4 stages of the business cycle: what role does it play in #CRE decisions?

Not all companies are built the same way – even when you factor for things like revenue, sites, employees, and industry.  Any two given companies that look the same on paper today may treat their real estate decisions completely differently.

The difference that I’m referring to is the business cycle: is a company growing, consolidating, maturing or recovering from a downturn.  Where a company is in their business cycle tells us a lot about the way they are looking to position themselves with any given real estate decision.  Are they seeking out flexibility?  Are the next 3 years full of greater than usual uncertainty?  Is cash flow a problem?

With that, let’s take a look at some of the traits of businesses in each cycle:

  • High Growth – These companies are not as worried about cost.  They need space for their business immediately and if they don’t get it they will be sacrificing top-line revenue growth which is unacceptable.  Yes, high growth may not last forever but it is here now and we can’t worry about anything else.  Dangers to avoid: it is not uncommon for high growth companies today to be at cash flow risk tomorrow as they out scale their ability to generate revenue.
  • Consolidating – These companies are focused on solidifying where they are.  They are either coming out of a high growth phase or they are entering a time of business decline.  Either way their portfolio is scattered to the four corners of the earth and does not match what they need.  Any given deal is at the mercy of decisions in other markets and shouldn’t be looked at in isolation.  Dangers to avoid: consolidation is often a good thing for a business but it needs to be done with the business in mind.  Sometimes consolidation efforts lead to exiting markets that a business presence is needed in.
  • Maturing – Companies that are maturing have reached a point where they know who they are, where they operate and what their opportunities for organic expansion are.  Often these organizations will be more focused on positioning themselves for M&A activities as opposed to taking down longer term leases (depending on if they are seeking to be acquirers or acquirees).  Any given deal is much more focused around long-term value/cost as opposed to business support.  Dangers to avoid: Mature businesses are often much more process and data oriented.  It is important to not only create the right deal but also to support it totally and completely.
  • Recovery – Businesses in recovery are often tentative about long-term deals or anything that can weigh them down in the future.  They often look very similar to consolidating organizations but have an even stronger cost focus.  They seek to grow intelligently and don’t want to repeat the mistakes of their past.  Dangers to avoid: These companies are often past focused and will do anything to avoid the mistakes they’ve made previously.  You may bring them the best solution available but if it looks similar to their past strategies it could be immediately and irrationally rejected.  It is very important to know how they got where they are to help them tread in other directions.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s