There may be general consensus on the fact that the economy is changing but no one seems to know exactly how the economy is changing.
We have heard, variously, that content, customers and community are all king. I’ve heard some things about creating value, adding it, or even changing what ‘value’ actually means, although those discussions often skip the part where actual money changes hands because of a function business model that is rooted in reality.
Some of this stuff gets pretty esoteric and difficult to follow. It’s probably a good thing that most small business owners are too practical to pay any attention to all the hot air.
At the same time, if the economy really is changing — and I happen to agree that it is — then you need to be paying attention to what is changing and how it is changing and how that will, in turn, change the way you run your business. Not to mention the opportunities that always surface when there is upheaval, reversal, change.
So, while everybody else is trying to be profound about this, I think it’s time to return to basics.
Contrary to this recession being the End of Capitalism As We Know It, an adjustment has long been in order. Capitalism, at its most fundamental, is an economic system in which people make money using other people’s money. The Other People might be investors or they might be lenders but, in general, the people with the money make same available to the people with the ideas.
Occasionally, the people with the ideas are able to persuade the people with the money to buy a piece of their idea, with the understanding that when (if) the idea becomes profitable they get a proportionate share of said profits. That way, the people with the money get to make more money while in the process also helping the entrepreneur make money, too.
Much more often, however, the people with the money will lend it to the people with the ideas. The people with the money will charge all sorts of financial services fees, in addition to interest, in order to make more money. All the people with the ideas have to do is to repay the money, along with said fees and interest.
Oh, and the people with the ideas have to persuade the people with the money to lend it to them.
Right now, thanks to some newly released research from our friends over at Emergent Research, it looks like the basic idea behind capitalism hasn’t changed. It’s just that there will be less of it.
For more than a decade the U.S. economy has been driven by a wave of debt. Consumers and businesses both benefited from easy access to cheap credit. But the recession has changed this. The next decade will see a de-leveraging of the U.S. and global economy.
Credit will continue to be hard to come by as lending institutions revert to traditional, more stringent lending standards. Small businesses will need to adjust their credit appetite and expectations to this new reality. (emphasis mine)
At the risk of throwing obnoxious I told you so’s around, I’ll admit that I am one of the few econo-pundits I know who was saying years ago that all the so-called growth that was being fueled by unrestrained debt seemed highly fragile. Why? Because eventually all that debt has to be paid and it just seemed as if, in the frenzy engendered by “easy access to cheap credit,” almost everybody forgot that.
What is important for you to remember right now is that small business owners should probably stop complaining about lack of access to capital. Those among us who can convince lenders that we are skilled with asset management and cash flow, and who have squeaky-clean credit, will manage to get the loans we need for startup and/or expansion.
Those of us who can’t, won’t. And there won’t be much that the government can do about it, either. So, instead of a universe in which everybody whose job it is to help small firms to do things interprets that to mean ‘help small firms to get loans,’ we’ll be operating in a universe in which small business owners will have to figure out how to reach their goals without other people’s money.
Technically, I suppose you could say that’s not even capitalism anymore.
I’d say that qualifies as a changing economy — and I suspect that’s just the beginning.
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About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the editor and publisher of The MicroEnterprise Journal. She also blogs at The Journal Blog.