On July 30, the Commerce Department reported that the U.S. economy grew 4% in the second quarter of 2014. That is great news for your startup.
Before getting into how 4% GDP growth is good for your startup's bottom line, let's look at some key details. What struck me as critical is that after a 2.1% drop in the first quarter, the economy was expected to be up 3% in the quarter and it beat that expectation by a percentage point.
The reasons for the growth were gains in personal consumption spending (+1.69%), higher inventories for private businesses (+1.66%), and a rise in business investment (+0.68%) according to the New York Times. Trends in these categories are good news for your startup--but how good depends on what product you're selling.
Without further ado, let's look at the four booster shots this reportdelivers your startup.
1. More consumer spending helps consumer-focused startups
If you are running a startup that sells to consumers, the GDP report's evidence of higher personal consumption expenditures signals a brighter future for you.
After all, those higher expenditures mean that consumers are feeling more confident and that companies may need to add more to inventories and hire more employees to meet that demand.
If that trend continues, we could be in the midst of an economic melt-up. This means that higher employment leads to more consumer spending which leads companies to hire more people--in a virtuous cycle that keeps economic growth above the 4% rate needed to get people back to work after a long recession.
2. More inventories means higher sales potential
If your venture makes products that companies put in their inventories, you can expect higher orders. After all, companies only add to their inventory--which costs them big money--if they think that they will miss out on profit opportunities by not building it.
In other words, the GDP report means that companies are more afraid of missing out on opportunities than they are that they will be left holding the bag on inventory that customers don't want to buy off their shelves.
If you sell to businesses, you should capitalize on this optimism.
3. Higher business investment could unlock another virtuous cycle of growth
Businesses have been hoarding cash since the financial collapse of 2008. Their holdings have kept hitting records and the last time I checked totaled about $1.66 trillion.
The latest GDP report suggests that businesses are starting to invest that capital. The growth in investment is modest--however, if those investments start to pay off, other businesses that have been holding back will be inclined to follow.
This could create significant opportunities for companies that provide products that boost corporate productivity--and thus offer them a capital-enhancing reason to buy your startup's products.
Moreover, if this trend continues, it could create another virtuous cycle--like the one I described above related to the rise in personal consumption expenditures.
The business investment-led virtuous cycle would turn that $1.66 trillion in corporate cash into investment in new technologies that would increase hiring for people who could work the technology and boost demand forthe providers' products--causing them to hire as well.
Moreover, companies that were still holding on to their capital would feel as though they were getting left behind. And they would also start investing.
Can your startup catch this wave?
4. Higher growth means more eager startup investors
All this growth will create a third virtuous cycle--encouraging investors to come off the sidelines and put their dry powder to work. That means angel investors and venture capital firms will increasingly want to get in on the opportunities.
Instead of being afraid of losing their investment, these capital providers will fear missing out on profit opportunities that their rivals seem to be grabbing.
In the short-term, this means that you should sharpen your fund-raising skills and be prepared to explain how your startup will get a piece of the growth pie that is implied by today's great GDP report.