Earlier this month, a sale that I was expecting to happen didn't happen.
It was a customer relationship management (CRM) system – that’s what we sell - to a prospect of ours with about fifty employees. Their total investment was going to be about $35,000, including the software and the related services. This is a pretty typical deal for us, but for a company the size of my prospect, the amount was not insignificant.
What makes our products challenging to sell is that CRM is intangible. The software - if implemented properly - should help our prospective client increase their sales. It should help them improve their productivity. It should help them gather better marketing data and step up their customer service operations. Should, should, should.
But, like all software systems, nothing’s guaranteed. It's not like this prospective client was purchasing an inventory item that they knew they could sell at a forty percent margin or a piece of equipment that will stamp out a hundred widgets a minute. Like all technologies, their decision to buy my CRM software was a leap - an educated guess. Unfortunately, the company's management decided to not take that leap - for now. Why?
It wasn't the price or the competition. The CRM system wasn’t lacking features and was still the same application that generated all that excitement during our demo sessions over the past few weeks. So why didn’t they buy? It was because of the stock market. The wild ups and downs happening on Wall Street over the past couple of weeks spooked them. “We’re just being a little cautious right now, given what’s going on,” I was told.
This is the impact that the stock market has on my company. Businesses - particularly small and medium sized firms - have had few options for squirreling away their profits over the past few years. Interest rates have been so low that putting money in a savings account was no different than stuffing cash under a mattress. With the economy only growing slowly and with the Great Recession still not forgotten there has been a reluctance to speculate, let alone invest in new assets. The one bright spot has been the stock market. You know the numbers: after reaching lows of around 6,600 back in 2009, the market has almost quadrupled. $10,000 invested in the market a year ago would - even with recent declines - be worth about $11,600 today. That kind of return is pretty much unmatched anywhere else. So businesses - my clients - have been reinvesting their earnings in other companies' stocks. They've been (thankfully) doing this mainly through mutual funds as opposed to speculating in specific shares. This is money sitting on their balance sheets, and it’s been growing. You can't blame them for doing this, given the market’s returns over the past couple of years.
Meanwhile and thanks to the stock market, consumers – who in the end drive everything in the economy - are feeling pretty giddy. So much so that just last month it was reported that consumer confidence marked a 17 year high. But there’s a downside to all this giddiness: savings. Household savings as a percentage of income, fell to a 12 year low. Consumers feel that their “assets are doing the saving for them,” a financial advisor said in this Wall Street Journal report, who also added that more consumers were withdrawing money from their retirement accounts to spend “out of overconfidence rather than desperation,” because “everybody and their brother is renovating their kitchen and bath right now.” The stock market has created wealth out of thin air for many people and businesses. It's found money. It's money that didn't exist before and now suddenly does. It has fueled the confidence and the courage to spend. All of that has been great for business.
But then suddenly - and inexplicably - the market shockingly fell. And then alarmingly rose. And fell again, precipitously. And then suddenly rose. As usual, the experts can provide few reasons that comfort us. They tell us the economy's sound. They blame the Fed. They point to rising interest rates. They say it's "computer generated trading" or "a necessary adjustment of values." One wealth management advisor even said - and I am not joking - that the stock market is "throwing a tantrum."
With the volatile swings in the market of late, no one's panicking - yet. Most of my clients are certainly content with their gains so far and are prepared to give some of it back if the market enters a correction phase. Hopefully, many will learn from these recent events and diversify, especially now that interest rates are creeping up and there are more stable savings options. Regardless, the market's recent fall has already made its mark on my business. The psychological impact can't be ignored: my customers - more importantly my prospective customers – are now feeling a little less wealthy than they felt before while at the same time feeling a little more nervous. All of that means that they’re less willing to make in the kinds of technologies I sell.