Encouraging the do-it-yourself economy

In case you haven’t noticed, the US economy today is actually being hit by two tsunamis at once: The Great Recession and the Great Inflection.
The Great Inflection is the mass diffusion of low-cost, high-powered innovation technologies — from hand-held computers to websites that offer any imaginable service — plus cheap connectivity. They are transforming how business is done. The Great Recession you know.
The “good news” is that the Great Recession is forcing companies to take advantage of the Great Inflection faster than ever, making them more innovative. The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need.
Two examples, one small, one large: The first is my childhood friend, Ken Greer, who owns a marketing agency in Minneapolis, Greer & Associates. The Great Recession has forced him to radically downsize, but the Great Inflection has made him radically more productive. He illustrated this by telling me about a film he recently made for a non-profit.
“The budget was about 20 per cent of what we normally would charge”, said Greer. “After one meeting with the client, almost all our communication was by email. The script was developed and approved using a collaborative tool provided by www.box.net. Internally, we all could look at the script no matter where we were, make suggestions and get to a final draft with complete transparency — easy, convenient and free. We did not have a budget to shoot new footage, yet we had no budget either for stock photography the old way — paying royalties of $100 to $2,000 per image. We found a source, istockphoto.com, which offered great photos for as little as a few dollars.
“We could easily preview all the images, place them in our programme to make sure they worked, purchase them online and download the high-resolution versions — all in seconds”, Greer added. “We had a script that called for four to five voices. Rather than hiring local voice talent — for $250 to $500 per hour — we searched the Internet for high-quality voices that we could afford. We found several sites offering various forms of narration or voice-overs. We selected www.voices.com. In less than one minute, we created an account, posted our requirements and solicited bids. Within five minutes, we had 10 to 15 ‘applicants’” — charging 10 per cent of what Greer would have paid live talent.
“Best part”, he said, “within minutes we had sample reads, which could be placed into our film to see if the voices fit. We selected our finalists, wrote them with more specific instructions and within hours had the final read delivered to us via MP3 files over the Web. We could get any accent or ethnicity we wanted. For music, we used a site called www.audiojungle.net”, where he could sample thousands of cuts of music and sound effects with the click of a mouse, and then buy them for pennies.
By being able to access all these cheap tools, Greer got to focus on his value-add: imagination. The customer got a better product for less money. But he didn’t create many new jobs. For that, he needs the economy to pick up. “If we could only borrow a buck and invest”, said Greer, “we’d all be rolling again”.
Mr Farooq Kathwari, the longtime CEO of Ethan Allen Interiors, had to accelerate reinvention of his company for the same reasons. In the last year, he reduced his workforce by 25 per cent and consolidated several US manufacturing plants, including transferring all upholstery manufacturing into a large state-of-the-art facility in North Carolina, enabling Ethan Allen to substantially decrease its production time. The most labour-intensive upholstery work is done in the company’s new plant in Mexico, and the components are shipped to the North Carolina facility for completion.
“Five years ago”, said Kathwari, “it would take about 20 hours of labour time to make a high-quality custom sofa. Now, due to our investments in technology and a smaller workforce that is more highly skilled, the labour time to make this sofa is about three hours”.
Everywhere he can, Kathwari says he is leveraging technology to cut costs and improve quality to retain his competitive position in world markets. This enabled Ethan Allen to maintain sufficient cash to survive. “We now produce all our advertising programmes in-house, including national television commercials, at a fraction of the cost we spent a few years back — just as your friend is doing”, said Kathwari. “Our associates recognise that reinvention is vital to our survival”.
Given its new state of hyperefficiency, any uptick in business would really help Ethan Allen’s bottom line and stimulate hiring, but that requires credit markets to loosen for its customers and store owners. Said Kathwari, “Credit is still a vital issue, and it is not happening at the grassroots level — or when it is, it is very expensive”.
Strange times: The Great Recession and Great Inflection are making our companies ultralean, innovative and productive. But with credit still constricted, we’re like a superfit track star with a weak heart. We’ve got to get credit pumping to our industrial muscles again.