In my 25 years in business, I have lived through several painful banknote exchanges and rouble devaluations as well as a global property price collapse that reduced entrepreneurial activity by a factor of 1.52. I am certain that even one national leader can single-handedly orchestrate a crisis out of a clear blue sky in the interests of national monopolies or narrow government goals.
When looking for new markets or creating new products, we, entrepreneurs, can never account for all risks. An analysis of all the crises I have personally gone through suggests the following:
a crisis always strikes suddenly however hard you may have been on the watch for it or tried predicting its onset;
business activity is brought to a standstill for an average of 13 years;
crises are inevitably followed by business growth, which you must be prepared for if you survived;
do whatever it takes to survive because it is next to impossible to bounce back from scratch. Even losing 90% of all your business is still a lucky escape;
there is no room for complacency, thinking that your business will be spared by the crisis;
reinventing must be your first order of business.
Substitution or destitution?
Now I am equipped for any economic eventuality, I was saying to myself. My business has been growing as much as 10% annually for ten years running, it has developed and become strong. Almost 300 employees make a $20 million worth of products that are sold, among others, in export markets generating revenues in foreign currency, the warehouses are well stocked and there are still reserves of production capacities.
I survived several crises, learnt a lot and thought I knew everything. And yet I could not foresee that my business would be on the brink of ruin, that there would be a question of either bankruptcy or survival
The Russian government decided to make a dead loop in foreign policy by annexing Crimea. It had a disastrous impact on the Russian economy. Not even in my wildest dreams could I imagine that an embargo on the supply of goods from dozens of countries across the world would be suddenly introduced in response to the sanctions against Russia. My business was suddenly banned from using film made in the Netherlands in production of bulletproof glass for customers from the national security bodies or government monopolies.
I had 66 people working at the bulletproof glass factory. It operated around the clock, making products of various sizes and protection levels for various uses: armoured cars, ships, bank buildings, and other assets that needed protecting. Demand was ever-growing, the factory was working almost to its full capacity, the monthly turnover was totalling 300400 thousand dollars. Lo and behold, the military inspection and acceptance representative is telling me to change the supplier of the film, as they will no longer accept any materials from a NATO member country. How on earth can this be planned for or projected?
Moreover, the government did not suggest that businesses should either find a replacement within 612 months or start doing things differently. It was a curt military-like command: do it here and now!
But this just cannot be done! we ranted. All our equipment is tooled for this particular Dutch film! No one else in the world produces a film of similar quality suitable for our production. The authorities were relentless. The year was 2015 when import substitution started to be aggressively implemented in Russia.
The government resolution can only be rescinded by the government itself, I would hear in all offices. I had to close down a highly profitable modern enterprise private demand was low while the pull from my primary consumers (8090%) in the national security bodies or state monopolies was suddenly lost.
Kinds of crises
Global, rocking the whole planet and entire civilised world. Such crises drop business activity through the floor in many countries. One such example is the global financial crisis of 2008 driven by bankruptcy of Lehman Brothers, one of the largest banks in the world.
Nationwide, with the government suddenly and without caring about consequences deciding to exchange banknotes of certain denominations within a predefined volume, as was the case with the monetary reform of 1991 in the Soviet Union (also known as Pavlov reform), or to confiscate peoples life savings, freezing the money for years, or to prohibit import or export of certain goods all of a sudden.
Industry-specific, with something suddenly going wrong in one or several industries.
Business-specific, with certain businesses becoming hostage to political or administrative decisions.
The American financial giant Lehman Brothers, founded in 1850, had not raised the slightest doubt in anyone over its competence or resources before the crisis of 2008. Yet the storm cracked and the entire global financial system faltered.
Did Russia draw the proper lessons from it? No. Barely five or six years later, the Russian economy flew at full speed into a crisis of its own making. Needless to say, it was provoked by falling oil prices, yet the Russian economy was ultimately pushed off the cliff by its own Central Bank. It did all it could for the Russian rouble to lose more than 50% of its value within just a few days.
As a consequence, the capital of Russian companies depreciated, all foreign currency debts of Russian businesses doubled in rouble equivalent, the demand for every single type of goods and services dropped three- or fourfold. In an attempt to salvage their savings, people made an equivalent of their annual spend over just one month, and entrepreneurs faced a tricky challenge whether to procure or produce something to make stock for the next year at all.
Attempts at predicting crises remain worthwhile, but it is a lot more important to understand what needs to be done when dark clouds have gathered and there is a storm coming or, even worse, when you missed storm warnings and it has caught you unawares in the open ocean.
Business Resection or Ways to Cut Spending
Take urgent action!
No matter how well you have planned for it, the crisis will strike suddenly just as with too much alcohol, intoxication sets on suddenly and the brain is shutting down. You may think you are drinking in a measured way, and you do not drink much generally, and you have had enough bite after, and yet bam! you miscalculated
You wake up in the morning to the national currency losing 2030% of its value or oil prices more than halving, and everything has fallen apart at the stock exchange Your debts are now doubled; the suppliers, who were so favourably disposed just yesterday, have become your enemies demanding to return their goods. Not the money that has lost some of its value already and keeps depreciating daily, but the product that you have already processed or put up for sale.
You forget about food, about the holiday package you have bought, and you immediately cut short your honeymoon trip. You can feel the shackles on your wrists chaining you to the oars, making you a galley-slave of the crisis. Incidentally, most entrepreneurs do not realise that it is impossible to handle the economic storm it is as good as deliberately getting in the way of a herd of bison rushing for no apparent reason from distant pastures in your direction.
The economic agony in troubled times resembles chaotic movement of information from one pseudo-analyst to another who is no less informed. They are vying with each other in predicting the timescale and depth of the slump, recalling all the crises since the Great Depression. People, with and without money alike, begin thrashing about. Some, to keep their money; others, to dodge unemployment.