Understanding the business you are in

February 18, 2009

This story on the collapse in Dubai is doing the rounds.

The real takeway from this is that to survive and to thrive in the long run, you need to understand the business you are in. You maybe doing very well in a particular cycle, but it is important to always make back-up plans and understand that the cycle will eventually turn.

Dubai thought it was doing very well because they rode the boom on Real Estate, Commodities which was driving global trade. There seems to have been no fundamental analysis of, were they rising simply with the rising tide or were they genuinely creating value.

In the end creating value is all that differentiates the winners from the losers.