THE EBB AND FLOW OF THE BUSINESS CYCLE

Last week I drove in to the central business district during rush hour for the first time in years – I can’t be bothered roaming round looking for parking.

My initial fears of not finding parking were proven right. I could not find parking to save my life. But what was more shocking is that this was not because of too many cars in the city, but a lot of it has to do with boda bodas colonizing parking spaces.

It’s crazy. But I shouldn’t have been surprised. On any given days thousands of boda bodas are wheezing up and down our streets, providing a useful service, but mostly making a nuisance of themselves and general menace on our roads.

I was shocked to learn a few months ago that Ugandans are the continent’s largest importers of the motorcycles – more than 2000 a month at last count, fueling the boda boda industry.

"This is a bubble ready to burst. If you look closely, easily half the boda bodas are without passengers, which suggests the supply of bodas is fast or has already outstripped demand. We know this bubble is on its last gasp because everyone thinks they can make money in the industry the money lenders, motorcycle owners, the riders themselves, retirees, everybody who can cobble together a few million shillings. That is the street definition of a bubble.

Another signal that we are experiencing a bubble is that the people who should know better somehow believe that the laws of supply and demand will be suspended this time around.  “This time it will be different,” or “This is a sure deal, see how many people are making money” when you hear any of these or their variations, run for the hills...

The ideal place to join a business cycle is just after the industry pioneers have created a viable business model and just before everybody jumps in. Essentially buy low and sell high. Easier said than done.

Bubbles abound. Land has lost its lustre in the last few years. A while ago the story was if you bought a piece of land around Kampala and wait for a year you would double your money. That is now an urban legend. Land speculators are no longer laughing all the way to the bank.

The land bubble burst when South Sudan went up in flames at the end of 2013, donors pulled back their interest on differences of opinion with the government and the cash flows from the public service were turned off or at least slowed down.

Land as a store of value is still an option but not as speculative vehicle – until the next bubble.

The airtime bubble went the same way even before the telecom companies stopped issuing scratchcards. The early adopters made their money selling airtime, but with mobile money and then the banks muscling in on the action it became less and less necessary to walk to the small stall at the corner to buy the scratchcards. But also because everyone got into the airtime business.

Government put the final nail in that coffin last year, when it ordered telecom companies to sell their airtime electronically via mobile money.

"The mobile money business too is due for a shakeout. Now less and less do you need to deposit or withdraw money from the mobile money vendor. Not only can you now shift money from your bank account to your mobile money account, but increasingly now you can pay for goods and services using mobile money, increasingly cutting out the middle man – the mobile money vendor....

Bubbles have always been there, they are the natural phenomenon of the market’s continual innovation. Innovation is driven by a business’ need to better, more cost effectively serve more and more people.

With improvements in technology, especially communication old business models are falling by the way side.

There used to be a phenomenon called internet cafes! Enough said. And what happened to your favourite “specio” guy?

The way to beat the bubble or to at least outlast everybody else is to have a durable competitive advantage. Again easier said and done.

The theory is that competitive advantage is that think unique to you that no one can replicate, at least not easily.  The three basic sources of competitive advantage are cost leadership, differentiation and people.

To achieve cost leadership, scale can be an advantage, but in a fast changing business environment this can be a disadvantage, as a business may not be nimble enough to adjust or change course to survive, the story of Kodak would be good reading. Or a business can decide not to bother fighting on price and choose to differentiate its products enough to charge a premium, Apple seems to have done this successfully. The people business are often those in the service and knowledge industries, where a premium is placed on recruitment, retention and training. Into the future this will be more important than ever as manual jobs are automated, workers with the help of that automation will become more productive and padding the payroll with deadweight will not be an option amongst the most competitive companies.

But here is the scary thing, and it is already happening. The dominant companies will have scale, will have superior differentiation of their goods and services and will excel at extracting maximum value from their workforces. They will not choose one competitive strategy over the other, they employ all the strategies.

So look at your business again. Should you be in business at all? Can you survive the brave new world?