Much ado about the economic recovery including its reach, timeline, and impact is open for debate. However, what founders and executives should take notice of is that growth is occurring in certain sectors. Also, for businesses that can use the current economic situation to their advantage to create mass and density (i.e. market share) within their sector, the opportunity to create wealth is waiting through the use of capital to expand and/or consolidate.
Growth Sectors for 2011 and Beyond
Growth is happening in many industry verticals that combine technology with service such as healthcare, energy, and professional and scientific business services.
The reason for the growth is straightforward: when innovation and technology are applied to create efficiency growth occurs (the
gain in productivity in the USA over time reflects increases of 3.2 percent
in output and 1.4 percent in hours worked).
The current growth sectors will continue to be the growth sectors for years and the decade to come, as technology-centric service companies are going to employ the majority of the workforce by the end of the decade. The percentage of the nation’s workforce in services has expanded for the 17th straight month through May.
Healthcare and technology specifically are growing constantly & generally perform well year in year out due to the diversity of the sector and the shear volume of demand making them top sectors of the future.
Creating Wealth for Technology-Centric Service Businesses
Due to the current capital markets and financial landscape, there is a large sum of un-invested capital seeking returns (greater than $1B!). The terms and conditions have changed from the past, but are relatively straightforward. Investors have significant capital and need to deploy it and thus are willing to accept fair, solid, decent returns, but the catch is that they want to invest in sure things.
A “Sure Thing” has significant market demand that is calling for growth, perform business attributes, a unique value-proposition, and a well-rounded, established management team.
For businesses that have the ability to expand their portfolio and distribution to create “mass and density” (i.e. market share) within a region or community, capital is available and the ability to create wealth for founders, employees, and shareholders is waiting.
Are You a Laggard or a Leader?
As economists and executives update forecasts, some firms are poised to continue growing while others are being left behind. Different from previous economic recoveries, recovery is divided into two groups.
- Laggards are those that have struggled over the last few years to retain clients and employees, and at best are up 5 to 6%.
- The leaders are growing, adding jobs and expanding. Across the board, the leaders have launched and updated their portfolio, and are creating "mass and density" inside geographic regions. They are well positioned to take advantage of existing opportunities for growth and expansion. Leaders have also put in place programs, procedures, and protocols to constantly upgrade their portfolio mix of products and services and to ensure solutions are effectively aligned.
With 2011 well underway, we are seeing bifurcation in the market, and based on the underlying economics, the trend towards the “Leaders Having More” looks to continue while the “Laggards” will continue to struggle and shrink.
What has changed and how have we gotten here to where the market is split into laggards and leaders?
- Erosion of the middle market in terms of middle market companies and consumers.
- · In 2009 there were approximately 1.5M business closings, and 61k business bankruptcies. In 2010 there were 600k business closures and 44k bankruptcies.
- Middle-income jobs are disappearing from the economy. The share of middle-income jobs in the United States has fallen from 52% in 1980 to 42% in 2010.
- These jobs have been replaced by low-income jobs, which now make up 41% of total employment.
- 17 million Americans with college degrees are doing jobs that require less than the skill levels associated with a bachelor's degree.
- Over the past year, nominal wages grew only 1.7% while all consumer prices, including food and energy, increased by 2.7%.
- Wages and salaries have fallen from 60% of personal income in 1980 to 51% in 2010. Government transfers have risen from 11.7% of personal income in 1980 to 18.4% in 2010, a post-war high.
- Today’s consumer habits dictate the B2B spending habits of small businesses.
- Lending for asset-light businesses is gone. Small businesses are not big enough to tap the debt market and are up against the conservatism of their banks. Therefore, capital is available to “Leaders” for growth and/or consolidation.
- Small business loans declined by roughly 1 percent in Q4 2010 and in 2011 business loans ($100,000–$1 million) was 1.3 percent less than the previous quarter.
- Micro loans (under $100k) had a negligible increase.
- Lending by the smallest lenders (with assets less than $100 million) declined the most of any category (-3.5 percent).
- The general results show that aggregate small business lending has yet to follow the trend of gross domestic product (GDP) which had turned upward along with total business lending.
Fundamental to Ephor's success is our structured approach to creating business models that fulfill accelerating demand curves. Our focus on technology-centric service businesses ensures a high probability for wealth creation due to macro, market and demand forces.
Today's market is rich for technology-enabled businesses services. When asset-light, labor intensive businesses are coupled with technology and focus on providing a unique value-propositions to a highly defined audience; wealth creation moves from probable to inevitable.
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