Signs of the Times

Madison Magazine asked five business leaders to share their reflections on a tough year and to break out their crystal balls for insight on what lies ahead on the road to economic recovery

What’s the state of your business, industry or organization? Are you planning for 2010 or are you waiting?

Tom Still, president, Wisconsin Technology Council and Wisconsin Innovation Network: Planning for 2010, definitely. I think the economy is still lagging. In the tech sector some are doing better than others. Software and IT, trends in virtual and cloud computing—those are humming along because there might be a bit of a revolution about how things are done. On the life sciences side, some companies are trapped between their previous round of financing and where they need to be. The venture side of things has been sluggish nationally, although the last quarter it started to climb back up and angel investing in Wisconsin has held fairly firm.

So right now it’s OK, but thinking that 2010 is going to be a little better and maybe we’ll start to see some things turn around a little more aggressively toward the end of the year.

Greg Dombrowski, president, Johnson Bank Madison: Banking tends to lag a bit. I’ll give you an example. Some of our clients really felt the brunt of this slowdown, which hit in January, with a decrease in production orders and layoffs. The cash flow implications aren’t felt until ninety days later when the receivables come in. Now they start getting some activity and interest, but there’s been this period of trying to lick their wounds and control their losses. So how can you help carry them out of that lull? That hard work starts ninety to 120 days later. So even when you read about economic positives—and we are seeing a number of our clients that have orders coming up—you get used to the new set point, when it gets so low all of a sudden ten percent above that atrocious number looks promising.

Are we looking to 2010? I think that’s a scary thought for a lot of people to figure out what next year looks like. Our sense is inflation’s going to be under control. The market’s a little more optimistic, but I wouldn’t say we’ll be bringing out the banners and cheering quite yet.

David Simon, president of operations, Veridian Homes: If you’re coming from the housing sector we actually started seeing [the downturn] in late ’05, so the predictability of a business plan has gotten very challenging … I haven’t made a business plan in four years because nobody predicted how bad this was going to be. So I’m not trying to make too many predictions.

On the other hand I am starting to see improvements over last year’s third- quarter numbers. Our inventories are starting to drop. A baseline industry experts have set is that six months of inventory is an equalized market, and for several years it’s been much more than six months. Now we’re finding different price points where it’s below six months. In fact under $200,000 it’s down to four months. Eighty percent of all homes in the second quarter were sold for under $300,000, so it’s that first-time buyer that’s really starting to move now.

I still think a lot of what’s driving Madison’s slow housing market is consumer confidence and fear. Americans are typically optimistic people. That’s a plus. The idea that the worst is behind you is significant. It doesn’t mean they’re spending yet but maybe with a couple more signs they’ll start spending our way out of this problem.

Tim Cooley, city of Madison director of economic development: When so many players have been taken off the table, and so many people have downsized to such a degree, productivity and earnings are going to turn around.

But unfortunately from my perspective nothing starts until we start seeing a jobs recovery. And that always lags going in and going out … Here we’ve got the smart people, the innovation, an entrepreneurial environment, a government that gets it now and organizations looking at both the region and the city. We have a tech network that’s comparable to anything in any of the states. But we’ve got a couple of big holes: early stage risk capital is going to be tough.

What’s the city doing? Seventy percent of our revenue comes from the taxes on assessed value. We’ve got to keep a real close eye on that. The mayor is having us look at significant cuts in the budget across the board, and he’s asked us to put together an economic dashboard on what’s happening within the city. But government lags going into a recession, it lags coming out of a recession. Stimulus money seems to be spent, at least this first round, on balancing state budgets.

What’s the margin that exists in this city for improving the jobs picture?

TC: I think creating new jobs is very important, concentrating on developing an environment for start-ups—and they can be tech or non-tech—that can export goods and resources out of the area, which is the only way to bring wealth in with the exception of tourism, which is really nice because that imports money. Those jobs have tremendous multipliers associated with them as opposed to starting a new dry cleaner. As far as government is concerned there isn’t any hiring right now and there’s not going to be any that I can see in the foreseeable future.

Jennifer Alexander, president, Greater Madison Chamber of Commerce and Thrive: We recently surveyed small and medium-sized businesses—some 1,400 Chamber members—and we asked them when they thought the economic conditions would improve for their businesses. Preliminary results showed that 21.4 percent said in the next six months, 53.5 percent said in 2010, 16.6 percent said in 2011, and 8.6 percent said beyond ’11 [for the final results and summary, visit]. When we asked them about their challenges, they find themselves so busy doing more with less that it’s challenging to be able to plan for when we come out of the recovery.

TS: The Tech Council, WisBusiness and the Luminis Group just conducted our first tech leaders survey with more than 950 small and large companies. When we asked them, “How do you view the economy today?” nine out of ten said poor or only fair. So they all think it’s fairly miserable right now. But if you ask them how they saw things a year from now, about half said that they expected it to be improved for the economy in general. And then when you ask them about their own business, they were generally more optimistic—about a seventy percent figure. So they were consistently more optimistic about their own businesses than they were about the economy in general.

We asked them about challenges. Availability of capital was number one on the list. They don’t see that getting any better, at least for the short term. On the talent side, they see it as a great time to find it. And they said when they need people they are finding really good people.

JA: We had the perennial issues that always come up—health care costs, talent attraction and government regulations. But talent attraction really surprised me. When you wouldn’t think that would be a high priority, it still is. I think what happens is that during a recession that issue gets masked. We don’t think as much about the labor shortage we’re going to be faced with when we do start coming out.

DS: We just did some recruiting and we had the best pool of applicants we’ve had in recent memory.

TC: We do have some great talent here. We invest a tremendous amount of money in the schools, universities and technical colleges around the state, and it’s not wasted but we’re watching that investment walk away if we can’t develop the opportunities here.

DS: If I were filling out that survey I’d definitely say I’m feeling more optimistic about 2010—cautiously optimistic. Rather than make one plan we have four. We monitor the plans quarterly, monthly and weekly. I’m finding that our backlog going into the third or fourth quarter is already better than it was at this point in time last year.

Is there any sort of an environment for innovation or new opportunities right now?

GD: Nationally when you look at the credit markets there are going to be some innovative individuals who will come up with solutions to fill gaps that exist right now. How that applies locally and to individuals—I think that’s going to be more limited. The need to access affordable capital is the key to seeing a lot of new ideas. There is a de-leveraging that continues to take place across the world and it’s still continuing.

JA: One of the things I think this region has an advantage in is its culture of innovation. I think it’s attractive for capital and for businesses … I’m pretty excited about the urban incubator—the metro innovation center. We should be paying close attention to what’s coming out of that. The young workforce and how interested they are in entrepreneurship is very exciting and something I haven’t seen before.

TC: That tiny little incubator could become a kernel to build a whole corridor around. That whole East Washington corridor with the closing of the auto dealers and others—all of a sudden we have a redevelopment potential to really define what the downtown area is going to be. When you look at the opportunities we have at Royster Clark, Garver Feed Mill, and the plan for University Research Park II, I don’t know if there’s ever been a period in Madison’s history when we’ve had so much.

The potential is here and I think we’re coalescing around what that vision is. I think the groups—business, government and education—are coming together to make it move ahead.

What are you keeping an eye on in the federal health care reform debate?

TC: The health care cluster is so important to Madison. But when you look at the services in particular, which I think are going to be impacted first, we’ve almost got a closed system of insurance companies, doctor groups and hospitals. It’s going to be interesting to see what those proposals are and how they’re going to have an effect on us.

JA: With five payer-and-provider combos that allow for integrated health care, it gives our region an edge and is so important.

TC: Then you’ve got Epic, which stands to be a big winner. Suppliers like TomoTherapy, whether or not the access to advanced scans is going to be curtailed or opened up under cost containment. I think the tough decisions are going to have to be made in Washington, and if they can do it then really be aware of the ramifications here.

GD: I remember the chilling effect when we were looking at “Hillary Health Care.” There was a real dampening because of uncertainties … So getting health care transactions done became very difficult because nobody was going to bet on the future. I think the challenge is the end result might be great but it’s a question of the unintended consequences. You throw in the economic climate and the regulatory and legislative risk on top of that. For a lender or anybody providing capital into that industry it’s going to be a tough place to play if they don’t make a decision in short order.

How do the media messages compare or contrast with your own reality or perspective?

JA: In our survey we asked about challenges. One of five themes was public fear—the role of the media and its impact on the consumer.

DS: For several years now, we’ve had the “80/20 Rule”: four states are causing eighty percent of the housing-related problems. Early on there wasn’t good reporting on what was happening locally. I sat the editors of both papers down and said, “Here’s the exact same story, look at the headline in Milwaukee: half-full. Look at your headline: half-empty.” Same stuff. We need to think about the realities here.

It is important because we are in a better spot, there’s no question. We’ve lost jobs and I understand that. It’s just that fear of, “Will I lose mine?” How do you deal with the fear factor and give people confidence that there’s some stability in this local economy? How do we get that message out?

In terms of a road to recovery, what’s the message to business as well as to the broader community?

JA: In our preliminary survey results, forty-five percent of companies say they’re doing the same or better than before the recession and about fifty-five percent are doing worse. There are so many stories that aren’t getting told and largely because they’re keeping their heads down because they see what others are going through. You don’t have to be ashamed to be doing well.

TS: It’s OK to crawl out from under the desk.

DS: It will cycle, it will come back.

GD: If you compare this recession to the early ’80s we’ve not had as many quarters of negative GDP, unemployment has not been as high, and we’re not dealing with high inflation.

The opportunity for people is to get in on the front end. It would be interesting to look at popular confidence during other significant recessions to get a sense of what happens if you miss the boat.

DS: There are significant opportunities. It’s finding the right time to jump in. We have buyers now that are doing that. They feel that the bottom is here, they feel more secure that prices aren’t falling like they have been across the rest of the country.

GD: My concern for the future is not whether the economy is going to recover, it’s how bad we screw it up legislatively. Everybody’s out there trying to save the public from themselves and do good, but a lot of these things are going to backfire … The problem that led to the housing crisis was the unregulated portions of the industry—mortgage baking, the appraisal process, the payday loans—folks that didn’t have skin in the game. But what’s being proposed is legislation that’s going to impact everybody, and what you’re going to do is further crimp sources of capital to businesses from legitimate sources to try to protect this one niche that was under-regulated.

TC: We really do have to take a look at the consequences during a growth period. Unintended consequences have a way of coming up and biting you.

Neil Heinen is editorial director and Brennan Nardi is editor of Madison Magazine.

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