As we begin the new year, the U.S. economy continues to exhibit resilience despite the many economic and political challenges that threatened to derail it in 2013. With the congressional elections looming toward the end of 2014 and unresolved debt ceiling and budget conflicts kicked forward from last year, some degree of economic, political, regulatory, and capital market volatility must be expected for the coming year.
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However, despite the headwinds ahead of us, the U.S. economy is expected to grow from the current 1.7 percent GDP growth rate in Q3 of 2013 to 3 percent in Q2 of 2014.
Since the recession of 2008, the U.S. has experienced a slow but steady recovery due to several factors:
- The natural healing process from the 2008/2009 world economic crisis.
- New engines for industrial growth have emerged with the recovery of the automobile industry and U.S. energy industry production.
- A buoyant technology sector and a riptide of innovation that is overturning old business models.
- Low inflation and energy costs.
- Near zero interest rates, providing cheap capital for company expansion and acquisitions.
Here are my five key business predictions for 2014:
1. Access to Capital
A confluence of trends will contribute to making financing more available to promising private companies:
- Small and regional bank capital requirements will be loosened to push cash out of the banks. Big banks, on the other hand, will continue to be subject to greater regulation and scrutiny as to their business lending practices.
- Interest rates will remain low through the 2014 elections but will rise shortly after as the economy continues to recover and unemployment drops to 6 percent.
- Crowdfunding (for example, Kickstarter.com) will go from fad to trend for funding private company ventures and product development. Concerns about potential fraud and governance mechanisms for crowdfunded companies will remain, but the model will move forward.
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2. Emerging Technology
Innovation will accelerate, producing fast-growing upstarts that overturn industry landscapes, creating new winners and losers:
- The cloud is already “technology past.” Private clouds will enable private companies to achieve greater scale and reach, with fewer employees. Managed IT services will remain a fertile area for entrepreneurs to develop ever more targeted packages of services to specialized niches.
- Don’t let an innovator out-mobilize you. Customers, not business, will lead the next phase of the transformation in technology, with mobile apps at the forefront. B2B and B2C mobile pioneers are finding inventive ways to take advantage of how much time everyone spends looking at that phone in their hand.
- “Globalizing from Day One” — Private companies will continue to go global at an earlier stage, by adopting Software as a Service (SaaS) technology and ramping up global partnerships faster than ever before.
- Social media and enterprise technology will merge, enabling design collaboration and cross-organization thinking to create better products and services through worldwide networks of designers and programmers.
- Online customer relationship management (CRM) and customer care will allow savvy companies to “re-personalize” their customers’ experience.
3. New Business Models
New and better ways for companies to create, deliver, and capture value to their target segments will continue to proliferate:
- “Onshoring” will become a reality. With the rising demand for U.S.-made products over foreign-produced products, and labor rates and total costs for goods manufactured in China expected to equal U.S. labor rates within 2 years, companies such as Foxconn, a foreign manufacturer of technology products, will look to move manufacturing to the U.S.
- Microfranchising will boom in 2014. A new concept, carried over from less developed countries, microfranchising is a business model that applies elements and concepts of traditional franchising to small businesses. People with a passion to be entrepreneurs but only very limited capital to invest will have a new option to pursue the American Dream.
- Smart companies will be open to reconfiguring their activities, replacing their full-time salesforce with contract resources and “virtual sales models.”
4. New Opportunities—and Threats
Staying ahead of the competition will require ever more relentless focus on what differentiates you and creates value for your target segments:
- Generational reversal (high unemployment among the young, lower for older workers) will be a growing trend.
- Demand for branded consumer goods by an expanding middle class in developing-market countries will surge, particularly in China and India, countries that until now have been exporters and not consumers of their own products.
- Growing demand and shrinking supply of housing will increase homeowner’s household wealth and consumer confidence, propelling the economy to new heights.
5. Lower Energy Costs
A new world of American energy exploration and production is creating widespread opportunity, lowering business costs:
- Continuing concern about global warming will boost renewable energy and other low-carbon technologies.
- Abundance of U.S. natural gas and significant cost advantage over oil will turn the U.S. into an exporter of oil, resulting in continued low energy costs for industry.
Time will tell as to which predictions will come true for 2014. The key is to harness powerful trends in ways that support your value proposition and market penetration. Thinking globally can keep you a step ahead of the competition.
Michael Evans is Managing Director for the Newport Board Group, a partnership of board directors and senior executive leaders with deep knowledge of business strategy, operations, and capital markets. Previous to Newport, Michael L. Evans had been with Ernst & Young since 1977 and served as a partner since 1984. During his 34 years with the firm, he served as a tax, audit and consulting services partner, specializing in real estate companies and publicly traded entities. He can be reached at (415) 990-1844 or via email at email@example.com.