Friends, I'm taking the unusual step of sending a business email to my friends and family because I think there are some extraordinary things going on economically - fundamental changes that require a complete readjustment in the mode by which we manage our business lives.  People's jobs and livelihood depend on making the right decisions now, and while it may all sound a little dramatic, I think it's really important to be thoroughly realistic about the circumstances and the implications.  

You all know me well.  I'm not one prone to overly dramatic or emotional response.  I hope my reaction to what I'm seeing is completely over the top, but my fear is that it is not.  I think I have a duty to my friends to express my thoughts and feelings to help you with your own thinking.  That's why I'm sending you this email.

So what's going on?  In short a global, systemic financial system failure combined with a slide into recession of key western economies.  A recessionary environment is challenging enough in any economy, but what's different about what we're seeing now is a liquidity crunch at a global level.  The pipeline money which flows through the economy of the world has seized up, and because the problem is global it will not be fixed short term with other markets stepping in to pick-up the slack.  We have a system failure and the re-boot process is going to take a long time - not weeks, not months - a long time.  It's probable that the way the economy works will fundamentally change.

The impact is direct and immediate.  Marketing budgets will get slashed, projects and expenses businesses don't absolutely have to undertake will get postponed.  We're going to see a credit card crunch.  VCs won't invest in early stage and mid stage business plans unless they are already cash secure, and investment funds won't be able to raise new funds because institutional investors are pulling out of the venture and private equity sector.  Charities and NGOs will see corporate and non governmental funding levels drop.  Whilst uncertainty exists an environment of indecision will pervade operating expenditure, and investment expenditure will tighten substantially.  There's going to be significant consolidation across all sectors of the market, and with it big cut backs and slimming of costs.  If you live off these kinds of sources of cash flow / revenue, start making contingency plans fast.

Why am I so spooked?  I'm in the fortunate position of having a business which is fast moving into positive cash flow and managed to complete a capital raise in the past months which ensures we're in a strong position to survive in the long term.  But all around me I'm seeing mayhem.  The partners of every large scale VC fund and private equity fund I talk to are showing real fear.  Several large funds have issued decrees to their investments in the past two weeks - if you don't have at least 12 months of cash figure out how to cut back to get into that position or put yourself up for sale.  They key word is survival, not growth or expansion.

Those of us that entered the economy in the early 90s have never experienced a major downshift in economic trends.  The long boom of the 90s, whilst blipped with the dot-com crash of 2000, has seen a fairly consistent environment of growth and flow of capital in the investment market.  It's hard to come to terms with the fact that people have been living beyond their means, but they have.  We're going to see an economic down shift, a shift on consumer behaviour as credit costs go way, way up.  This is the world we are now in, and it's critically important to realise that now and begin living in it.  Cut up your credit cards, get rid of personal debt if at all possible.  If the worst happens to any of us and there is a fall in wages, anyone with a major personal debt burden is going to be in real trouble.

For my friends who are managing businesses at the entrepreneurial edge, look really hard at what you're doing.  Do not focus on market positioning.  Focus on strength and capacity to survive.  If you are able to survive you will get the market positioning.  We've just postponed the decision on some transactions.  We know we'll be able to buy things for less in a couple of months, and we know we'll know a lot more about the market environment in a few months.  Take the pain now, and get your head on the right priorities.

I apologise for sending out such a depressing message on a Friday afternoon.  I'm actually feeling optimistic about the opportunities this changed world introduces.  It's going to be a buyer's market in 2009 and those who look after themselves well now and going to survive and potentially do well.  So be smart.

I appreciate some of you may think I've lost my marbles or disagree with me - I'm very happy to debate!