Even though the economy is growing nationwide, some industries are remaining careful about growth.

Risk Averse or Proceeding With Caution?

  • 9/6/2012

Mike Mittler has been in business for more than 30 years, and he’d never experienced anything like it. The co-founder and CEO of Mittler Bros. Machine and Tool, a precision design and manufacturing firm based in Wright City, Missouri, says the Great Recession hit his 60-employee company hard.

“In all my years in business, 2008 was our absolute worst year ever,” Mittler recalls. “We had to make reductions in our workforce. … It was one of the most difficult things I have ever had to do.”

But four years later, the Great Recession appears to be in the rearview mirror for Mittler. Customers are returning with orders, employees are back at work, and he’s even upgrading his equipment.

“It’s behind us for now,” he says with a chuckle. “Building up to 2011, our business started to pick up, and it kept going up throughout the year. Now 2012 is off to a roaring start.”

Mittler and his company appear to be riding the same recovery wave that others in the manufacturing industry are benefitting from, explains Brent Terhaar, a partner in CliftonLarsonAllen the firm’s manufacturing and distribution group.

Terhaar says, “Some of our manufacturing clients are seeing backlogs — something that hasn’t happened for years. Their shops are truly busy.”

Even though manufacturing is picking up nationwide, Terhaar says many of his clients — still humbled by the Great Recession — are remaining careful about growth, rehiring at a slower pace, and limiting technology investments until they cannot be avoided. Because the economic downturn was so severe, many employers remain risk-averse, he explains.

A slow recovery

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This type of behavior could slow the overall economic recovery, warns Ernie Goss, the Jack MacAllister Chair of Regional Economics at Creighton University in Omaha, Nebraska, and director of the Mid-America Survey of Business Conditions.

“We’re not seeing the hiring that you’d normally see coming out of a deep recession,” Goss says. “I have heard the absurd comment that because it was such a deep recession the rebound won’t be as strong, but in a normal economy it wouldn’t work that way. It should be the opposite. I think the problem is that many employers are still mired in fear.”

If it’s not fear, then it’s caution that’s motivating his clients to take a measured approach to recovery, Terhaar observes.

“These businesses are hiring when they can, but they are being more careful about building up than they ever were before,” he says. “They are also being more calculated in their willingness to invest in growth in terms of fixed infrastructure.”

Caution may be a smart individual business decision, Goss warns, but because all segments of our economy are so interconnected today, the nation needs business owners from across the spectrum to step forward and get the ball rolling.

“We need some risk-takers,” he says. “The heroes in this economy are the folks who are willing to step out and make the recovery happen.”

Risk and survival

Risk-taking is the farthest thing from employer’s minds in industries that have not experienced the same robust recovery as the manufacturing industry. Employers in the construction trades, for instance, still feel like they have a long way to go before they reach pre-recession employment and productivity levels. And some analysts believe that business in that sector will never reach those levels again.

“Most forecasts are that 2012 is still going to be a difficult year for contractors,” says Bob Sniegowski, a CliftonLarsonAllen principal and construction consultant. “We aren’t coming out of the trough just yet. We are still at the bottom of the curve, but I think that the employers who know their costs and know who they are doing business with are going to make it out alive. Survival is about being a good manager of risk, and risk is basically what the contracting business is.”

Dave Semerad, CEO of Associated General Contractors of Minnesota, says the reason for this delayed recovery is because the construction industry fell so deeply into the hole that even with some improvement, it is still hard to see daylight.

“Nationwide, our industry has been harder hit by the recession than just about any other industry,” he explains. “We’re recovering, but it’s very slow, not at all like other industries.”

Getting people working again is key to recovery, Semerad says. But employers in the construction industry are understandably jumpy about taking risks — even though risk may be needed for future economic expansion.

Some industries, like construction, don’t have the capital to move ahead, but other employers with money squirreled away still are just fearful of getting caught in another economic spiral.

“This can’t stand for long,” Goss says. “We’ve got to take the next step.”

Perception shift

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Building confidence in the U.S. economy requires a shift in perception in the way employers view our economic future, says Jim Grosmann, director of marketing for the Independence, Ohio-based National Tooling and Machining Association.

“We’ve got serious recovery going on right now,” Grosmann says. “People in our industry are using technology to create more product than ever before. The United States is still leading the world in GDP. We’re still leading the world in production. We are doing it with less people because we keep changing our model.”

Weary employers can’t be blamed for a reluctance to step out and take business risks, Terharr says. The past few years have changed the way we all look at the world. Why would employers be any different?

“Surviving this recession has given employers a new perspective on the way they do business,” he says. “When you are forced to go down a path of reduction and are able to make it work, business owners start thinking, ‘Maybe we do need to change our minds about our hiring practices. We survived with less.’ They are getting more creative in the way they look at business, but we need to make sure that we aren’t sacrificing growth in favor of caution.”

Many construction firms survived the recession by being flexible and taking on projects with lower overhead, Sniegowski says. They thinned their workforce to only the most capable employees. That process proved it is possible for a company to reinvent itself. The reality is that the industry may never be the same — but that doesn’t have to be all bad.

“Many successful companies are taking what the market gives them,” Sniegowski says. “A company that would’ve done a couple million-dollar building in the past is taking on a $400,000 renovation. There’s much less risk with a smaller project, but there’s also more room for creativity.”

Ever the entrepreneur, Mittler appreciates a creative approach to business. His company survived the downturn by becoming leaner and waiting it out until his customers came out of hibernation. Once they were ready to do business again, Mittler wasn’t afraid to dive in and start investing in growth.

“I’ve got entrepreneurial blood,” he says. “We don’t feel burned by the Great Recession here. It was just a time that we had to wait out. The experience didn’t make me feel risk-averse. If anything, I feel that we need to be more aggressive now to make things happen, so we can then survive the next downturn. We’ve got to make investments, make money, and save it up for tomorrow.”