INTRODUCTION
No one knows whether U.S. manufacturers will face a major recession, or a more moderate economic slowdown, in the next two years. The Federal Reserve cannot confidently project our economic performance over this period. ITR Economics, a private blue-chip company that makes its livelihood off economic forecasts, has projected an economic slowdown for 2023 for several years. In our current conditions, with inflation a continuing factor and with increased political uncertainty domestically and internationally, everyone—forecasters and CEOs alike–faces new forecasting challenges.
At a minimum, it’s a fair assumption that after years of strong economic growth, a cyclical correction or worse is in our future. Is your business ready? I remember what I learned years ago as a young corporate executive—anyone can succeed with economic tailwinds; it’s what you do when facing headwinds that matters most. We know the economy will change, but in the memorable words of John C. Maxwell: “Change is inevitable, growth is optional.”
AN ECONOMIC SLOWDOWN IS AN OPPORTUNITY TO IMPROVE YOUR PLANNING
Individual businesses approach future planning differently. The healthiest approaches start with planning for future economic, social, cultural, technological, and competitive scenarios and then work backward to determine what they would have to do to be successful in whatever scenario plays out. This is called “scenario planning” and is the direct opposite approach to assuming your current plan will enable your success regardless of how the economy performs.
The scenario-driven approach can be both sobering and challenging. At the highest level, scenario planning is an “outside-in” approach that generates several (usually 2-3) potential future scenarios. Your job is to understand what capabilities your business will need to be successful in ALL of the scenarios you have identified. You can’t just pick and prepare for one. Scenario planning requires you to prepare your business for which scenario emerges down the road. When you understand all of the factors which will enable your success, the need for new growth markets is likely to emerge. But what defines a good growth market?
There are two major questions you must be able to answer to define a “good” growth market: The first question is the easier of the two:
Is the market you selected a healthy market? These conditions are usually present in a healthy market:
- Consistent historical growth over the past five years and a high confidence forecast for future growth over the upcoming five years.
- An industry structure that allows new entrants with new value propositions to participate.
- An industry facing challenges (financial, regulatory, new technologies, replacement products or services, etc.).
- A competitive landscape in which a few mega-firms dominate. Large established firms are often slow to recognize and react to new opportunities to bring value—that’s your opening.
- A fragmented market comprised of many smaller competitors, giving you the ability to differentiate your offering from existing options.
Insights on the markets you are interested in is usually assisted by secondary research. These market profiles can give you the big picture you need.
Here’s a mini-case study from Enerquip Thermal Solutions, Medford, Wisconsin.
Target Market: Craft Brewing
We learned this market had hit a growth plateau at around 6,500 independent brewers.
Target Market: Legal Hemp & CBD Processors
We learned this market had a very small base and uncertain (and almost unbelievable) growth projects.
Now what?
Enerquip is a manufacturer of sanitary and industrial heating and cooling solutions headquartered in north central Wisconsin. The business was looking for consistent 10-12% annual growth—which they had achieved in prior years but were now struggling to achieve. The executive team knew that 10-12% growth gave them some economic cushion and also helped them avoid constant staff fluctuations.
This business had an interest in two new markets: craft brewing and legal hemp/CBD processing.
After researching these two markets, we learned that each would have challenges as a new growth market. Craft brewing had plateaued at around 6,500 brewers, and more significantly, the majority of the market needed one or two products only. The legal hemp and CBD processing market had incredible forecasted growth rates (anywhere from $2B to $20B a year) but such a small base that we thought it might take years to develop a new revenue base.
This felt a little like the “three bears” story—but with only two bears!
We went back and researched what other industries might be good growth markets. That led us to Renewable Fuels, which was experiencing explosive growth from fracking and natural gas capture initiatives.
What did we do next? We answered the second and more important question…
This full article was originally published on WMEP Manufacturing Solutions’ website.
Read the full article here and get the answer to the second and more important question.
