Hey Grasshoppers, Winter is Coming

Thursday, December 31, 2015

You're probably familiar with the parable of The Ant and the Grasshopper. The ant spends his summer working tirelessly to build up his stores of food while the grasshopper enjoys the bounty that surrounds him. When winter comes, the carefree grasshopper starves to death while the ant (surrounded by his provisions) survives in comfort.

Our winter - the economic winter - is almost upon us. Many will argue about its point of origin, but it became visible to me just before the dawn of the new millennium. Federal Reserve Chairman Alan Greenspan spoke of a "new economy" - one that left the old rules behind. No longer was it prudent to save - indeed, many invested wildly on overpriced assets in the hope that future investors would take on even more debt to bail them out. Companies spent millions that they didn't have to fund business plans that had no hope of ever breaking even - let alone turning a profit.

Then, the dotcom bust occurred and winter's approach appeared imminent. But who would prefer a harsh winter when one can frolic endlessly in summer? Interest rates were lowered to levels not seen in decades. Regulators looked away as companies took on greater and greater levels of risk. Accounting rules intended to prevent malfeasance were weakened and ultimately discarded.

Soon, the warmth of summer returned. Buoyed by stock market gains and unparalleled increases in housing prices, money again flowed freely. Though some of that money had been earned, much of it had not. It came either as cash from one-time sources of income (such as inheritances and capital sales) or from debt (second mortgages and credit card balances).

We have "out-grasshoppered" Aesop's famous grasshopper. While the lowly insect merely wasted his time, we have actively squandered the food stores built up by the ants as well. Those who braced themselves for the hard times ahead were ridiculed by their frivolous neighbors. The value of saving for a rainy day is near zero - when rain is never allowed to fall.

Individuals, businesses and municipalities are now beginning to come to the realization that something new is in the air. Winter is coming and we did not prepare for it. Soon firms will be vying for an ever-smaller pool of customers while buyers become increasingly selective about their purchases.

Suddenly pricing will become more important than it has at any time in recent memory. Customers will be looking for value. Are you ready?

Contact us to see how you can prepare your business for the changing landscape and price your offerings properly. Oh, and don't forget my book on pricing software systems.