Value Never Needs A Stimulus

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Value Never Needs A Stimulus

Much attention has been placed in the media of late regarding the economic stimulus package, also known as the American Recovery and Reinvestment Act. At various meetings I have attended, growers have asked how the stimulus package will impact their business. The following are some of the major provisions of the stimulus package of interest to small business, according to Small Business Legislative Council:

- It allows small businesses to take upfront deductions of up to $250,000 on the cost of equipment–such as computers, vehicles, furniture and manufacturing machinery–instead of depreciating the investment over a number of years. The deduction was slated to end in 2008, but was extended through 2009.

- It extends a bonus depreciation allowing small businesses to deduct half the cost of new qualifying capital equipment expenditures purchased in 2009, if the equipment is put into use by Jan. 1, 2010.

- It temporarily broadens the “carry-back” period for 2008 net operating losses from two years to five. This allows small businesses to apply 2008 losses to past and future tax bills, freeing up capital that can be pumped back into the business.

- It provides all taxpayers with deductions for state and local sales and excise taxes on purchases of new cars, light trucks, recreational vehicles and motorcycles, through 2009.

- It raises the percentage of gain an individual may exclude from taxable income, from the sale of certain small business stock, from 50 to 75 percent.

- It extends a credit businesses may take for electricity produced by wind energy, through 2012, and for electricity produced by other renewable resources, through 2013.

- It includes a temporary 65 percent subsidy for COBRA payments for nine months. Employees would pay the employer the lowered 35 percent of the premium, and employers would take a credit against payroll taxes for the amount of the subsidy.

Economists, including me, were very mixed in their reaction to the stimulus, with almost equal numbers favoring as those opposing the stimulus components, timing and magnitude. Rarely have I seen such spirited debate among a normally reserved group. Regardless of where you stand, however, we all have one thing in common: We hope it works! The good news is consensus forecasts project the turnaround to start in third quarter of this year.

Thinking Top 100

This issue of Greenhouse Grower is always one of my favorites because I enjoy perusing the Top 100 Growers list and seeing who is new, as well as who is no longer on the list. There always seems to be a few surprises and this year is no exception. An interesting feature of the Top 100 is that it is almost impossible to predict the changes that occur in the list from year to year–some move up, some move down and some move out.

Check Out Charlie’s Blog

As margins get tighter and tighter in the green industry due to market conditions becoming increasingly competitive, a few cents per pot and plant can make a world of difference. Charlie Hall will keep you up to date on the green industry’s economics through his blog, Making Cents.

Be sure to follow it for up-to-the-minute information on economic factors affecting your business and strategic responses to enhance profitability.

Another intriguing aspect of the list is that there is a unique story that underlies each operation, as well as some unique personalities and management styles. Some have gotten “big” by leveraging themselves with debt capital, whereas others have financed their growth largely with retained earnings. Some are autocratic in their management style, whereas others are much more democratic.

But one thing all Top 100 Growers have in common is a dedicated passion for their strategic intent. In a book titled “Competing for the Future,” authors Gary Hamel and C.K. Prahalad define “strategic intent” as “an ambitious and compelling … dream that energizes … that provides the emotional and intellectual energy for the journey … to the future.”

In today’s hypercompetitive marketplace, it is imperative that growers, big and small, focus on what they do best and have their value proposition clearly in mind. To refresh your memory, your value proposition is a concise statement that articulates why your target customers will “choose to buy” your product/service offerings over other alternatives in the market. In other words, the value proposition is the distilled essence of your company’s mission/strategy.

Why is this important, you say? Because value never needs a stimulus! It is a well-proven fact that customers use at least five different attributes in making a decision about what products/services to buy and from whom to buy them: quality, price, service, convenience and selection. Value represents the tradeoff between the benefits derived from this varying mix of attributes relative to the sacrifices (dollars) made in getting them.

So the key for growers is to provide greater value to customers. The interesting thing is the difference in value customers perceive (when comparing your firm to competitors) can either be real or perceived (through various signals) depending on your marketing efforts. So that is why it is important to not cut marketing dollars right now!

Surviving The Downturn

If any of you attended the recent industry webinar titled, “It’s a Great Time to be in Business,” you probably heard lots of great ideas. Not necessarily new ideas, just reminders of things you should have been doing all along, like providing extraordinary service, not simply ordinary service. One of the best take-home messages I got from the webinar was this: “These are the times during which great companies are made.” I like that message. In other words, that which does not kill us makes us stronger.

The U.S. economy has been weathering recessionary conditions for a while now, including job losses, home foreclosures, declining consumer confidence, lower business spending and inflationary pressures on some of our key production inputs. Due to the cumulative impacts of these stressful economic conditions, we find several of our friends and colleagues are no longer working in the industry.

Of those remaining, several I have interacted with have indicated their business activity is way down, but others say they have either been “holding their own” or “doing OK.” However, there has been another (yet smaller) subset of growers who have indicated their “sales are up” or that their business has been “expanding” this year! Naturally, this has prompted me to ponder–how can this be? What is it that separates the folks who are just doing “OK” versus those doing well? As usual, there is no easy answer, but I think there are a couple of major underlying reasons.

First, the severity of the economic downturn is not equal in all areas of the country. Some regions are experiencing more of an economic downturn than others. Therefore, growers who happen to operate and market in regions that are fairing better economically find themselves in a more favorable market position. Also, for growers who happen to retail, they have perhaps benefited from the increased interest in “buying local” that has stemmed from the rise in fuel prices.

However, more importantly, I think the growers who are doing better in today’s economic climate have been: (1) proactive in shaving costs out of their value chain (either through lean flow analyses or adopting technology/mechanization), and (2) they have been successful in differentiating themselves in the marketplace. Both of these strategies are necessary to survive this downturn!

Charlie Hall (charliehall@tamu.edu) is a professor and Ellison Chair in International Floriculture at Texas A&M University.

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