Ann Arbor Area BUSINESS MONTHLY magazine brings the reader the latest business news and information important to the businesspeople in Washtenaw County. Each month articles cover real estate, legal, Internet, employee concerns and the climate of business in the greater Ann Arbor area. There is news about company employees and feature articles on local businesses. We cover business news from Ann Arbor, Chelsea, Dexter, Manchester, Milan, Saline, Whitmore Lake, and Ypsilanti.
Business Prepares For 2010
Chuck Hadden, President and CEO of Lansing-based Michigan Manufacturers Association.
By David A. Baker
Margaret J. Baker
"We can get through this thing all right. We've got to stick together, though. We've got to have faith in each other." -George Bailey
In the classic movie It's a Wonderful Life, in a scene set during the bank run at the beginning of the Great Depression, protagonist George Bailey reminds a group of account holders not to panic. As we welcome in 2010, during what some are calling the Great Recession, Michigan business owners could do well to heed George's advice.
In many ways, Michigan has much to look forward to in 2010. Peter Schork, President and Chief Operating Officer at Ann Arbor State Bank, is optimistic that the worst is over. "Overall, 2009 was an improvement over the last half of 2008, so at least the trend is better," Schork comments. "We see 2010 as being fairly a flat year for interest rates which we hope will stimulate the housing market. The housing market in Ann Arbor has been fair, but the farther you get away from Ann Arbor the more problematic it becomes, which I think everybody realizes."
Michigan began experiencing a prolonged recession well before the rest of the country, and forecasts indicate that Michigan's recovery will lag behind the US overall. The good news: if you're still in business, you've made it through the economic nadir. The bad news: a full recovery won't happen in 2010. When recovery occurs, however, Michigan businesses will be lean, streamlined, and ready to compete.
Where We Are Now
Michigan's economy has been sluggish over the past decade. This decline is painfully outlined in the Michigan Turnaround Plan (michiganturnaroundplan. com), an initiative proposed by Detroit-based Business Leaders for Michigan. Some of the most startling facts about Michigan's poor economic condition include:
- Since 2000, Michigan has lost nearly 728,000 jobs, roughly 50% of all U.S. job losses
- Since 2000, Michigan's state budget has gone from a $2 billion surplus to a $2 billion deficit
- Michigan ranks #48 in 'perceived' favorable business climate among site consultants
- Michigan companies pay, on average, 3-4% more in state and local taxes than companies in states competitive with Michigan for manufacturing or knowledge jobs
This ongoing economic decline was exacerbated by the devastating job losses in 2009. Joan P. Crary, George A. Fulton, and Donald R. Grimes of the University of Michigan run the Research and Seminar in Quantitative Economics (RSQE). According to the most recent RSQE analysis of the Michigan Model, a quarter of jobs lost in Michigan over the past decade were lost in the first half of 2009. And the tide of job decline isn't predicted to turn until Q3 of 2011, capping an 11-year aggregate job loss of 937,000 jobs.
Now, more than ever, there is an urgency to address Michigan's economic morass. Doug Rothwell, President and CEO of Business Leaders for Michigan, is clear about the immediate need for Michigan to turn things around. "In the last 30 or 40 years," explains Rothwell, "we have gone from being a top-ten state for jobs and economic growth to a bottom-ten state. And the only hope we have to correct all the problems that Michigan faces is for Michigan to grow economically and increase jobs. Job growth and economic growth will solve virtually every problem we face in Michigan today."
Talk to any business leader in Michigan about the critical elements of job growth and economic growth in Michigan and you're bound to hit one of two themes: political cooperation and business leadership.
1) Political Cooperation
Our US senators and representatives are focused on the bigger picture of national economic policy. The Honorable John Dingell, Representative of the 15th District, for example, focuses on healthcare and stimulus money allocation on his website. Likewise, Jack Lynch, Dingell's 2010 opponent, highlights Sarbanes Oxley, energy policy, and capital gains cuts.
But Michigan's most pressing issues are local and immediate, and Michigan has historically had ineffective cooperation among its state political leaders. According to Rothwell, "We found that most of the things that really needed to be done to make Southeast Michigan a more competitive place to grow businesses were really state issues. We have had leaders that are very smart and capable, and they care deeply about Michigan, but for a variety of reasons they have not been able to get a level of trust and confidence in each other to be able to do the things that need to be done." Michigan needs state legislators, then, who can cooperate across party lines and work with Michigan businesses.
In the Michigan Turnaround Plan, Business Leaders for Michigan proposes Five Steps the legislature can follow to cooperate and restore Michigan to a top-ten state status in the US:
- Change the Way We Manage Our Finances
- Right-size and Enact Structural Budget Reforms
- Get Michigan Competitive To Attract and Retain Jobs
- Make Investments That Create A Great Job Environment
- Accelerate Job Growth Through Innovation and Entrepreneurship
Chuck Hadden is President and CEO of the Lansing-based Michigan Manufacturers Association (MMA), which represents the interests of Michigan's manufacturing base to the Michigan legislature. Hadden supports the Plan, with the caveat that it must be adopted in full to be effective.
Hadden explains, "You have to take the whole plan. "There have been different people supporting different parts of it, but you can't just take one part of it and peel that back and expect it to work. You have to have some reforms that go along with it, you have to have the tax cuts, and you need the additional tax revenue for the state. All those things have to fall in place for this to really be something that's going to happen. It all falls apart as soon as you start pulling out pieces of the plan."
"My biggest concern right now is employment," Hadden continues, "and whether unemployment will go down that much in 2010. I'm fearful that with so much uncertainty with both the state and federal government about a number of different changes, I don't know if anybody is in a hurry to hire anybody back right now. I've heard stories of executives who say, 'Why would I want to come to Michigan? There's no certainty in anything that's going on.'"
And it is an inefficient state budgeting process, says Hadden, that contributes much to this uncertainty. "I think the key issue is that we don't need to be limping into a budget every year. Let's get something settled and find a way to create a climate conducive to business at the same time. We need something we can stick with for a period of time so that there isn't the threat of it changing."
Hadden is guardedly optimistic about this year. "I think 2010 will be a big year," says Hadden. "It's an election year, people are anxious to see that things are happening and that there is a plan for the future, and they're asking their policy leaders to step up. I think the ones that do will be reelected or elected."
And there does seem to be a readiness among business leaders to cooperate with these policy leaders. The results of the MMA's annual membership survey, to be published in the March/April edition of its own Insight journal, affirm this readiness. As one early survey respondent commented, "Manufacturing companies in Michigan need to participate with groups like the MMA so their voices can be heard. No one company can be perfect, but a good team of companies can be."
2) Business Leadership
Political cooperation can only go so far, however. Business leaders must also step up efforts to fuel the economic engines Michigan needs to navigate out of the current economic doldrums. Whether you are a current business leader or an aspiring entrepreneur, Michigan needs you to lead the economic charge by taking advantage of existing available resources to start or grow business in Michigan.
Here are five things you can do for Michigan in 2010.
PAT YOURSELF ON THE BACK
If you are already running a business in Michigan and you are still in business, congratulations! This past year was a difficult year for Michigan businesses. As Schork notes, "Those who have made it through to today are probably happy just to be making it and are not expanding. If you've made it through to this moment, you're probably in good shape. And if you contemplating a start-up in Michigan, there are good reasons to be hopeful."
TAKE A LEAP
Many are daunted by the challenge presented by the economic uncertainties in Michigan. But if you view this uncertain climate as an opportunity to innovate, Michigan's economy will benefit. In fact, the Detroit area's success in the early to mid-1900's, for example, can be almost wholly attributed to the vibrant entrepreneurial activity at that time.
Carl Schramm Ph.D., President and CEO of the Kansas City-based Kauffman Foundation, currently partnering with the Michigan Small Business and Technology Development Center and the New Economy Initiative of Southeast Michigan, spoke at the Detroit Economic Club in November.
Schramm noted, "[Detroit] exists because of innovation—the absolute breakthrough innovation—of not one, or two, or three, or four entrepreneurs, but hundreds and thousands of entrepreneurs who grew up around the auto industry. One innovation after another teemed out of the minds of engineers and workers in this city that led to one company after another."
In fact, times of recession can be fertile ground for entrepreneurialism. A Kauffman Foundation study, "The Economic Future Just Happened" (June 2009), demonstrates how prior periods of recession have given birth to a multitude of companies that make up a substantial portion of our national economy. The report observes three key facts about entrepreneurialism during a recession:
- Recessions and bear markets, while they bring pain and often lead to short-term declines in business formation, do not appear to have a significantly negative impact on the formation and survival of new businesses.
- Well over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market.
- Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.
LOOK PAST THE SHORT-TERM
As you lead in Michigan, assume that the slow economy won't rebound for a couple of years. Rothwell recommends that businesses anticipate 1-2 years of slow growth. According to Rothwell, "The business conditions in Michigan that we see for the next 12-18 months are going to be as they are now if not a little bit worse. So, every business owner has to size their business and manage their business as though things are going to be as they are today or a bit worse for the future. You need to be highly disciplined and not let any of the things you're hearing at the national level about things getting better get to you, because Michigan is not following the nation. We're in our own little world of economic hurt."
RELY ON RESOURCES
Whether you are expanding your business starting a new venture, be assured that loans and assistance are available. Schork is adamant that there are opportunities for business leaders who have good ideas and good plans. "Lending from local consumer banks seems to be continuing for owner-occupied locally operated businesses. . . . There are a lot of fine SBA and USDA programs that will guarantee up to 80-90% of deals, but we need people who are willing to buy property and start businesses. That's the missing link. There just are not many people out there starting or expanding businesses. The money is there and the opportunities are there - we just need the entrepreneurs with ideas who are ready to build businesses."
To get these loans, however, you will need to engage in a more involved process than in the past, explains Schork. "Our commercial team is reviewing a lot of companies. We're conducting a lot more consultative work. In the past, you could apply to two banks and they'd both approve you. Now, it's much more of a consultative engagement: Where are you going to be in two years? How are you going to get there? Do you have enough capital to get there? It's a much more thorough analysis now."
Finally, business leaders should get involved politically. Rothwell suggests, "[Executives should] use that frustration for the things that we talked about earlier, which is the only way to change the system is get engaged. You can't sit on the sidelines and talk about the problems; you've got to get engaged. I would encourage business owners to get involved in their local chambers of commerce, to call up with talk radio, to send letters to the editor, to contact their local legislature and hold them accountable. That's the thing that has to happen. Be specific and hold them accountable for the things you want to see changed."
The final scene of It's a Wonderful Life depicts everyone gathered at the Bailey home singing Auld Lang Syne to ring in the new year. It's a warm picture of a community pulling together in difficult times. May this picture reflect Michigan's political and business leadership in 2010. By working together, applying the available resources, and tending carefully to our businesses, Michigan business leaders can change Michigan's future. As Hadden puts it, "Get ready and plan now so you will be prepared when the market turns around."