It is Not Just About Growth

Guest Blog Post
by Jeff Judy

Whether it’s an annual planning session, a quarterly review and course correction, or a multi-year outlook, strategic planning tends to focus on growth. And there’s nothing wrong with that.
Certainly, you want to devise strategies to increase your share of desirable market segments. And you may see new segments that are worthy of your attention. All well and good.

But thinking only in terms of growth is a serious mistake. Instead of just chanting a “Grow, grow, grow!” mantra, ensure a better future by explicitly considering:

  • where to grow, that is, in which market segments does expanding your market share make the most sense?
  • where to hold the line, identifying segments you want to stay in, but without aggressively seeking additional business.
  • which market segments you want to avoid, or perhaps even reduce the share you already hold.

There are plenty of reasons why you might not want to grow a particular market segment.

To start, there is the issue of concentration. When you put too many eggs in the same basket, it is rather painful when that basket tips over. Individual investors are commonly advised to diversify their portfolios, and the same advice makes sense for your credit portfolio.

In addition, you want to pare away the weak spots in your portfolio. If you are so obsessed with growth that you can’t imagine exiting a relationship, you are bound to stick with some poor performers long enough to feel some pain.

But one of the most important aspects of strategic planning for your credit business is to regularly and rigorously review the risk profiles of your available market segments. If you don’t pick up changes in your local business environment that alter the risk associated with various segments, you may continue planting where you should be pruning.

Looking at my own region of the country, our neighbor North Dakota recently went on a tremendous economic boom driven by oil revenues. Now that the price of oil has sagged, the impact on credit risk extends well beyond oil-related businesses.

Consider the substantial cutbacks in the most recent state budget. What does that mean forinfrastructure contractors who build and maintain roads? Or how do deep cuts in higher education affect you if you are in a community where a college or university is a major player?

It doesn’t take a major shift in the larger economy to change the risk profile of individual market segments. An influx of competition, a tightening of labor or materials supply, the closing of a major business can all drive the risk profiles of certain type of businesses in the wrong direction.

Planning to grow is good. Planning to grow wisely, by conducting a clear-eyed review of segment risk profiles, is the secret to thriving in your marketplace over the long term.

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