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Breaking Through 2016’s Economic Inertia

By Bridget McCrea

Is the “cautiously optimistic” approach throttling growth and success at your distributorship? If so, it’s time to rethink your business strategies and develop a growth plan for the year ahead.

As of January, the economic indicators and business sentiments looked like a mixed bag for the year ahead. While the nation’s economy continues down its slow path to recovery, certain factors are keeping that tide from “floating all boats,” so to speak. According to the Commerce Department, the U.S. slowed during the fourth quarter of last year as “businesses stepped up efforts to reduce an inventory glut and a strong dollar and tepid global demand weighed on exports,” Reuters reports.

Gross domestic product increased at a 0.7 percent annual rate as lower oil prices continued to undermine investment by energy firms and unseasonably mild weather cut into consumer spending on utilities and apparel. According to Reuters, the growth pace was in line with economists’ expectations and followed a 2 percent rate in the third quarter.

Certain businesses are already fairing better than others this year. In The State Of U.S. Small Businesses Entering 2016, Forbes says that overall, U.S. small businesses entered 2016 with stronger sales growth, improved profitability, and positive hiring trends, according to recent data on this backbone of the U.S. economy. On a positive note for electrical distributors, the fastest growing small-business sector right now is construction, which generated double-digit growth (10.6 percent).

In its most recent report, the National Federation of Independent Business (NFIB) says its Index of Small Business Optimism rose 0.4 points in December, increasing to 95.2. However, the index is stuck in a “below average” rut, according to the NFIB, with small businesses currently producing 2.5 percent growth overall. “With the manufacturing sector in decline, large firms aren’t likely to add as much to growth in 2016,” the organization reports. “Auto sales have been strong, but will likely fade in 2016. The service industry has also grown with solid spending in health care, so health insurance costs will likely also rise, an unfortunate outcome for small business owners.”

Fighting the Wait-and-See Urge
With construction finally emerging from its lengthy phase of dormancy and new projects coming off the planning board into the building stages, electrical distributors in certain pockets of the country are experiencing healthy sales spikes. In states like Texas, however, where the prominent drop in oil prices have had some of the bigger impacts, economic uncertainty remains a key concern.

The question now is:  With uncertainty being the “new normal” since the mid-2000s, at what point do companies have to bite the bullet and expand into new markets, open new locations, hire employees, and otherwise invest in their companies and people? And, what decisions should distributors be making now – in these times of uncertainty – to prepare for a brisker selling environment and ensure their longevity?

As someone who works closely with distributors, helping them build successful business models, Dirk Beveridge knows how difficult it can be to make big decisions in times of uncertainty. “Historically, distributors have ridden the economic wave,” says Beveridge, founder of Chicago-based UnleashWD and author of INNOVATE! How Successful Distributors Lead Change in Disruptive Times. “In good times they do well and take the profits, and in bad times they panic and start cutting.”

Beveridge advises electrical distributors to take a different tack in 2016 and look inward at their current business models and strategies to see where new innovation and thinking can be applied. “Make a commitment to innovation regardless of what the economy is doing or what the reports say,” Beveridge remarks. “Then, you’ll not only be able to ride out the wave, but your company will come out the other end much stronger and more resilient.”

When Caution = Stagnancy
The fact that some electrical distributors and manufacturers are taking a “cautiously optimistic” approach to the economy in 2016 doesn’t surprise Bill Adams, CEO of The Leadership Circle in Salt Lake City and co-author of the book Mastering Leadership.“They are asking themselves, ‘Can I actually trust the economy and take advantage of it right now?'” says Adams, “during an era when they’re probably accustomed to doing more with less.”

From a pure business perspective, Adams says distributors should accept the fact that – even if sales aren’t going through the roof right now – the market as a whole is expanding in a way that we haven’t seen in quite some time. Sitting on the sidelines isn’t an option at this point, since so many other firms are out there hiring new employees, investing in technology and systems, and grabbing market share. “If you’re not an early entrant at this point, you could miss the window of opportunity,” says Adams.

Finding a balance that allows for a dose of cautiousness without missing that window should be top of mind for companies that aren’t quite feeling the full positive impact of the economic recovery yet (or, that were unexpectedly sidelined by plummeting oil prices). Adams says achieving that balance requires an honest assessment of risk tolerance. Consider, for example, just how much new business your company will be able to take on without sacrificing service or quality – and, without having to invest in new employees, systems, and physical space. If the answer is “zero,” then your firm’s sales and growth could suffer as a result.

One way to avoid this trap is by finding ways to increase the capacity and capabilities of your existing human resources. Is there any latent, existing capacity that can be brought on line and put to better use? Can certain individuals be trained for more critical positions? “It doesn’t mean anyone has to work longer hours,” Adams points out, “but it could mean finding different, more efficient ways of doing things and maximizing your existing team’s competencies and skills.”

With the 2016 business forecast still shaping up and taking form, Adams says leaders in the electrical distribution industry should focus on whether their companies have the internal capacity needed to develop, nurture, and grow this year. “You could always work harder and get more done, but that approach doesn’t sustain itself for very long,” Adams warns. “In most cases, when you max out your existing resources you wind up reducing the capacity and capability of your organization – versus expanding it.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

 

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