What a Difference 2 Years Makes!

2 years and counting! TurningPoint is pleased to celebrate its 2nd anniversary and I feel very fortunate to have assembled such a fantastic team. As we reflect on two years of progress, we are struck by the differences and similarities of today’s marketplace compared to the business climate of 2007. Although some priorities may have changed, today’s business leaders are facing many of the same issues that were cause for concern two years ago – retaining and recruiting top talent, product differentiation, competition, succession planning, exit strategies, and the integrity of financial statements. The single biggest difference, of course, is the availability of credit.

Our firm started at a time when the economy was humming along – the housing market was experiencing only slight decreases in value, GDP growth was solid, senior management was concerned about the aging workforce and the “brain drain”, the credit market remained strong, Wall Street was well-respected and influenced many aspects of our economy and the insurance industry was enjoying one of its most profitable periods of all time. The recruiting industry was in a similar situation, experiencing consistent year-over-year growth and thriving in an economy that continued to add jobs month after month. By the end of 2007, the local unemployment rate was hovering around 4% while the national rate was 4.9%.

Fast forward 9 months to Q4 of 2008 and the world was a very different place. The so-called experts were continuing their debate about the depth and breadth of the downturn and whether or not we would fall into a true recession. Although it was still unclear at the time, we now know that the current downturn represents the deepest recession since the Great Depression. Beginning in December of 2007, productivity began to slow and inventories began to rise, the decline in the housing market began to accelerate and the bundling of risky derivatives and sub-prime loans showed signs of vulnerability. March 2008 had already seen the demise of Bear Stearns, the first of many, previously unimaginable casualties of the escalating global financial crisis.

Fast forward another 9 months to today and the world has changed yet again. Lehman Brothers is no more; Merrill Lynch is part of BofA; Wachovia is part of Wells Fargo; Chrysler is in bankruptcy and GM is not far behind; Hummer, Saturn and Pontiac will soon be brands of the past; and the venture capital and investment banking communities are experiencing the destruction of their age-old model. The local unemployment rate is now above 9%, the national rate is just under 9% and the state of California just reached 11%. The recruiting industry is experiencing its worst downturn in several decades. Local and national firms are consolidating, revenues have fallen and recruiters are scrambling to develop new business. After being laid off, many talented professionals – from human resources to sales to finance - have struck out on their own, increasing competition by leveraging their personal relationships and fueling the resurgence of local outsourcing (it is projected that 40% of the workforce will be independent contractors by 2019, up from 26% today).

The good news? The only constant is change. Just as the world was remarkably different 9, 18 and 24 months ago, the odds are it will change again over the next 9, 18 and 24 months. Only time will tell if the experts’ predictions will prove true or premature, but the prevailing analysis indicates that we are close to the bottom and that Q3 and Q4 will mark the beginning of a slow recovery that will extend well into 2011. The key question facing today’s business leaders is whether or not their business will emerge as a strong competitor with a more efficient business model; or if the business will simply offer more of the same.

While many companies continue to face difficult times, now is the time to begin laying the groundwork that will allow your business to address tomorrow’s issues. As the economy begins to recover, the issues will change and new opportunities will arise. Credit markets and demand for goods and services will continue to improve, raising questions about how best to deploy the cash that eludes so many companies today. Many of today’s displaced senior talent will be the source of new competition as they continue to build their newly created consulting practices. The venture capital community will carry on their search for a new model that will provide a sustainable balance of risk and reward. Baby boomers and traditionalists will resume their plans for retirement, leaving a significant gap in talent once again.

Continued in next column >