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Tip #2: Market knowledge is key!

By Younas Chaudhary

How many times have you moved forward on a deal without assessing your market? This is the second tip in a series of 16 blogs that will help you prepare before you make a deal. Here are 5 reasons why you need to know your market:

1. Understand your market: Learning about your market allows you to make calculated predictions about risks and rewards. In the early eighties, I studied the oil & gas market by sheer hard work and consistency. I began by learning various aspects of the oilfield business. This self-study took long hours, a great deal of observation, curiosity, spending time with landowners, and advice from the oilfield crews. I would pace back and forth in dingy hotel rooms in remote towns in Kansas making hypothetical calculations and  notes on how to secure land leases from landowners, while planning how to develop those lands and I learned about the ins and outs of the energy industry. I wanted to make intelligent and rapid business decisions on any deals and resolve oilfield operation issues. By understanding the energy market, I could make convincing and logical arguments about market conditions with my co-workers and lenders.

2. Intense focus: When evaluating your market, you should have an intense focus on your objective. Be curious and do not be distracted by naysayers or highly optimistic individuals who often give their advice. If a deal involves manufacturing and/or production, you should physically visit the manufacturing or production plant to learn more about the market conditions. An intense focus, emotional maturity and trust in your gut feeling will help you make a good assessment.

3. Do an environmental scan: An environmental scan helps understand current market conditions and what it may be in the future. However, you need to know that despite your best efforts, any environmental scan can be unpredictable. For example, the recent purchase of the online ticketing giant, StubHub by Viagogo for $4B in mid-February 2020, shows us that despite our best environmental scans, things may not work well. By March, Covid-19 had hit, leaving StubHub in dire straits since event cancellations started pouring in from every corner of the world. Would any environmental scan have predicted this? In a deeply inter-connected world, we must still do our best to try to understand the environment around us.

4. Always control costs: I have always believed that controlling costs and closely monitoring expenses is the key to increasing your positive profit margins. So, if I were planning to purchase real estate, I would focus on the location as well as consider innovative methods on controlling costs. In the past, when I realized that oilfield servicing costs from external vendors were becoming cost-prohibitive for my core business,  I established my own oilfield servicing company to meet our needs.   By leveraging existing assets, I simplified the process and saved money instead of solely relying on external vendors.

5. Importance of data: Today, data is more and more available online and it is easy to obtain real-time information on any market. However, what is more important is the way you analyze data to make practical business decisions. I remember an incident when I realized how important using data could help me in my business. In 1983, I visited a local preacher who owned a small oilfield production company in Blackwell, Oklahoma to discuss an oilfield deal. During our conversation, I noticed a big blue package from a major oil & gas company sitting on his coffee table. I asked the preacher what it was, and he said a large Dallas-based oil & gas company was constantly sending him a packages of oil wells for sale.  By the end of our conversation, he offered the package to me. I wasted little time using the data in the package and started submitting multiple bids. I purchased several oil & gas wells in the mid-eighties from that major oil & gas company. I had access to that wonderful data but how I made good use of it made a lot of difference!

So, as you get ready to assess the market for a deal, remember to take a few calculated risks, have intense focus, use data wisely, closely monitor and control your costs, and stay optimistic!

Meanwhile, stay tuned to Tip #3: Expect the unexpected!

Find out more about me in my best -selling book “From dirt roads to black gold.” Note that 100 percent of the proceeds from the sale of this book will help people in need through my foundation, the YBC Foundation.

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The views, thoughts and opinions  expressed in this article are my own and do not represent the opinions of any entity whatsoever with which I have been , am now or will be affiliated.

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