Looking ahead: Preparing small business for the future By Dr Richard Tooth & DR Nicholas Gruen, A Lateral Economics study commissioned by the Office of the NSW Small Business Commissioner, December 2014 Expect the best, plan for the worst, and prepare to be surprised. Denis Waitley
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Looking ahead: for the future · 2 Looking ahead: Preparing small business for the future. The implications of any potential change will differ from business to business. To assess
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Looking ahead: Preparing small business for the futureBy Dr Richard Tooth & DR Nicholas Gruen, A Lateral Economics study commissioned by the Office of the NSW Small Business Commissioner, December 2014
Expect the best, plan for the worst, and prepare to be surprised. Denis Waitley
IntroductionMy interest is in the future because I am going to spend the rest of my life there – C.F. Kettering
What does the future hold for your business?
This paper provides you, a small business owner in NSW, with insights into changes to look out for over the next 10 years and how they might affect your business.
Message from the Minister for Small BusinessAs a small business owner myself, I understand the demands of running a business. The most difficult task is taking the time to step back and think strategically about how the events going on around you may potentially affect your business in the future. The next step is to then consider how you could better prepare your business for these changes. With some additional investment of time, you as a small business owner, may identify many of the risks and opportunities ahead.
ThisreportLooking Ahead: Preparing Small Business for the Futureconsiderssomeofthepotentialopportunitiesandchallengesthatsmallbusinessesshouldconsideroverthenextdecade.Thereportprovides,throughexamples,anunderstandingofhowanexaminationoffutureissuesmaybeusefulinassistingsmallbusinessesprepareforchange.Incircumstanceswherethereareuncertainties,consideringpossibleoptionswillhelpsmallbusinessespreparefortheinevitablesurprises.
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The implications of any potential change will differ from business to business. To assess implications for your business, there are a number of questions you may consider. Naturally these would include what is the likelihood of change and what is the likely pace of change. There are also questions that are more particular to your business.
How will changes in costs affect your business?Considertheimpactofalargechangeinthecostofakeyinputsuchasfuelorlabour.Theimplicationstoyoumightbesmallifthechangeaffectsallcompetitorsequally,howeveryoumightbemoreorlessdependentontheseinputsthanothers.Differencesbetweenhowyouandyourcompetitorsoperateareakeysourceofriskandopportunity.
Box 1: Black SwansBeforeblackswanswerediscoveredinWesternAustralia,thecommonlyheldviewwasthatallswanswerewhite.Itwasn’tso,butnooneoutsideofAustraliacouldhave known.
Net balance of businesses surveyed reporting/expecting positive sales growth
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1. Access to finance and the macro economyWall Street indices predicted nine out of the last five recessions! – Nobel Laureate Paul A. Samuelson, 19 Sep, 1966.
Changes in the macro economy can have broad-ranging impacts on small business, affecting the availability and cost of finance, the cost of other inputs, product demand, and, particularly for those exposed to fluctuations in the exchange rate, the price of goods sold.
Box 2: The RBA’s November 2014 forecastEachquarter,theRBAaspartofitsStatementofMonetaryPolicyreleasesaneconomicoutlookcontaininginsightsandforecasts(foratwo-yearperiod)fortheAustralianeconomy.ForecastsintheNovember2014reportinclude:
Box 3: The uncertainty in forecastingThefigurebelowshowsthelikelyrangeoftheRBA’seconomicgrowthforecastbasedonpastperformance.Theextentoftherangehighlightstheneedforbusinessestobepreparedforrapidandunanticipatedchangesintheeconomicenvironment.
Source: RBA(2014,Graph6.3).
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How resilient are you?Youownasmallmanufacturingbusinesswithahealthyprofitandlossandbalancesheet,butduringasevereeconomicdownturn,demandfallsandyoubegintoreturntradinglosses.Youshouldbeabletorideoutthestormbutsomecustomersdefault,leavingyouwithaneedforfinancetomeetsomefixedcosts.Youseekashort-termloantobridgethegapuntilyoucangetcostsundercontrolbutbanklendingtosmallbusinesshasdriedup.Youneedfinancefastanditisnowheretobefound.
Net balance of businesses surveyed reporting/expecting positive sales growth
NBN Premises Activated in Australia (000s)
ExpectedActual
0
5
10
15
20
25
0
50
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13
100
150
200
250
2012
Greater Sydney
2014 2016 2019 2024
NSW Rest of NSW
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2011 2012 2013 2014
Small Medium Large
80
85
90
95
100
105
110
115
120
2011/12 2012/13 2013/14 2014/15 2015/16
Electricity
Dotted line shows forecast. Prices are shown as an index. 2013/14 prices =100
Gas
6 Looking ahead: Preparing small business for the future
2. Demographic changeIn contrast to macro-economic changes, demographic changes (i.e. changes in the population and its make up) tend to be both relatively predictable and gradual. The Australian Bureau of Statistics (ABS) forecast the NSW population will grow over the 10 years to 2024 by 1.21% to 1.29% per annum.
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Could you cater to the ageing population?Theageingpopulationcreatesopportunitiesforsmallbusinessestoservethisincreasingdemographicgroup.Thesemightinclude:
Box 4: Cultural changeThemostrecentcensusdataindicatesthat,forthefiveyearstoSeptember2013,permanentsettlerimmigrationintoNSWaccountedfor30%oftotalimmigrationintoAustralia.12ThefivepredominantnationsoforiginwereChina,India,theUnitedKingdomandthePhilippinesrespectively.OfthetoptwentycountriesoforiginonlythreewereWesternCountries(UK,USandIreland)andover50%(11of20)wereeitherinEastAsiaorSouthAsia.
3. Technology I think there is a world market for maybe five computers. – Thomas Watson, chairman of IBM, 1943.
Technology advances create opportunities and risks for businesses of all sizes. Technology advances can in a short space of time make existing products obsolete and result in new markets being created.
The NBNTheNationalBroadbandNetwork(NBN)isalargeinfrastructureprojectthataimstosignificantlyincreaseinternetconnectionspeedsforbusinessesandhouseholds.Whilemostbusinessesandhouseholdstodayhavesomeformofbroadbandinternetaccess,thehighspeedsoftheNBNwillenablenewapplicationsandaddressexistingissuesforusers,particularlyforsmallbusinessesandusersinregionalareas.
Mobile communications, ubiquitous computing and the internet of thingsAnothersignificantdevelopmentincommunicationsistherapidgrowthofmobiledata;thatis,datatrafficthroughmobiledevices.Whilemobiledatatechnologyhasbeenavailableforsomeyears,thehigherspeedsthrough3Gand4Gtechnologieshasledtoarapiduptakeinrecentyears,withannualgrowthatover30%perannum.15Therateofgrowthissettoincrease,withprojectionsofafour-foldincreaseinmobiledatausagefrom2013to201716.
Box 5: Use of RFID tags for stocktakingRFIDtagsaresmalldevicesattachedtoobjectsenablingthemtobetrackedandidentified.Suchtagsareincommonusefortrackingeverythingfromlibrarybookstoanimals.Thecostandsizeofthetagshasfallen,enablinganincreasingrangeofapplications.Anincreasinglycommonapplicationisinstock-keepingtoenablerealtimeinventorycontrol.TheRFIDtagsarebecomingcheapenoughthattheymaysoonreplacebarcodesonexpensivegoods.RFIDhasanadvantageoverbarcodesinthatitdoesnotrequirelineofsight.Eventually,youmightbeabletotrackallstockautomaticallyinrealtimeascustomersmoveitaroundyourstoreintheirtrolleysorbaskets.
Opportunities from open access to dataAnimplicationoftherevolutionininformationtechnologyandcommunicationsistheincreasedavailabilityoflargedatasetsthatcanbeusedforpracticalapplications.Theavailabilityofdatacanprovideopportunitiesforlargeandsmallbusinessestoresearchmarkets,betterservetheircustomersanddevelopinnovativeapproachestoservicedelivery.
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Identifying possible mobile data applicationsThegrowthofmobiledataapplicationsislikelybuthowwillthisaffectyourbusiness?Ausefulframeworkandapproachforidentifyingpotentialapplicationsistoconsiderhowinformationisusedinyourbusiness.Forexample,youmightconsiderwhatinformationisprovidedandhowdatacommunicationsmightchangeyourbusinessintermsof:
3. technologyOther developments and challengesAnimplicationofthedevelopmentsincommunicationstechnology,datacaptureandonlinetransactionsisthattherehasbeenanexplosioninthevolumeofdatathatiscaptured,communicatedandstored.Itisthoughtthataround90%ofthedataintheworldtodaywascreatedinthelasttwoyears.Theterm‘BigData’hasbeenusedtodescribethisvoluminousunstructureddata.Businessesareincreasinglyusingthisdataforarangeofpurposesincludingmarketingandcustomermanagement.TheonsetofBigDatahasimplicationsforsmallbusiness.Whileitcanprovideopportunitiesforbusinessesthatareabletoworkwiththedata,italsocreatessomethreatsandchallenges.Forexample,itmayprovideacompetitiveadvantagetolargerfirms.Cybersecurityandprivacy)arelikelytorepresentincreasinglyimportantrisksforbusinessesandsmallbusinessesshouldgiveconsiderationtomanagingsuchrisks.
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First we work for our reputation then our reputation works for us – Anon
One of the most significant developments in the last decade is how businesses engage with customers through an online presence and using tools such as social media.
Social mediaArelateddevelopmentistheincreasinguseofsocialmedia,connectingpeopleandenablinginformationsharing.Smallbusinesssocialmediauseisgrowingrapidly.Arecentsurvey19foundthataround36%ofsmallbusinessesinAustraliacurrentlyhaveasocialmediapresencesuchasaFacebookpage(upfrom14%in2011)withanother19%ofsmallbusinessesintendingtodosointhenextyear(seeFigure7:Socialmedia–usagetrends).TheseresultsforSMEsaresimilaracrossstatesandbetweenregionalandmetropolitanareas.
Box 6: The importance of reputationCabralandHortaçsu(2005)foundthatthefirstnegativereviewreceivedbyaneBaysellerreducedsalesgrowthby14%;froma7%positivegrowthtoa7%negativegrowth.Inacontrolledexperiment,Resnicketal.(2006)foundbuyerswouldpayawellreputedseller8%morethantheywouldpayanewseller.
Receiving a negative reviewWhatwouldyoudoyouifyoureceivedaverynegativeonlinecustomerreview?Thiscanbeverydistractingforyouastheowner.Respondingtothereviewinanegativewaymaysimplymakemattersworsebydrawingmorenegativeattention.Beingawareofsuchriskscanhelpyoubebetterpreparedto respond.23
5. The policy environmentThe policy (including regulatory) environment is a significant factor for most businesses and particularly small businesses. Most small businesses are directly subject to a large number of regulations. For example, the Productivity Commission24 estimates that a winery in NSW will potentially require 76 licences from Commonwealth, State and Local governments and, similarly, a residential builder will potentially require 36 licences.
Dealing with a sudden policy changeIn2013changeswereproposedtothefringebenefitstax(FBT).Theproposedrules(whichwerenotimplemented)wouldhaverequireddriversofsalary-sacrificedandemployer-providedvehiclestokeepdrivinglogbookstoprovetheirvehicle’spercentageofbusinessusesoastostopdriversclaimingconcessionsontheirpersonaluse.
Box 7: The NDISTheNationalDisabilityInsuranceScheme(NDIS)isanewwayforpeopletogetdisabilitysupport.Theschemeinvolvesgreaterfundingandgreaterchoiceofservicesforpeoplewithdisability.InNSW,theroll-outoftheschemeiscoupledwithashiftfromgovernmenttonon-governmentprovisionofcareandsupportservices.
Box 8: North West Rail LinkTheNorthWestRailLinkiscurrentlyAustralia’slargestpublictransportinfrastructureproject.Itwillprovideaheavyraillinktonorth-westernsuburbsconnectingtheRouseHillregiontoEpping.Constructioniscurrentlyunderway.Itisexpectedtobecompletedby2019.
Source: http://nwrail.transport.nsw.gov.au/
Box 9: WestConnex and Sydney’s Orbital networkTheWestConnexprojectinvolves:
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Dealing with disruptionImagineamajorinfrastructureprojectisplannedtooccurnearyoursmallbusiness.Increasedcongestionmaymakeitmoredifficultforemployeestogettowork,supplierstodelivertoyouandcustomerstovisit.Thenoiseandvibrationmightalsoimpactonbusiness.Toaddresssuchissuesyoumightneedtemporarychangesinyouropeninghours,yoursupplychainorevenyourphysicallocation.Suchchangeswouldinturnhaveimplicationsforcustomersandemployees.Planningforsuchchangesmaybetterhelpmanagetheimpacts.
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7. Utility costsThe quickest and most cost-effective way for your business to save money is to reduce unnecessary energy use. – Jon Dee ‘Sustainable Growth’ (2010, page 96)
Electricity and gas are often significant inputs for small businesses.
Small business energy efficiencyIfyourenergycostsaresignificant,thenyoushouldbeconsideringoptionstoreduceenergycosts.AspointedoutbyDee(2010,chapter7)andmanyothers,thereareoftenmanyopportunitiesforsmallbusinessestoreducetheirenergycosts.Theseincludeopportunitiesassociatedwithreducingthemainusesofpowerincludinglighting,airconditioningandwaterheatingandofficeequipment.Inthefuture,theremaybeopportunitiestoreduceenergycostsbytakingadvantageoftime-of-usepricing.
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ConclusionExpect the best, plan for the worst, and prepare to be surprised – Denis Waitley
As physicist Neils Bohr is reputed to have said “Prediction is very difficult, but particularly about the future”. Even if it doesn’t make us clairvoyant, thinking about the future can help. Some developments can be forecast with confidence. Where there are uncertainties, considering possible futures will help you be a little more ready for the inevitable surprises.