As an entrepreneur at heart,
I believe that leaders of new businesses must find ways to balance the need for
creating social capital and ensuring sound business development. This
article focuses on business development,
defining in particular a number of key principles for leading a business
through business cycles in the market place.
INTRODUCTION
Commodity trading can be traced back to Sumeria
in about 3,500 BC, when baked clay tokens in the shape of sheep or goats were
used in trade. From the 19th century onwards, modern commodity trading rooted
itself in agricultural products such as wheat, corn, cattle, and pigs.
The essence of a business is to make money from buying and selling goods and services between buyers and sellers. As individuals, we too are “mini-businesses”: we get up in the morning to trade our time, skill, and knowledge for a pay cheque at the end of the month. As we grow in professional experience, our responsibilities change from being workers to becoming managers – and, eventually, leaders.
One certainty for a leader is
that he or she will have to lead a business through market cycles, gaining
experience through the good and bad of the ups and downs of the market. It may
take years for a leader to gain enough experience to lead the business successfully
through these cycles.
In most instances we can only
be clever after the fact – after a product has bombed in the market, or after
an economic slowdown has made restructuring and lay-offs necessary.
A good leader ensures that stakeholders
experience consistent wealth creation as the business experiences different
market cycles.
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COMMODITY TRADING
At a practical level, the
business of commodity trading is easy to understand and operate. In running the
business, a trader will experience “booms” and “busts” on an intraday market
tick (see figure). These “booms” and “busts” cause the emotions of the trader
to swing constantly between greed and fear.
It is extremely hard to do
well in the commodity markets: traders need to learn to control their emotions
and to do their trade consistently and rationally.
A good example of business
cycles is the current boom in the stock market. Many new speculators entered this market in the upward cycle, not knowing
that it is very hard to lose money in a bull market. For the better part of the
past five years, a false sense of accomplishment has been created as they have made
profits with very little understanding and knowledge of the market. Unfortunately
for them, the law of nature is that what goes up must eventually come down. In
all probability, very few people have defined their exit strategies for when
this day arrives, and very few will survive to see the next bull market.
In contrast to this,
professionals have defined exit strategies and are able to take advantage of
the downturn in the market – and still make good money into the next market
cycle.
In a short time span,
commodity trading teaches important principles for surviving market place
business cycles.
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PRINCIPLES
Use market movements: Markets
do not have to move according to defined causal relationships. Markets have
their own energy and movement: they will move from extreme to extreme.
Rather than trying to explain why the
market moves, use movements to create
opportunities for your business.
Have a great product: Make
sure that you have a product that consistently produces good profits for the
business through all business cycles. It must have an edge in the market
place.
Make wise decisions: Making
decisions in business is what leaders do. You cannot be right all the time, but
when a decision produces the wrong results, have an exit strategy in
place to take care of it.
Plan, design, and implement:
You will never know everything! Start as soon as possible to engage in the real
market to learn what you do not know. The deed rather than the word
is priceless!
Cut your losses: Accept
that markets and situations can turn against you and your business. Cut
your losses if they do. It is good to acknowledge that you were wrong. It is
bad to get stuck in a losing situation, not knowing when to get out.
Expand the business: Expanding
the business from one to two customers does not imply double the effort. Complexity
grows exponentially as volume and capacity grows in the business. Understand
this and deal with it appropriately!
Stick to your game plan: Make
sure that your business has a game plan that works in all business cycles. Stick
to it, and do not listen to “experts” when the going gets tough. Focus
on your plan, and trust your experience and gut feelings.
Accept that tomorrow is
another day: If you are not comfortable about a decision or
situation, let it pass. Tomorrow is another day for business and profit.
Principles define the value
system of individuals. Internalising and following these principles helps them
to lead a business successfully.
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IN CONCLUSION
The principles presented in this article are the product of
experience gained in running a commodity trading business, and come from having
fast-track insight into how markets work on a daily basis.
Business is complex because it is driven by people who are
emotional beings. In market movements the emotions of greed and fear are
stirred, making it very difficult to be logical, consistent and rational about leadership
decisions.
Leaders build a solid foundation for survival in all market cycles
by acknowledging the emotions that drive our actions – but also by sticking to
solid principles for business development and management.
Market movements are not new, and will continue to be part of our lives.
Capitalism's first market boom was the Dutch tulip mania that started in 1633.
The market went crazy as people pawned their houses and estates to buy rare
tulip bulbs. And then fortunes were lost when the market crashed four years
later.
We should get to know ourselves, learn from history and the world
around us, and use it to build our capacity and capability as leaders. Only so
will we lead our businesses to wealth creation for their stake-holders: our employees,
their families, and our shareholders.
