Focus on Innovation During Downturn (Grey Williams Commentary)

Unlike the weather, the local economic forecast is these days affected quite directly by events around the globe, as well as national and state trends. Implications and responses to these are therefore important as one seeks to plan.

As the world economy continues to become more integrated, geographically distant economic problems impact the local economy.

For illustration, take a local company exporting to Australia. On July 4, an Aussie dollar bought 96 Lincoln pennies. In November, 64.

This means an Australian has seen the price of U.S.-made products rise almost 50 percent in just a few months. Needless to say, U.S. exports to Australia have collapsed.

Recessions around the world are reducing purchases of many things, but especially our exports.
The unpredictability of the global energy situation makes planning difficult for exporters as well as energy producers. The only certainty in energy is change — inevitable price increases of traditional fuels will prompt newer forms (or those like nuclear that have been out of favor) to come to the fore.

News of the worldwide food crisis has taken a back seat in recent months to the financial news, but it has not ended, and word of an upcoming water crisis is now creeping out.

At the national level, three major factors will dampen both business and consumer purchases, especially for discretionary items: the crisis of the U.S. financial system, rising national unemployment and reduced earnings, and uncertainty related to the upcoming presidential power shift. Rediscovered sound lending practices at banks and consumer finance companies will reinforce and amplify this, and many economic factors will lead people to increase their savings rates.

There are many governmental uncertainties. Monetary growth is unpredictable with a new administration.

The impact of the bailout will affect varying sectors in different ways. “Preservation” capital is on the sidelines waiting that out, but risk capital is available for the right opportunities.

In fact, investors burned by the invisibility, anonymity, and lack of accountability and control at publicly traded companies may reinvest in more local, trackable companies, such as those featured at Arkansas’ recent Venture Forum conference.

In general, Arkansas’ nicely diversified economy and low-risk investment tendencies keep us from experiencing the worst of a downturn. Recent recruitment wins will also temper some of the recessionary losses and local difficulties.

A look at the local want ads shows plenty of open positions; however, most of these are entry level or sales positions, or require specialized training (such as nursing).

Everyone knows and understands the impact of the large companies on Northwest Arkansas, but the area is fertile for startups also due to education and associated in-migration, along with the “spillover” effects of the large-company suppliers and employees.

Wal-Mart is well positioned in a downturn, so that may actually be a positive locally; lower fuel prices, while they last, will help our long-haul transportation companies rebound.

All of this underlies the question of what an individual can predict and/or control.

At our recent Venture Forum conference, keynote speaker Josh Quittner pointed out that now is a great time for entrepreneurs. This comes from a veteran of the “nuclear winter” of 2002 in Silicon Valley, which was the origin of many small high-growth businesses.

In the medium term, economic growth, value creation, and net job growth comes from small businesses.

Arkansas has some incredible entrepreneurs historically and currently and the state is recognizing small business/internal organic growth as well as recruitment.

For the long-term, there are many promising initiatives such as the Venture Forum, the Reynolds Cup, and the Y.E.S. Student Business Plan Competition that encourage and educate our promising local talent.

So a focus on innovation, conservative financial management, and quality people will pay dividends now just as it has in the past.

(Grey Williams is a principal at Dextera Corp. in Little Rock, a business services firm helping small businesses achieve their growth and return goals. He can be reached at [email protected].)