How To: Turn macro trends into long-term profits
Catherine Reilly Delutio
The best Maine businesses know that long-term success means looking beyond industry fads to the macro economic and demographic trends that influence long-term profits.
The closures of maternity wards in rural Maine remind us why. Even the best obstetric amenities can't drum up business if the number of pregnant women in your service area is on a decades-long decline.
Businesses that prosper over generations watch the horizon. They maximize the gains from useful trends and minimize the fallout from adverse trends. But for many small-business owners, horizon-gazing is a luxury that just doesn't happen — they can't even gaze at lunch.
For those busy people, here's a simple equation that explains Maine's long-term growth: Economic Output = Population x Participation x Productivity. Along with Region, those are the primary forces that will influence your long-term profits. Let's break them down.
Population: Upsell or out-sell
Maine's population is old and projected to start declining in number around 2019, according to the Maine Office of Policy and Management.
There are two ways to increase sales when facing a declining customer base. First, offer more or higher-end products — upsell. Think of a local bank adding wealth management services or L.L.Bean launching its Signature Line.
Second, find new customers outside your region — “out-sell.” The lobster industry is leading the way here, aggressively marketing overseas to more than double exports of live lobster since 2010.
Participation: People first, plan second
As more and more Mainers reach age 65, workforce participation will fall sharply. In many regions, it will become even harder to find workers.
This will have fundamental implications for how businesses grow. In the past, you could make a plan and then hire people with the skills to execute it. A lack of qualified workers could make this approach obsolete in some regions.
The most successful future Maine companies may be those that start with people. They will discover and cultivate new skills within their existing workforce, find market opportunities that align with those skills, and then form plans.
Productivity: Up the ante
In 2016, Maine's gross domestic product per worker ranked No. 46 among the 50 states, according to the U.S. Bureau of Economic Analysis.
Like the Maine economy overall, increasing productivity is key to success for businesses. How to do that? By giving workers better tools, better skills or better inputs.
For instance, with 10,000 fewer workers, Maine's manufacturing industry now generates the same output as 10 years ago, adjusted for inflation. Manufacturers have achieved this by investing heavily in technology and equipment, hiring and training a well-skilled workforce and, where possible, shifting to products with a higher profit margin. All of these increase productivity.
Businesses can also increase revenue-per-worker by shifting to better inputs. For instance, it takes a food server just as long to deliver a $10 entree made of basic ingredients as a fancier, $20 entrée, and it takes housekeepers just as long to clean rooms that cost $100 per night as $200, but the revenue is double. More revenue for the same task means higher productivity and more profits.
Region: Connect to cities
Finally, an inescapable trend affecting all Maine businesses is the diverging fortunes of rich and poor regions. Since 2009, 40% of Maine's job growth has been in greater Portland.
In today's knowledge-based economy regions that are densely populated and well-connected to other economies are enjoying greater prosperity than many rural areas.
This means Maine's rural businesses will gain by strengthening their connections to urban areas such as Portland and Bangor, through a physical presence, marketing, business partnerships, co-branding or other creative approaches.
Catherine Reilly Delutio, a former Maine state economist, is chief research officer at 45 North Research LLC. She can be reached at Kate@45Northresearch.com
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