In January of 2009 I blogged here titled “The Strategic Triple Threat” At that time, Congress had just passed the TARP act, saving the world from financial meltdown. The Federal Reserve was predicting a short recession followed by a resumption of historical growth rates by the end of 2009.
I quoted Peter Drucker then, and do so again now, “I don’t predict the future. I merely look at what has happened already and calculate the inevitable results.” In 2009, I looked at the sub-prime numbers, the overexpansion of retail capacity, and consumer debt. These were structural issues that needed a lot of time to work through the system. The “Triple Threat” of my paper was:
- A recession that would be longer and deeper than any in recent memory
- A recovery that would be slow, and not feel very sprightly regardless of statistical measurements, and
- A consumer economy where spending and debt would be far less than in the prior decade.
Most of the broad thinking here is equally pertinent to both local owners and those elsewhere.
National Economy Remains Stagnant
First, the bad news for the national picture: While there are clearly signs of a revived economy, it will be spotty. Some major economic generators, like construction, will continue to limp along. The major issues that triggered the recession have not in any way been resolved. There are still a huge number of residential foreclosures working through the system. Some 80% of the homes in delinquency have not yet been addressed. In fact, some measures indicate that the rate of foreclosures continues to accelerate. There will continue to be a glut of homes on the market, and pricing in the most depressed parts of the nation, especially Florida, California, Arizona and Nevada, which will continue to slide.
According to the Federal Reserve, commercial defaults track residential by exactly two years. If this is still the case, we have not yet seen the beginning of the commercial default wave. Local pricing on commercial property seems to be holding up, however.
Now the Good News for South Texas
San Antonio is a gem in the economic picture. It might be the gem in the national outlook. The influx of major economic generators over the last five years has largely been forgotten, but in reality hasn’t started paying off yet. Here’s a rundown:
Toyota: The addition of the Tacoma line to the San Antonio plant did more than just add another 1,000 jobs to the workforce. Toyota’s mid-size truck is presumably more recession and gas-price resistant than the big Tundra. The workforce really came up to speed in the third quarter of this year, and presumably is more confident of their paychecks than when being furloughed through 2009 and earlier this year. We can presume that their economic impact will increase as long as sales hold up.
Army Cyber Command: While unknown in dollars and jobs, ACC’s arrival a few months ago further enhances the information security industry, and UTSA’s cutting-edge department for that specialty.
Caterpillar: The consolidation of two engine factories to a new plant in Seguin is almost done. The first 300 or so employees of a projected 1400 have been hired.
Eagle-Ford: The oil shale south of San Antonio is projected by some to be potentially the biggest find in North America. Several billion-dollar deals have already been struck; hotels from Poteet to Eagle Pass are fully booked for months in advance and stories of instant millionaires abound. Projected investment over the next 20 years is over $3 trillion dollars. San Antonio is the closest city for services, finance, supply and transportation.
Other: In the last year San Antonio corralled Allstate operations (600 positions), InCube (biotech incubator), VMC (600 positions in 2011), Petco’s finance department (400 positions), and Kohl’s e-commerce center (1,000 positions). Microsoft, Lowes and Frost datacenters, as well as Medtronics opened here the year before. Continued drug violence along the border has driven thousands of well-to-do Mexican nationals to buy homes and invest in the area.
Anecdotal: Our members report increased planning for major industrial projects, strong hiring in service industries, a recovery in high end restaurants, and busy architects (a leading indicator.) On the gloomy side, commercial construction is being bid at low or no margin, commodity prices are increasing rapidly, and industrial supply markets are flat.
Where are the Opportunities?
Success in the next two to three years will be largely tactical. It’s always vital to have a clear picture of your strategic objectives, but 2011-2012 will be more about where and who than what.
The success of your business may depend largely on picking the right customers and the right markets. For example, if you are focused on selling services to homebuilders in Florida, you’re going to have a very difficult time of it. On the other hand, if you are selling modestly-priced goods or services to local consumers, the vast majority of market variables are arrayed in your favor.
Generally speaking, I think that by the end of 2011 San Antonio will be riding a wave of prosperity that’s been building over the last 5 years. We are starting from a strong (or at least “less weak”) position, and we are about to realize the economic impact of a half-dozen major additions, two or three of which are long-term game-changers.
State and Local Governments: This is going to be the area of greatest pain. As one Texas legislator said “If a bill requires new funding, just mark it DOA.” States will be scrambling for new revenues, and looking to preserve as many civil service positions as possible. That paints a bleak picture for new outsourcing. Local governments are going to be on their own for funding new projects or increased services. Requests for proposal will seek reduced costs, but probably not at the expense of staff cuts.
Corporate America: In contrast to government, large corporations will be more willing to outsource, and to reduce their own head counts. Corporations are holding large cash reserves, which will likely lead to a new round of M&A activity. If you are dealing with an acquired company, however, expect any post-acquisition streamlining to be deep and fast.
National Markets: High unemployment, consumer debt and very limited financing availability will continue to be the dominating factors for the next two years. Real estate and construction will see little or no new activity nationally. The influx of new competitors seeking business in San Antonio will increase. Many of these are lean and tough, and will become a permanent part of our landscape.
San Antonio: As I’ve already stated, the local market is going to offer the best opportunities for growth in the country. Barring another national economic meltdown, we should thrive almost without regard for the issues facing the rest of the country.
There will be a big change in the local market. San Antonio’s days as a backwater, with limited competition and business relationships built on personal friendships, are coming to an end. We’ve attracted the attention of the rest of the country. Local businesses can no longer depend on passively taking their “rightful share” of a growing market.
What Should I Be Doing?
Most of our TAB members are locally-focused businesses, and therefore have the greatest potential for growth. The beginning of an upswing offers great opportunities for those who are early movers. Your timing has to be right, and you have to walk a line between holding back too long and wasting resources by moving too early. The reality is that those who act while the competition is still hunkered down realize disproportionate benefits from their efforts. Here’s what every business can do to prepare.
o Plan your sales and marketing for the next year, now. Too many businesses won’t commit to outbound efforts because their phone isn’t ringing. When it does, you will be too busy to plan. Reaching out to prospects now will identify the ones who have the greatest potential, and put you on the minds of the ones who will be ready later in the year.
o Profile your ideal customers, and focus on them. During slow times we tend to take on anything that produces revenue. When things get busy, we are too slow to trim the customer list to those that really make us money. Commit now to limiting new business to what you want, rather than whatever you can get.
o Work on your value proposition. While business will increase, the cost consciousness drilled into all of us over the last 3 years won’t disappear. You need to be able to clearly explain how doing business with you will contribute to your customers’ success.
o Prepare your team. Many owners tell me that their employees are getting “burned out” from working harder with a smaller staff. Let them know that growth is not going to mean a return to the times when you hired just because there was “too much work.” Enlist them in exercises about how you can accomplish 10% or 20% more without adding people. Build an expectation that more work means more success, perhaps by introducing an incentive program.
o Lock in costs wherever possible. Inflation has been flat for two years. All economic cycles come to an end, and there is backed-up pressure for price increases. If you can commit to longer term deals at current pricing, you should.
o Test the waters on price increases. Most companies’ margins shrank in the recession. Your costs (especially health care) are not going to decline. Choose a specific product or service, perhaps one where you add particular value, and begin testing the market for price resistance. In our experience, your fear of blowback is far greater than the actual reaction.