Waiting for the economy? That won't work.

by Adam Hartung

Every day it seems someone tells me they "are looking forward to an improved economy." When I ask "Why?" they give me a horrified look like I must be stupid. "Because I want my business to improve" is the most frequent answer. To which I ask "What makes you think an improved economy will help you?"

This recession/depression is the result of several market shifts. What people/businesses want, and how they want it, has changed. They no longer are willing to part for hard earned (and often saved) dollars for the same solutions they once purchased. They want advances in technology, manufacturing processes, communications and all aspects of business to give them different solutions. Until that comes along, they are willing to put money in the bank and simply wait.

Take for example restaurants. Many owners and operators are complaining business was horrid in 2009, and still far from the way it was years ago. And regularly we hear it is due to "the recession. People fear they'll lose their jobs, so they don't eat out as often." Nicely said. Sounds logical. Makes for a convenient excuse for lousy results.

Only it's wrong.

In "Dinner out Declines: Economy Not Sole Factor" MediaPost.com does a great overview of the fact that dining out started declining in 2001, and has steadily been on a downward trend. Across all age groups, eating out is simply less interesting - at least at current prices. When the recession came along, it simply accelerated an existing trend. Increasingly, people were less satisfied with cookie-cutter, similar establishments that had similar food (almost all of which was prepared somewhere else and merely heated and combined in the restaurant) and exorbitant drink prices. For years restaurant prices had outpaced inflation, and simultaneously family changes - along with the growth of better prepared foods at grocers and specialty markets - was enticing people to eat at home.

This is true across almost all industries. A revived economy will not increase demand for land-line phone service. Nor for large V-8 American autos costing $60,000. Nor for newspapers, or magazines - or even books most likely. Or for oversized homes that cost too much to heat and cool. In fact, it was the trend away from these products which caused the recession. People simply had all of these things they wanted, so they stopped buying. Fearful of economic change, they simply accelerated a trend brought on by shifts in technology and underlying ways of doing things. When we once again talk about better economic growth in America it will not drive people to these purchases. Rather, people will be buying different things.

For the recession to go away requires a change in inputs. Providers have to start giving buyers what they want. They have to understand market needs, and give solutions which entice people to part with their money. Waiting for "the economy" will make no difference. Government stimulus can go on forever, but it won't create growth. It can't. Only new products and services that fulfill needs create growth. That will cause spending (demand), which generates the requirement for supply.

There are companies that had a great 2009. Google, Apple and Amazon are popular names. Why? Not just because they are somehow "tech" or "internet" companies. 2009 saw the demise of Sun Microsystems and Silicon Graphics, for example. The difference is these companies are studying the market, looking to the future and introducing new products and services which meet market needs. Because of this, they are growing. They are doing their part to revitalize the economy. Not with stimulus, but with products that excite people to part with their cash.

Those who are waiting on the economy to improve are destined to find a rough road. An improving economy will be full of new competitors with new solutions who did not wait. To be a winner businesses today must be bringing forward new products and services that meet today's needs - not yesterday's. And if we start getting winners then we will climb out of this economic foxhole.





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Adam Hartung, author of "Create Marketplace Disruption", is a Faculty and Board member of the Lake Forest Graduate School of Management, Managing Partner of Spark Partners, and writes for "Forbes" and the "Journal for Innovation Science."

Uncertainty of Economic Growth Remains

by Steve McKee

The National Federation of Independent Business (NFIB) says that small business optimism grew slightly in January. Slightly. The NFIB Optimism Index currently sits at 89.3, ten points below where it was prior to the recession.

Commenting on the index, Lawrence Mishel, president of the Economic Policy Institute, said:


"To absorb the over 15 million officially unemployed workers in this country... job openings and hirings must rebound dramatically. This report offers no indication that this is happening."


The NFIB's report is consistent with Decision Analyst's January Economic Index, a survey of several thousand households based on nine different economic measurements. The index remained unchanged for the third month in a row, stuck at 94, well below the 110 which signals an economic expansion. This index tends to lead the U.S. economy by up to a year, suggesting the economy will remain sluggish throughout 2010.

That's what the CEO of Unilever, one of the world's largest consumer product companies, is preparing for. Speaking of the economy, Paul Polman says:


"It's not going to just drastically change in the next 12 to 24 months. We will be in for a long and slow recovery, and that's what we're planning our business on."


Policy makers continue to point the finger at the difficulty of securing business credit. But the indexes above suggest the bigger problem is simply a lack of revenue growth, meaning employers simply don't need to hire. That sentiment is borne out by the fact that fewer than one in ten owners surveyed by the NFIB added employees in January, while more than twice as many cut jobs.

Businesses don't want to borrow money as long as economic uncertainty remains high. What we most need now is normalcy, not big ideas. Let's hope the politicians are paying attention.


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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.