Birth in a Bubble
Many a time, in most industries, market anomalies appear that inflate the demand for stock in that sector. Sometimes the rapid market change persists because it is underpinned by a major paradigm shift. However, sometimes the anomaly is just that, an anomaly. The result in both cases is often that new players enter the market on the back of a surge in interest from consumers and investors who sense opportunity. The players who enter the market on the back of a paradigm shift will find it is easier to thrive because their business models often have strong fundamentals. Strong fundamentals will persist as long as the business model is agile enough to respond rapidly to changes brought about by hard trends. Fundamentals will be even stronger if the business model can pre-empt the hard trends through disruptive innovation.
However, for the other group of players that enter the market on the back of an anomaly, a bubble so to say, things are not as rosy. When the market normalizes these types of businesses often wither and die as interest from both consumers and investors wanes. Having said that, are bubbles all that bad? I don't think so. They allow things to be born that would otherwise never have been born. That's the thing, if you are such an organization, you have been born, you are alive, you have a shot! There are things you can do to ensure you survive and you thrive. The following three steps could be of some help in getting there.
1. Was I born in a Bubble?
If the bubble has already burst the answer to this question will be painfully obvious and though it is possible, it's harder to build a shelter in a storm. What you want to do is answer this question before that happens. Looking at the rate and pattern of adoption, if it's a new technology, right from the innovators to the early adopters all the way through to the laggards, might give some insight on whether something will stay or if it's a passing fad. Blue Ray jumps to mind. I still don’t have one, have never wanted one and probably never will. If the laggards can see the sense of it, it will probably stay.
For the commodities sector, are abnormal growth rates in some part of the world driving prices up? Are the growth rates sustainable, will they be maintained or are they likely to be reined in?
2. What are the Solid Trends?
Now that you have identified that you were born in a bubble that will probably burst at some point in time you need to find the hard trends that underpin solid fundamentals in your particular sector if you want to stay alive. For example people love convenience and will always go that route. So Apple Pay is based on a hard trend. The iWatch allows you to interact with your device on the go and still have both your hands so that will work too. Another is, people want to feel secure, so VeriSign and PayPal worked. Another, we will run out of fossil fuels, so efficient practical alternatives are a go in the long run. Hydrogen fuel cells anyone? Humans are wired for self-preservation and once every one realizes that global warming is a real danger, nuclear is a sure thing. Explorers will get better and better at finding those Athabasca Basin style high grade uranium deposits and will find more of them. Will that be the new standard? Demand for energy storage will continue to grow, explorers, where are the REEs, where is the nickel? The world will continue to need copper, but only enough at a time to meet sustainable global growth rates. This is your price floor, aim for discoveries and deposits that are profitable and sustainable at that price and you are in for the long term. These are just some examples.
3. Adjust your business model
Now that you have identified the trends in your sector and the opportunities that come along with them, you need to adjust your business model to incorporate them. To manoeuvre is not easy, Sun Tsu admits as much. However, if you are agile and innovative it will be easier for you to manoeuvre in the sector and not only survive but possibly gain an advantage over peers. You can leverage your existing assets to ensure your success.If you are a tech company you already have skilled developers, facilities, tools, proven workflows and even goodwill. All these are things you wouldn't have if you were just starting out. Point your team in the right direction and exploit your strengths.
Simply because you were born in a bubble it doesn't mean you have to die with the bubble. You can continue to thrive if you innovate and engineer your way to align with solid industry trends.
