The Informed Entrepreneur - July 2020

Because life is better when you are aware

In General

Things are still moving fast as the pandemic remains the key focus of our attention. Normality is a desired state, but no one is yet happy to define ‘normal’ in the post pandemic world. We cannot help but see a cautious world; one where social norms of old, handshakes or cheek kissing, are constantly edged out of our cultures, a world where we will remain distanced for some time, social separation that will create a whole new set of anxieties stemming from uncertainty.

How will the actions of the next generation unfold? Those students whose studies may have been put on hold or even curtailed, how confident will they feel in guiding their generation? The very young are endlessly being told to stay distant from those who they would naturally cuddle, they have now adopted the vocabulary of social distancing, endorsing the on-line life rather than the physical one. I wonder what closeness will mean for them and their children? The current rules we abide by are the crude responses to today’s pandemic that, like Newton’s cradle, act with force on the immediate but impacting the distant future with magnitude. This is our legacy – deserving of consideration we need to leave needs to be the    

UK Politics

It is not the economy it is normality that matters. The political establishment are promising us a rapid return to what they see as a desired state. Yet, it is clear they cannot deliver this in the face of the pandemic, this shows no signs of abating and despite a deep desire to re-establish normality, the virus is not going to go away quickly.  

China UK relationships have hit a recent low this last month and despite the Chinese cheque book still being courted the Huawei debacle and of course Hong Kong citizenship are all placing immense pressure on the relations.

Why this is important: Local businesses need some guidance that is grounded, in which they can make a judgement call to either hold on if they can or capitulate and let it go if they cannot. You cannot run a business that is burning cash and sit back in the belief all will be fine come December only to find that it is not. This is a confusing situation for anybody let alone a small business operating at arm’s length in an industry crippled by social distancing. Jobs depend on the decisions that business owners make – that hits confidence.

China is rapidly becoming the primary economic force, if we chose to cheese them off then the supply chains of the past will be under even more strain and, even worse, the Hong Kong situation could drag us into a localised conflict. For the most part it is the supply chain that will eventually force many UK businesses to diversify further placing strains on the low-cost business models of the past and adding to the challenges of doing business in the future.

US Politics

US elections seem almost an irrelevance – in the latest twist Trump suggests he will not retire gracefully if Joe Biden wins, he simply doesn’t trust the mail-in voting system. Good to know that he feels he has a choice about the matter. On the 30th of July Trump tweeted that The Election could be delayed, prompting the New York Times to write an article that indicated a growing consideration around fascism in the US.

If Biden does win and Trump does capitulate then expect a very different White House from the one we have now. This month it came to light that Biden would take the US back to the Paris Climate Agreement and would likely cement stronger ties with Europe on the back of that. The UK has a tricky path to navigate whilst keeping ourselves relevant to US interests but also competing against Europe as a whole.

Why this is important: Are we heading for a totalitarian coup in the US? Most people would clearly say that is a ridiculous statement, but stranger things have happened, and we have never had an occupant in public office so intent on ignoring the democratic system. Watch Jason Stanley, ma professor of philosophy at Yale, discuss this very issue https://www.nytimes.com/video/opinion/100000006154922/fascism-leaders-america-trump.html?smid=em-share. The more we talk about it the more we

On the other hand should Trump lose and acquiesce, then expect Joe Biden’s switch in emphasis to be profound. He would be to reengage on the Global stage as quickly as possible removing the American first rhetoric – this carries positive and negative aspects for the UK relationship. On the negative, we need to be even higher up on the green agenda than we are and that takes radical shifts in policy. On the positive – at the local level we can really make inroads into making environmental considerations paramount in our businesses.

European Politics

It is a green recovery for Europe, and they are doubling down on the green initiatives to subsidise those weaker economies ravaged by the pandemic and bring a new focus to the recovery.  

Why this is important: According to Sarah Grillo of Axios “The European Union is the world’s third-largest emitting region after the U.S. and China, but it’s not just that. These plans will push global corporate behavior and prod other governments by creating either templates to follow or protectionist battles (or both). The green agenda, including circular economics, is rising as a priority for Europe and maybe for the US. If we demonstrate a willingness to embrace the green agenda, we have the chance to win over those in power.

What steps are you taking in your business model to identify opportunities for environmental improvement, it is not enough to do no harm, we have to do good?

Economics

The global economic situation is fragile at best – there are surges of activity in different sectors but there are also higher levels of uncertainty as to the sustainability of any recovery. The discussion of ‘U’,‘V’, ‘W’ of ‘L’ shaped recovery is only adding to the lexicon of the observer’s vocabulary but also the confusion levels as well. Many are forecasting sustained rises in unemployment post government schemes, shifting pockets of pricing pressure caused by skills shortages in primary areas of need, and public sector pay rises based on public pressure and people wanting to see the frontline rewarded. This is a more confusing picture than the financial crisis of 2008 because pressures are being created differently and the global supply chain has yet to figure out a new direction. Add onto this the accelerated shifts pre-Covid towards circular business models and we are creating turbulent waters, always hard to discern clarity when things get this choppy.

What many commentators seem to be avoiding and their models not including is any shift in societal priorities that may emerge post Covid19. Much of that observation is anecdotal and may well be shallow but if people simply readdress a small percentage of the meaning of their lives away from material expenditure towards security and savings then economically that could change many of the drivers in the economy. If the stimulus, simply does not stimulate in the way it is being designed to then what does that mean for the shape of any recovery. Whether the impact of the pandemic has created temporary and marginal shifts in behaviours will not be observable for some time but an increase in the savings ratio, expenditure patterns changing may well force greater levels of economic turbulence.

UK Economy

The pandemic has weakened the UK economy by reducing its capacity to absorb the next set of shocks, that is according to the LSE (https://bit.ly/30jTIS6). We must recognise the pressures we are putting ourselves under as we continue to battle the on-going impact of the virus and crawl towards Brexit.

According to the ONS the highest number of employees still furloughed (47%) are to be found in the entertainments, arts, and recreation industries, closely followed by 43% in the hospitality sector.  Anecdotal evidence suggests that furlough to redundancy is still a real possibility especially if capacity is being capped, but unemployment data is not picking this up yet. In the UK, the unemployment rate is low at 3.9% but with 45% of all businesses have less than 6 months cash reserves including those with zero in the bank, drastic measures may be needed. Furlough has created a bubble both for employees and employers which many find themselves cocooned from the realities ahead.    

There are encouraging signs in the inflation data –  but the supply chains have yet to be truly tested, with capacity constrained and buying power artificially supported the forces of inflation are hard to judge.

The ONS note that 20% of businesses do not know their reserve numbers nor burn rate. Only 18% of business have accessed no government support, the bulk of support being furlough payments, and 2/3rds of businesses have not been topping up payments.

All of this is still working through and September will be a testing time for many.

What we can surmise – testing times for the economy ahead with many forces working with and against each other. There will be tighter conditions on business therefore running lean will be essential. Go through your business model, evaluate what contributes and what does not. If it does not contribute but it is a resource with value, how could it be repurposed to work differently?

Social Trends

The big reflect continues with people from all walks of life reacquainting themselves with a set of new priorities. How this will manifest into a new way of living is still being ironed out but certainly there seems to be a shift in emphasis for many towards engaging with the spiritual side of life. Many are hungry for the normality of social events – perhaps the biggest social change is ‘patience’ – something we are all having to live with and every business needs to design into their business. An experience is a reward for the customer’s patience whilst they wait for the value we provide.

Other interesting patterns are emerging – we are starting to learn to communicate in public without our mouths. Facemasks are now obligatory; this means facial communication is harder being reliant on around half of what we would normally display. The mouth would indicate a full arrange of emotions and work in conjunction with the rest of the face. Now it is covered, now we must work harder to understand people with the obvious errors and misreading likely. 

We are office bound once more – there is a decline in the number of home workers and a rise in commuters, this brings in a new layer of anxieties and a sense of letting go.

Technology

Big Tech is being quizzed for its non-competitive behaviours whilst reporting record earnings as we switched to digital at every opportunity. Apple, Amazon and Facebook showed huge rises in earnings and despite the supposed Facebook backlash, they managed to nearly double their profits, giving shareholders a healthy return. Google did beat forecasts but showed a decline in revenues. Cash rich big tech will continue to pump prime startups markets as the capture and control their ecosystems.

For an additional boost into the tech markets the Government is looking at investing into the sector on our (taxpayers) behalf – good for tech start-up scene but is it good news for the taxpayer? According to Tech Nation in a Forbes article this could be a smart move by the government for the long term mirroring China’s tech supportive approach.

Now is the time to commit to a wholesale review of the role of technology in the financial running of your business. It is not only large organisations who are looking at their cost of finance, every business needs to be evaluating new pathways. Technology has a role to play – with the University of Essex’s Enterprise Zone status, the building out of an Essex Angel platform (see John Stenhouse) – the time has never been better to source new funding streams. Tech savvy businesses will have the latest on their credit checking, on evaluating supply chain security and engaging with their cash demands.

Finally

The Weave is committed to supporting the local start-up and entrepreneurial ecosystem throughout this most turbulent of times. If you are interested in how we can help businesses become far more innovative, gain support and be apart of a community then contact us at [email protected] or join our community by following the company page https://www.dhirubhai.net/company/wearetheweave/?viewAsMember=true