Rule Number One: Stop Digging

Posted: January 25, 2010 in Business model combo
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Torox

A value network analysis can help to manage enterprises in boom times and recession. Value network positioning is important in the time of fat cows, but enterprises also have to assess risk especially in the time of thin cows.

The Slovenian construction industry is a huge value network.  Construction companies grew enormous in past years; contractors and subcontractors had large profits, so banks lent them money at very low interest rates.

A recession creates the opposite situation for value network participants. Now, the Slovenian construction market has a large surplus of dwellings and business buildings, all of which remain untenanted owing to the unfavorable economic climate.

Banks have stopped offering long-term loans to construction and real estate companies. In addition, they are raising interest rates for long-term real-estate loans for such purchases as family homes, flats and semi-detached houses.  Of course, this has reduced the demand for such properties, and, as a result, construction companies have less income and lack the funds to finance future projects.

Construction companies with suitable business models and the right position in value networks are much more likely to weather an economic downturn by their ability to assess all the risks presented by potential projects. I advise all other construction companies, the ones without viable business models and information-laden value networks, to lay down their shovels and shut down their bulldozers. After all, when in a deep hole, remember Rule Number One: Stop Digging.

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