It is well known that you cannot gain without taking a risk. However, if you take blind risks, you are more likely to fail.
My message: Whenever a difficult situation like this arises, first focus on finetuning core business. It is the primary premise that a company is founded on.
In difficult times, it is easy to misjudge the point that the core business has reached in its lifecycle, and whether it is time to stay focused, expand, or move on.
In addition, other industries or products seem more profitable. However, it is important to take time to understand and ensure that you are not taking blind risks.
The past can teach us many lessons, and there are several examples of people taking blind risks. The time of the real estate boom in Dubai during the early 2000s comes to mind. Many construction projects had begun, and demand for steel was rising rapidly. Seeing this, many who were not players in the steel or building material industry - for example, supermarket owners - started importing steel.
Didn’t give a second thought
They had neither prior background nor a proper plan, but saw the demand rising at that time and imported sizeable volumes.
In addition, there was a lot of speculative buying. The real estate business was driving Dubai, and a lot of people struck gold. Having made initial profits, people fell for the mentality of being confident due to that initial success. They were heavily investing in every project without doing adequate homework.
Suddenly, in September 2008, the real estate market crashed and demand for steel fell drastically and price of steel also fell. The same people had to sell off the commodity at throwaway prices and faced harsh losses. All those who had made money in real estate got carried away, ended up on the flip side and suffered wrenching losses. All connected
The common problem? They only looked at the short-term gains, invested in industries completely away from their core business, did not have a back-up plan, and had not finetuned their own business first. I think it is crucial to do your research.
Invest in projects where the rentals are good and where delivery of projects are on time.
Engaging in overkill
In the light of the pandemic, demand for masks and other related products have gone up. More companies are either importing or producing masks, sanitizers, gloves and more resulting into a similar situation.
This has resulted into an increase in the supply of these products as opposed to demand, which has led to a fall in prices. For instance, a box of masks which was costing Dh50 per box now sells at Dh8. There is nothing wrong in pivoting to importing COVID-19 related products. When the market and its requirement changes, pivoting gives your firm a competitive edge over others.
However, if you are from an industry that is not related at all, investing without a strong standing would be a huge risk as opposed to being a good opportunity.
At this time, businesses have collapsed due to the pandemic and fine tuning one’s core business is key. Here are some steps that I would advise you all to take. Firstly, get rid of the aging stock and ensure that payments from outstanding creditors are under control. Then, take calculated risks and import products that you perceive to be an addition to your core business. In this way, even if something goes wrong, only your profits take a hit and not your capital amount. Investing from your capital in products completely outside your zone would be immensely risky.
My main message to everyone is to be smart with the finances. Reduce costs and branch out into products that do not eat away at the capital. Remember to prioritize and focus on core business...
- Anis Sajan is Managing Director at Danube Group.
