Back to the Future

Back to the Future

In 1989 the sequel to this headline movie Marty McFly took another time warp in his beloved DeLorean, this time to the year 2015. Now that 2015 has arrived, what predictions have come true, or perhaps more interestingly, if we crystal ball the next three years to the summer of 2017, what can we likely forecast?

Whilst the highly craved Hoverboards never hit our toy stores, other predictions such as the wall mountable flat screen TV, telecommunications like Skype and the influence of Asian nations over the USA did eventuate (albeit you could argue hints of the Asian stimulus had existed at the time of movie release). Perhaps there is some faith in forecasts, MetService aside. Current economic commentators point to an upbeat business mood. Yet many SME owners at the coalface who are away from the Christchurch rebuild, record dairy pay outs and residential rental market believe that the underbelly of our economy remains soft. Perhaps the Reserve Bank’s support of a low OCR despite a spiralling Auckland housing market confirms this opinion?

Reports show that margins remain slim and that growth is being driven by increased sales rather than through greater efficiencies. This begs the question; is true revenue growth being masked because we are coming off a low base? Time will tell. Early indicators suggest that falling oil prices have yet to be passed through to the retailer and end consumer. This may support the notion that margins within the logistics sector remain lean and that this slight cost reprise has allowed their survival through sturdier margins vs. a price rise (something the sector has been reluctant to do).

If we turn our focus off macroeconomics and consider trends in the SME sector, our five calculated headline acts to summer 2017 are;

Expect a small dip in the local economy late 2016/early 2017
Trends are your friend and historical graphing would highlight that despite the long and cruel slog out of the GFC (this began 7 ½ years ago), we are due for another fright. It’s not so much as ‘batten down the hatches’ yet, but an early warning sign to get your balance sheet healthy and robust. Only a few years ago commentators bemoaned the high personal debt in our country. After a correction and cooling off period, the current housing boom seems to have returned us to our past. As our debt grows, the appetite to lend must taper off at some point. High interest rates in perhaps two years’ time may be the blood clot in the lending veins.

Customer service and innovation will reign supreme
These two competencies alone will help counterbalance the effects of our above prediction.

Investment in these qualities are critical – they are what will keep your business fit. They will bring customer loyalty and goodwill in times of need - they need to be earned now. Specialist offerings will be the norm; you can no longer be a ‘jack of all trades, master of none’. Examples have already crept into professional services such as law, accounting and medicine. Innovation doesn’t happen at morning tea, nor does customer service. Time needs to be invested into these and sometimes that’s the biggest challenge. The problem is, if there is no action, different challenges will assert themselves, and they won’t be any easier to solve.

The Baby Boomer ripple will arrive
The ugly analogy of ‘succession’ will finally thrash out, but likely impact in different ways than we forecast 10 years earlier. With the middle aged preferring to throw all available equity at non-cash generating assets such as holiday homes and the appreciating residential market, there will be limited reserves left for business ownership. If we consider the Kiwi desire to create a ‘start-up’ than carry on another’s legacy, this makes the demand curve even lower. Instead we expect the purchase of retiring SME shares to be snapped up by medium to large corporates, thereby extending their database reach, innovative know how and securing specialist employees, of which is getting harder to source. On the spend side, the healthcare and aged residential care for this sector will continue to prosper as it does today, albeit much of this demographic’s tourism dollar will make its way overseas.

Our construction industry will remain fickle as the model changes
This is one sector where those operators willing to grasp technology, innovative solutions and provide high quality outcomes will stay ahead of the game. Anything short will drown, regardless of demand.

The residential boom will be fuelled by many leads including rising prices, population growth and a demanding rental market of which all insulate a short term blip, however, those operating in this sector will need to embrace modular solutions and worksafe practices. The infrastructure sector will also prosper as needs cater for this housing growth, albeit these services are often provided by the larger corporates. Commercial activity will be a slow burn, particularly warehousing (look at the number of vacant buildings already available). Trade discounts on products traditionally reserved for subcontractors are becoming increasing available to everyday DIY handymen and then passed on at a smaller margin. Perhaps rebates from suppliers for continued and high level custom may become the new loyalty program for the subcontractor market.

We’ll supercharge our IT software and infrastructure
When it comes to IT the biggest risk is that technology evolves faster than our ability to adapt (digital Darwinism). The game-changer this time round is that offsite data housing (the cloud) and software licensing will take a greater footprint as onsite racking and internal support wane. It may not be the owner’s choice as external factors such as smarter client interface, larger document storage, enhanced functional capacity, and improved remote access mean a new way must be found.

Superior pricing could be the stimulus to invest. With Windows 10 set on taking a larger share, what will the next Windows release mean?

Some hard predictions, but even if they don’t come to fruition they are still worth considering in your business model nonetheless. A worthy debate at your next board meeting. But what of some light hearted predictions? Will plastic shopping bags and cheque books finally be laid to rest, will roaming drones be an alternative to the traditional fixed speed camera, will neuro-hacking replace cyberhacking as the next big privacy threat and how many new cookbooks and TV series will Jamie Oliver churn out? One thing is for sure, change is inevitable and you don’t want to be last cowboy up the pass if any of these game changers are relevant to your business model.

Aaron Wallace is a Director at Bellingham Wallace a fresh thinking business advisory and chartered accountancy firm in Auckland.

www.bellinghamwallace.co.nz

ENDS

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