We at the Vann Group are often asked "how bad is it out there" or "how bad is it going to get". The obvious answer is that its "bad" and its "going to get worse for the foreseeable future". However, that really does not answer the question, so I've created a hypothesis based upon my own business experience and what I am seeing in the marketplace.
I'm calling my little hypothesis the "theory of five" even though from a scientific standpoint it really itsn't a theory yet, just a gut feeling, but I like the sound of "theory of five" better than the "hypothesis of five". Anyways, the theory starts on the premise that we have five companies in business at the start of the Great Recession. The question the theory aims to answer is "how many companies will be in business after the recession"? The answer is 70%.
We arrive at this answer as follows. For every five companies we have come across, three are surviving and even growing at some level; 60% of the companies out there are holding their own. Company number 4 is either already out of business or going out of business in relatively short order; 20% of our companies then are the weak link. These are companies that probably never should have been in business or just weren't positioned well enough to weather anything less than calm waters.
That leaves us with one company that is completely on the edge, it can go either way. With good management, a clean balance sheet, a good strategy and a little luck, this company will survive. If any one of these factors tips the wrong way, the Company is probably a goner. So, for the purposes of our theory, I am assuming a 50/50 split on this. If this is correct, that means 3.5 of every 5 companies will survive this recession/depression. Of course, that also means that 3 out of every ten companies will cease to exist once this ends.
Since this is really just a hypothesis, it will be interesting to see whether or not it proves out. I'm inclined to think its probably worst case, but you never know. A recent article in the Providence Journal, highlights some interesting facts about the loss of businesses in Rhode Island, which has been hit harder than any other state so far. The article notes that the number of corporations that disappeared last year increased by 23% over the previous year. A disturbing trend to say the least.
That's the theory of five. Sometime soon, I hope to have a post on what that total number of businesses lost would mean to employment, but until then, let me know your thoughts on my theory.
I'm calling my little hypothesis the "theory of five" even though from a scientific standpoint it really itsn't a theory yet, just a gut feeling, but I like the sound of "theory of five" better than the "hypothesis of five". Anyways, the theory starts on the premise that we have five companies in business at the start of the Great Recession. The question the theory aims to answer is "how many companies will be in business after the recession"? The answer is 70%.
We arrive at this answer as follows. For every five companies we have come across, three are surviving and even growing at some level; 60% of the companies out there are holding their own. Company number 4 is either already out of business or going out of business in relatively short order; 20% of our companies then are the weak link. These are companies that probably never should have been in business or just weren't positioned well enough to weather anything less than calm waters.
That leaves us with one company that is completely on the edge, it can go either way. With good management, a clean balance sheet, a good strategy and a little luck, this company will survive. If any one of these factors tips the wrong way, the Company is probably a goner. So, for the purposes of our theory, I am assuming a 50/50 split on this. If this is correct, that means 3.5 of every 5 companies will survive this recession/depression. Of course, that also means that 3 out of every ten companies will cease to exist once this ends.
Since this is really just a hypothesis, it will be interesting to see whether or not it proves out. I'm inclined to think its probably worst case, but you never know. A recent article in the Providence Journal, highlights some interesting facts about the loss of businesses in Rhode Island, which has been hit harder than any other state so far. The article notes that the number of corporations that disappeared last year increased by 23% over the previous year. A disturbing trend to say the least.
That's the theory of five. Sometime soon, I hope to have a post on what that total number of businesses lost would mean to employment, but until then, let me know your thoughts on my theory.
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