The Top 3 Economic Challenges Facing Entrepreneurs in 2016
Entrepreneurs face constant uncertainty. Starting a new business and carving out innovation are at the core of uncertainty bearing. But 2016 may be a particularly big year for uncertainties, spelling trouble for entrepreneurs who are unprepared for what lies ahead.
But threats to the unprepared startup can be opportunities for the prepared competitor. While there’s no crystal ball for what the future may hold, there are some early indications about where the field is headed in the new year.
Consider these three sources of uncertainty that could turn out to be potential game changers in 2016:
1. Financial fluctuations.
Ever since the market crash of 2008, the world’s central banks have flooded the markets with money in unprecedented quantitative easing. This policy, according to some critics, is causing a bubble of artificial growth and as soon as the cheap money stops flowing, so may the sales.
More money in the market should mean higher prices overall, as there’s more money to buy the same number of goods. While this hasn’t happened so far (despite trillions of new dollars), it’s only a matter of time.
What happens when quantitative easing ends? When inflation hits suppliers’ prices, will the margins be sufficient enough to cope? Is the product even something people will buy once cheap money no longer exists?
As it’s impossible to know where inflation will hit, it’s vital for a business to be scalable and for a startup not to be overextended, particularly in 2016. A burgeoning business should be as prepared to scale down without going under as it would be to scale up.
2. Globalization and increased efficiency.
Businesses are already outsourcing much of the production that used to be based in the United States. China and India will only get more advanced and more productive. Other countries will follow them.
This trend is augmented by the advent of businesses such as Uber, which facilitates effective sharing of pre-existing resources. The need to produce will continue to decrease while innovations continue to make production more efficient. Taking into account the advents of super-advanced information technology and global cloud computing, it will no longer require much upfront investment to start new businesses.
For entrepreneurs, this means an increase in competition and even tighter margins. Manufacturing in particular, which is already suffering in America, will be hit hard. Further, so will those businesses that made investments in tangible property, such as machinery.
But there’s an upside. Businesses will be able to leverage those very investments by renting them out to competitors -- a vastly different business model than the traditional own-to-use method business leaders may have in mind, but it could very well be the future. The improved usage of limited resources in the sharing economy will greatly increase the cost of owning idle property. It will no longer pay to have a monopoly over assets.
3. Technological tornadoes.
Innovations in technology are making product life cycles continually shorter, effectively destroying Moore’s Law. With such a rapidly shifting technological landscape, any state-of-the-art business infrastructure may soon be hopelessly outdated and a costly burden.
Already, this is hurting platform suppliers. Google’s Android is struggling with increasing fragmentation that threatens the whole ecosystem. In contrast, Apple’s closed, single-device strategy has served it well to date, but its focus on the premium segment may damage sales in developing countries. Meanwhile, Microsoft’s Windows 10 strategy aims to make Windows a common platform for computers, tablets, phones and even gaming consoles. Core services are available on all platforms.
Investing in single-platform services these days will only increase the cost of uncertainty. Businesses could save money and increase flexibility by outsourcing hardware to employees while relying on cross-platform services and cloud computing to get the job done.
Amid all this uncertainty in the 2016 economic landscape, one thing remains clear: Entrepreneurs will face enormous costs if they continue doing business as usual. To come out on top, startups need to consider and prepare for the good, the bad and the ugly outcomes of decisions.
As Louis Pasteur put it, “Chance favors the prepared mind.” The same holds true for the prepared business.
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