distributors are absorbed by larger strategic distributors, there are always salespeople who spin off with a core set of customers. They grow a viable business from that foundation of service, knowledge and relationship. That remains the strongest competitive edge. There are more investors and more pressure to invest in distribution companies than ever before.
Product sectors, geographic markets and customer segments are more dynamic than ever. This is and will be a very fragmented industry for many more business cycles, in spite of periodic consolidation phases.
That leads to the second law of business cycles: Disruptive technologies gain widespread traction well after a downturn. CD-ROM, Internet, dot-com, e-commerce … even integrated supply’s evolution starting in the early 1990s. There is always something. Pioneers may often get arrows in the back, but early adopters can displace entrenched business models with better, cheaper, faster offerings. Proactive companies that figure out how to leverage an advantage in the trough can accelerate their growth, reinforce their existing value and reduce the impact of the competitive threat du jour.
Some businesses make the mistake of imitating disrupters reactively, typically with poor outcomes. More strategic companies plan and adapt to the latest challenge, specifically to minimize competitive advantages, adopt appropriate elements, and then create better, more valuable, more efficient offerings into those most profitable segments most difficult for the upstarts to gain a foothold in. The best distributors celebrate (or at least realize a positive in the loss) when competitors take on the least-profitable, most resource-draining accounts.
As MDM’s recent surveys and research indicate, 2014 marks a significant trend in more investment into capability and capacity – e-commerce, multi-platform, analytics, CRM. More companies are shaking off the long-lasting recession effects. A final trend across cycles: Reaction times get shorter and shorter. Companies that adapt quickly tend to execute more effectively throughout the cycle.