2011 Economic Realities

In This Uncertain Economy, Performance Will Be Driven by Effective Management.

 

With today's sluggish economy it’s more important than ever to refine your operating model and key processes and functions to match costs and decisions in real-time to protect your earnings and assets.

 

The small businesses sector, which has historically represented the majority of the US workforce, is faced with many challenges:

1. First, Economic challenges such as rising costs, regulations, competitive pressures; and
2. Secondly, major skill and leadership gaps in core areas such as sales and product management, brand management, operational engineering, etc.

Overall, the small business sector is in maintenance mode.  Growth will be anemic until companies effectively update their strategy and refine their business models to account for this new economic environment.

 

Economic Landscape:
While the administration has extended SBA recovery loans the actual disbursements to small business has been minuscule and the deployment amount that has contributed to jobs or growth is even more miniature. 

• Economic Outlook: The Small Business Sector will not recover rapidly & will not lead the economy to recovery as in the recessions 1985, 1991, & 2002.
• Economic growth has not returned and GDP growth is forecast at only a few percentage points in 2011.
• Bankruptcy rates have increased 4X since 2007.  2 out of 10 SMB’s will fail.
• Enterprise Valuations will be Suppressed in the Near-Term.

• Labor Outlook: Unemployment held at 10% through September.
• There is little life in the job market, only 22k private sector jobs outside of healthcare and education were created in August.
• Only 15 percent of small businesses plan to create new jobs in the near-term.
• Big Business & Big Government will “Upset” the Labor Supply for small businesses requiring small business to change how they operate.

• Financing: Credit Facilities will be limited  and will  be Asset Based Lending Only.
• Limited: Cash Flow lending
• Capital must come from Equity Sources or Operating EBITDA
• Operating  EBITDA will be the Lowest Cost of Capital.

• Costs Outlook: Both employee total compensation costs and operating costs are rising.  Executives must look to lower fixed costs and total employee costs.
• Healthcare reform of any kind will be costly to Small Business. Rising Healthcare Costs (costs have risen 129 percent over the past decade) 59 percent of firms offer health plans down from nearly 70% in 2000.
• Rising Tax Rates.
• Rising Compliance Costs.
• Ability to Cost Effectively Market rising.  

• Competitive Outlook
• Consolidation is changing the competitive landscape – for both your suppliers and your market.
• 1/3 of all executives say weak sales is their biggest problem. 
• Leadership to perform on a daily basis outside of owners is largely cited as the largest people problem.
• Organic growth will not live up to expectations for the vast majority and needs to be coupled with additional expansion (products and/or markets) and/or augmented through acquisitions.

 

As a result of all of these uncertainties – economic, healthcare, tax policies, regulations etc. -- decision making for the majority around any hiring or spending is in “maintenance” mode. Until sales pick up, many executives are frozen. But, what executives need to understand is that only with a change to their strategy, offerings and business processes will they be able to unfreeze themselves.

 

Moreover, only the most efficient & most resilient business models will create wealth. To protect your business 80 percent of the following measures are required:

• Sell and deliver a value-proposition that the market will position you as the #1 or #2.  There is no wealth or sustainability of you are third or below in your market.
• Build strong bonds with clients through recurring revenue model, portfolio management, customer lifecycle management, and brand equities.
• Create solutions and programs to ensure the business demonstrates strong ROI to customers and long retention tenure.
• Invest in and leverage assets: human capital assets, marketing assets, etc.
• Focus on uniqueness: uniqueness of the business model, business processes, and offerings.
• Invest in and develop your management science so that your business has the ability to adopt and adapt
• Outsource to reduce fixed costs, but also to learn best practices.
• Seeks outside support, advice, and counsel.
• Create Intelligence: market, competitive, pricing, etc..

Success in this economy will be a direct result of increased skill and effectiveness of your entire executive team. Businesses must remove people dependency to create scalability while simultaneously investing in your people to increase the probability of success.

 

While this uncertainty poses a challenge significant opportunities do exist for growth through innovation and investment. Nimble businesses that can respond and change to effectively reposition and compete differently and better. 

 

What can and will promote job creation and economic growth?

• Businesses that combine technology and services create “stickier” relationships with customers and thus higher valuations.
• Businesses that update their strategy and operating model to be more efficient than the competition with less people and less fixed costs.
• Focus on Safety and/or Security markets or value-propositions.
• Focus on Healthcare: Double Digit and Triple Digit Growth in Healthcare Business Services and Healthcare IT.
• Services that increase value to their customers by integrating technology.
• Technology firms that ensure usability and implementation success by integrated services.

 

Implementing your strategic vision within the constraints of available capital and resources makes owning and managing a business a real challenge.

Checkout more insights and resources here: Polus Group Resources.