Risks in Projecting Future Sales GrowthBy: John Honovich, Published on Aug 31, 2009
The past year clearly shows the impact the global economy has on the security business. Determining what happens next is clearly dependent on which of two paths the global economy will take:
- Gradual Rebound - If the path of the last 6 months continues (China booming, the US Stock market skyrocketing,etc.), the economy will recover, growth will resume and conditions will resume to some level similar to 2005-2007.
- Drops Down Again - If the rebound of the last 6 months proves unsustainable (China's boom is a bubble, the US stimulus is not enough, etc.), the economy could drop again with more severe impacts than the initial drop, given the weakened state of the current economy.
It is not sufficient to simply gauge the competitive differences of various products and the value those products deliver. For instance, IP cameras are not 30% less valuable than they were a year ago. Nonetheless, IP camera sales are growing 30% less than a year ago.
Because of the force the global economy has on video surveillance market performance, projections or forecast are essentially irrelevant unless they clearly specify assumptions made about the overall economy.
I could see either of the two scenarios above occuring. However, there are a few issues that will happen:
- The security market will be slower to recover than the general economy. The security market took a longer time to slowdown (still dropping for most companies in Q2) and will take a longer time to start up. Government initiatives are not favoring security (i.e., no war nor terrorism driving the recovery) and most commecial organizations will prioritize revenue earning projects over security ones (at first).
- Eventually the bad debt on the books across the world will have to be handled and the stimulus funding will have to end. This may have no practical impact on business for years to come or it could drive scenario 2, the economy dropping down again.
Ultimately, business people should be very cognizant of the role of the economy and discount specific quantified projections for the immediate future.