Pouring when it rains
It's almost the holidays! Most people are gearing up for a slowdown this week. Seasonal businesses like retail and hospitality are obvious exceptions, but 2023 has been a year of stop-start for lots of us. And while my own business has ramped up all of a sudden – typical, just when it would be nice to settle into the festivities – there have been quieter periods this year.
Happily a lot of the recent work has come from former candidates I’ve placed – a reminder that good relationships are crucial in every business, at every time, and are mutually beneficial long beyond transaction time. I’m happy that they’re happy. But feast-and-famine goes beyond the recruitment world. I was reminded of this visiting a big law firm this month (the fact M&A teams are taking lots of meetings is a good sign…). Their new premises are vast – and so luxurious, it was like walking into a five-star hotel.
Feast for the lawyers, then, but upscaling their office space so much also suggests a famine for commercial real estate. As 2024 gets going, I think we’re going to see a lot of imbalances in supply and demand shake out. There will be losers, but also winners.
The year ahead still looks like uncertain territory. In the US, the Fed held rates before Christmas, and signalled cuts next year, maintaining froth in (some) equities. In the UK? The Bank of England also held, but was more hawkish. High rates for longer makes refinancing debt tougher and stronger wage growth is putting the squeeze on FDs and CFOs, too. (No wonder insolvency specialist Begbies Traynor has reported higher profits.)
There’s still plenty of hope for soft landings around the world. But investors and boards are waking up to the fact that if it starts to rain, it might yet pour. That’s putting welcome emphasis on strong financial controls and articulate risk management. So it’s great for smart candidates looking for interesting roles. For some, it will be pouring with rain; for others, champagne. Happy New Year!
- Ray Nicholls
Things to do...
Now...
Yep, it’s still cash Cash is particularly important at the turn of the year. Retailers and hospitality will be flush (so need to control where it’s going and why); B2B might be feeling the pinch and need runway. “Dry January” might not just be about the booze… See this PwC report for more.
Next...
Energise your staff Cash keeps you going, human capital keeps you growing. It's easy to stumble: I’m working with a firm that applied their HR policies to ‘new’ teams after an M&A deal – many left. Loyalty will be a profit engine (or shield) in 2024; it’s finance’s business, not just HR’s.
Later...
Strategise customer engagement
Whether or not you’re optimistic, lots is going to change in 2024. Both up- and down-side contingency plans for customer retention and growth will be key. CFOs are talking recurring revenue streams, efficient marketing and clear comms.
Lies, damned lies, and...
When $111bn isn't a lot
Should we be worried? $111bn represents an extremely small number for global venture fund-raises in first three quarters of 2023. According to KPMG, “headwinds” in the PE space are caused in part by limited liquidity; and uncertain returns have caused a “reset” in markets. With rates staying up (despite what the Fed predicts for 2024), luring institutional money in right now looks tough. Pension funds just aren't as desperate as they were five years ago.
But this might also be a turning point for reckless pumping of cash into heavyweight “startups” looking to dominate a market. And if that means venture and private equity investors might be more open to classic MBOs and startups, that could be good news for the market more broadly.
Burned by crypto and AI (and with current big plays like delivery services starting to look permanently profitless), the big investment needed in truly advanced tech (like the 50 hot areas for 2040 identified by Innovate UK, rather than the "do a thing, but with an app and some ads" firms that defined the 2010s) might have to come from corporates and governments. And they’ll expect a little more nuance in their financial management, too. Early signs more traditional finance executives might thrive? Spotify has let go CFO Paul Vogel as it looks to turn high subscriber numbers into actual profits – and control rampant costs. New tech, old financial management: sounds like a winning combination
Crystal ball
Wisdom of crowds?
Last month we looked at some funkiness in public equities – times are tough for the London Stock Exchange, and we're not hugely confident that the strategy for new regulations around AIM are going to make it that much easier for small- and mid-cap CFOs to manage funding looking ahead. Plus, things are a bit frothy over the Pond, and we’re into the eleventy-fifth prediction of a crash in this bull market. Turns out the “meme stock” ETF we mentioned last month is closing down after failing to attract money. The less "risk-averse" (i.e. reckless and performative) retail investors moved onto the next reddit.com wallstreetbets trend of zero-day to expiry (0DTE) options. That is: they're out and out gambling and looking for a short-term hit.
But the crystal ball remains murky on the public markets, and eventually the bears will be right. The signs are all there. Bull market in 2023? As Bloomberg sage John Authers reports, the “Magnificent Seven” tech stocks (“FAANG” is soooo 2016) are now as overvalued as the selective bubbles in 1972 and 2000 - and when you look at the market overall, without those seven, it's actually pretty flat over the year (see chart). 2024 is shaping up to be a nervous one for quoted CFOs. And the fact Warren Buffett has continued to accumulate cash – with another $29bn liquidation of assets – has us watching carefully.
PS: I know we promised not to be too doomish with the ol’ Recession Watch thing, but late last month the Insolvency Service put out Q3 figures, and they weren’t pretty. Obviously excessive caution as the numbers mount up can be a self-fulfilling prophesy – something every FD should guard against – but equally not getting paid is often what tips companies into trouble. Risk management is, as ever, the thing.
Words from the wise
Culture is not "either/or"
Ever get tired of the government telling us how we need to be a nation of tech unicorns? To be clear, I love working with tech businesses. But the way they’re seen by policymakers, how those policymakers actually react to them, and what they’re really like can be light years apart. This reflection from Ian Hickson, a Google employee of 18 years standing (the fact that Google is now more than 20 years old makes me feel old…), is a great peek into what tech giants are good at… and not so good at.
His point? Google’s culture (starting with the infamous motto “don’t be evil”) has eroded over time. Bureaucracy, incompetence and politics have taken over. These, of course, are precisely the things that governments assume is present in the public sector and notably absent from the tech superstars. Another comment really caught my eye: “It’s definitely not too late to heal Google,” he writes. “It would require some shake-up at the top of the company, moving the centre of power from the CFO’s office back to someone with a clear long-term vision for how to use Google's extensive resources to deliver value to users.” (My emphasis.)
So is it fun versus finance? Creativity or the CFO? That tension shouldn’t exist. The best finance leaders empower and protect the unique cultures that add value for employees and customers – protect them in a way no-one else can (not least from going bust!). As one enlightened FD put it to me once: “I look after our staff, because they look after our customers, who look after our shareholders.”
Meanwhile we can hope government is getting smarter at regulating tech where it needs to – and working out better ways to back tech that could become strategically important. If VCs are being more reserved (see above), bodies like UK Research and Innovation steering money to the right places could be good for all of us.
