Lean and Mean

Oil prices have put bloated businesses on strict diets these last few years. Firms either lost the excess weight or died trying. The surviving firms are lean, mean, and hungrily devouring more and more market share.

If you’re reading this, then congratulations! You’re one of the efficient firms who have successfully outlasted the downturn.

So how did you do it?

The Big Bang of Oil Prices

When crude oil was $100/bbl, business was booming. There were hiring frenzies, assistants had their own assistants, and it seemed like the only way forward was up.

Most oil and gas firms were running inefficiently because there was no real cost to doing so. Oil prices were so high that businesses could afford large departments and overhead costs. Sure, these firms missed potential returns from investing (rather than spending) this money. But profits were so high that these potential returns were just a drop in the bucket.

Or so it seemed.

Expected Oil Prices and Trends in 2008

Inefficiencies and Expenses

There are explicit costs – the costs your accountants scratch their heads over at years end, and then there are implicit costs.

The explicit costs are the salaries, rent, and materials mentioned above. When oil coffers were brimming, firms could cover the explicit costs and then some. Even the implicit cost of business (those missed investment opportunities) was relatively low.

You have probably heard the saying “there’s no such thing as a free lunch”. And trust me, nothing is ever truly free. That is because for every action you take, you have forfeited the opportunity to partake in another. By running inefficiently in the oil and gas market, firms sacrificed the opportunity to make money by reinvestment.

But when those oil prices started to shrink, that small sacrifice started growing. Fast.

Macleans WTI Oil Prices 2000-2016 (2016)
Macleans WTI Oil Prices 2000-2016 (2016)

Tough Enough

Firms like yours, (those still around today) had the foresight to minimize their implicit costs when oil was high. You had savings, investments, and were running more efficiently than your competitors.

So when the time came to start losing the excess weight, you were able to trim departments and save on overhead. You had talented employees and were able to rely on them to work hard. You have narrowed your focus or specialty, perhaps outsourcing work to be more efficient. Though you had to make difficult decisions and tough cuts, you made them efficiently.

After all, a hair cut is better than having your head lopped off.

So, what are the benefits?

Those who survive these prices will grow to thrive as markets continue to recover.

Why?

Because they reveal firms that are able to adapt to their environments. Firms like yours.

You’ve made the tough calls and survived the current environment.   Your goods and services have withstood the test of time, and your operating costs have never been lower. Competitors have fallen wayside. This means that there is greater market-share available for efficient firms (i.e. you).

Seize the opportunity. This is the time to invest, reach for new projects, and attain new clients. Remember your past success from acknowledging those implicit costs. Stay the lean, mean efficient machine you have become, and watch your business grow.

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