Doomsday predictions are always floating around. Usually they have to do with theology, ecological disaster, war, or someone's reading of only half a Mayan calendar. But a recent one is all about economics and, for an entrepreneur, as grim as they come.
Whether it's right or wrong, even the consideration suggests that a different approach to business in the future might be wise.
The Golden Era of Growth Is Over
Northwestern University economist Robert Gordon wrote a paper for the National Bureau of Economic Research exploring whether major economic growth in the U.S. is over. His reasoning, which is dismal even by the standards of the dismal science, is that what prompted strong growth historically was a series of three industrial revolutions, along with spin-off inventions that drove the expansion of the economy. He includes such social forces as urbanization, increasing speed of transportation, and the inclusion of women in the work force as some of the more powerful of those inventions.
The result will be a significant slowing of growth to a fraction of what the current economic recovery has provided. Many economists point out that Gordon's work is speculative, but that he does amass a significant historical perspective and raises a fundamental question of whether innovations in technology are transforming the world as the inventions of steam power and railroads did from 1750 to 1830, or as electricity, the internal combustion engine, indoor plumbing, communications, entertainment, chemicals, and petroleum did from 1870 to 1900.
He argues that the current wave of computers, the Internet, and mobile phones may have run its gamut and that there are factors--headwinds, he calls them--that will slow economic growth:
- changing demographics, with a major portion of the population moving into retirement and becoming less productive in an economic sense;
- falling performance in higher education and the cost inflation of schooling;
- growing economic inequality, where the majority of people must share a small portion of growth;
- competition from globalization;
- constrictions from waning energy resources and environmental impact; and
- the "overhang" of consumer and government debt.
What's an Entrepreneur to Do?
First, heed the words of science fiction author Douglas Adams: Don't panic. Any such shift in the economy would happen over time. When conditions change, there's a premium on consideration and planning.
If economic growth greatly slows, then you might reconsider what industries and activities offer the best opportunities. For example, gaming company Zynga initially rode high, but now slowing performance has some wondering whether it simply rode a fad. Instead of something ephemeral, consider a business that customers consider more substantial and necessary, providing goods or services that they cannot easily do without and that most are not able to provide for themselves.
As importantly, when the overall economic climate is not innovative enough, you must create your own innovation environment. A me-too type of company, even if in a necessary type of business, will find itself competing with many others.
Develop a culture of innovation, in which you constantly look for new ways to be efficient, products and services that give customers more of what they want, and inventive ways of doing business that make you more attractive to buyers.
The good news is that if the economic outlook turns out less dour than Gordon's prediction, being in a necessary type of business and emphasizing innovation will also give you an advantage that will be difficult to beat.