In order to be successful in product development in 2022, it is important to understand the challenges that come with this process in a turbulent economy. Businesses are forced to change their strategies in order to stay afloat. This adds a layer of complexity for product developers, who already have to navigate plenty of uncharted waters in order to bring a new product to market.
However, knowledge is power. Change always creates opportunities for those savvy enough to find them. Tough times are the impetus for innovation. Below you’ll find my condensed research on the economy, global supply chain, and inflation. I pulled together multiple sources to identify key threats to businesses, timelines for recovery, and my suggestions for how to navigate this.
Let’s get real. The economy is a fickle beast right now, and it's hard to predict exactly how it will behave in the coming months and years. A recent survey from AllianzLife found that about 6 in 10 Americans consider a major recession to be "right around the corner," and their concerns for this event seem well-founded: The economy shrank during Q1, inflation has reached levels not seen since 1970 while stocks continue sliding.
SPS Global predicts about a 20-30% chance that we’ll enter a recession this year. The good news is that even though the economy dipped in Q1 of 2022, “most economists say the odds of a recession are low this year given the underlying strength of the U.S. economy. Consumers are spending, businesses are hiring and wages are growing. The labor market also remains in good shape.”
Although many retailers are reducing orders because they are sitting on a lot of inventory from last year, consumers are still spending. Speak to your retail clients and plan inventory needs with them so you aren’t caught in a situation where you cannot fill their orders in Q3 and Q4.
“Economists say recession risks are higher 2023.” The Fed has a tough job ahead in managing the interest rate without killing demand from consumers and businesses. They have to walk a fine line between reigning in inflation without killing the employment market.
"When we’re in the middle of massive change everything looks like risk. When we look at it in the rear-view mirror, all that risk looks like opportunity."
Inflation will keep causing problems all year because we’ve had way too much stimulus relative to our GDP. The challenge is there is about a 12 - 24 month time lag between a policy change and its impact on the economy. Case in point, the stimulus that hit the economy in 2019 started causing inflation in 2021.
The Fed hiked rates by 25 basis points in March and indicated an aggressive policy to follow. They were dead serious because they just hiked the benchmark interest rate by 0.75 percentage points. It’s the biggest increase since 1994. SPS Global says, “We expect seven rate hikes in total in 2022 (including a 50-bp hike), followed by four to five rate increases in 2023, to slow growth this year and the next. As inflation slows, the Fed will loosen policy with its first rate cut later in 2024.”
Businesses are grappling with how to deal with the increased cost of goods and services. Most have had to pass these costs on to consumers in the form of higher prices. But, with the economy slowing down, it’s harder to pass on costs and remain competitive.
Until February, most of our supply chain problems have been labor shortage problems caused by COVID.
Unfortunately, “Supply-chain disruptions, worsened by the Russia-Ukraine conflict, remain the largest stumbling block for the U.S. economy.” Right as we started to see some progress in the global supply chain after COVID, the conflict between Russia and Ukraine has thrown us right back into it.
Many raw materials costs have lept up again, businesses have been forced to reroute goods, energy costs are higher than ever before, and there are still major shipping challenges. However, there is a silver lining. We saw Aluminum and Steel prices drop drastically this month.
Photo Credit | Trading Economics
The good news is that Forbes is forecasting that the shipping and production issues will be slowly resolved this year. Economists are optimistic about a steady, gradual improvement through 2024. But, you should plan on intense price pressures lasting throughout 2022 and 2023 and then finally getting in line by 2024.
There is good news and bad news. It’s going to get worse before it gets better. “As supply-chain disruptions worsen, prices climb, and the Fed frontloads interest rate hikes, our U.S. GDP growth forecast is 3.2% for 2022 and 2.1% for 2023.” While those forecasts are below the targets, the forecast is still showing economic growth.
“The Federal Reserve has a huge challenge in that their policies work with time lags. The time lag from Fed action to employment is about one year, and the time lag from action to inflation is about two years.”
Photo Credit | Forbes: Economic changes in high inflation and low inflation. DR. BILL CONERLY BASED ON DATA FROM U.S. BUREAU OF ECONOMIC ANALYSIS
Entrepreneurs should plan for the economy to be more cyclical over the next few years than at any time in their careers. The booms and the busts will be bigger. You can see the difference in GDP growth between the stable growth period of 2010-2019 and the volatile, inflationary period between 1973-1982 in the graph above. Buckle up :)
There are a couple of different scenarios that could impact us for better or worse in the next couple of years. The worst case sees the GDP growth slowing to 1.4% in 2023 or worse because of supply chain disruptions made worse by the Russia-Ukraine war.
A much better scenario - for so many reasons - would be a resolution to the Russia-Ukraine war that could “ease inflation as commodity prices stabilize allowing the Fed to slow monetary tightening.”
The economy will slow in 2022, but is not likely to enter a recession.
The risk of a recession is higher in 2023.
Consumer spending does remain strong right now despite inflation.
Inflation will remain high through 2024.
If you only watch two metrics, watch the employment rate and interest rate.
Policy changes take about 1 year to impact the employment rate and 2 years to impact inflation.
The supply chain should gradually improve between now and 2024.
Plan for the economy to be very volatile through 2028. There will be booms and busts.
Patrick Campbell—founder and CEO of ProfitWell analyzed 23,000 companies to see what is really going on with the economy right now. He lays out some smart strategies for any business to follow on his Twitter post including:
Audit all expenses. We're all paying for things we shouldn't.
Re-evaluate all non-core projects. It's hard. You need to make long-term bets, but scrutinize everything
Unfortunately, cutting expenses and re-evaluating projects definitely adds complexity for product developers who already have to navigate plenty of uncharted waters in order to bring new products to market.
However, knowledge is power. Change always creates opportunities for those savvy enough to find them. Tough times are the impetus for innovation. Given the impact of the economy on product development, here are six challenges product managers should anticipate when the economy struggles.
Increased competition: In a struggling economy, some competitors will cut their prices or dump inventory in order to survive. This can lead to increased pressure on margins for product managers who have not carved out a unique enough competitive advantage.
Decreased budgets: When business leaders feel pressured to cut costs, they are often tempted to cut product development budgets. This obviously makes it more difficult to bring new products to market and sets them up for failure as the economy recovers.
Changing consumer habits: When the economy is struggling, consumers tend to change their spending habits. This can present a challenge for product developers, who must anticipate these changes and tailor their products accordingly.
Supply chain disruptions: As if a turbulent economy isn’t enough, we have the added bonus of supply chain disruptions because of the war in Ukraine and lingering issues related to COVID.
Inflation: This continues to impact the cost of materials, components, shipping and packaging increase and can be a nightmare for forecasting COGS and Retail prices 12 - 18 months down the road.
Market Volatility: Plan on bigger booms and busts over the next 5 years. Keep a level head as the market moves up and down. Make strategic plans expecting these big swings.
The point of this is not to focus on doom and gloom, but to be mindful of real challenges so we can be strategic about how to overcome them. In product development, one of the most important tasks is to align all of the key stakeholders from shareholders, to leadership, to the product team, to customers on the key goals and desired outcomes of any new product.
Leaders and product managers who embrace the reality of the economy and find opportunities to help and solve problems for others where their competitors only see trouble will come out of this lightyears ahead of their competition.
But, this doesn't happen automatically. It takes an intentional approach. One of our core values at Product EVO is to Take Intentional Action. What that means for us is we keep things in perspective. We approach our work and goals with positive, focused, intentional energy, and we have motion with purpose.
With that said, here are the essential mindsets we cultivate at Product EVO that keep us centered through both the ups and the downs.
Transform challenges into opportunities: Because of these challenges, people and businesses will struggle. What I love about entrepreneurs and innovators is we are solution-focused. We want to help. We can always ask, “where is the opportunity in this problem?”
Focus on relationships: Forget about yourself and your own fears and focus on how you can help others including your customers. Sometimes the best thing you can do is forget about making a sale and focus on creating value for your customers. How can you help? What can you do for them? How can you create bigger value in your community and marketplace?
Practice independent thinking: Don’t get caught up in the anxiety or excitement of the masses. Stay focused on what you know to be true and on solving real problems for others and you will come out of any recession way ahead. Have your own vision of what the future could be and then make it happen.
Keep investing in great products: If you have a great idea, keep pursuing it. The typical development cycle is 12 months. By the time your new product gest to market, you should be timing right with the turnaround and you will be a full year ahead of your competitors.
Create great product strategies: Good strategy matters more now than ever before. You don’t have the luxury of getting this wrong. There is a HUGE opportunity in getting it right. A product strategy is your clear plan to solve an important customer problem well and profitably while building a sustainable competitive advantage given your specific resources and goals. A great product strategy will help you identify exactly what your customers are desperate for, but can’t find anywhere else. And, a great product strategy will align your team and help you know exactly what you need to deliver to your customers. It helps you improve your speed to market and marketing ROI.
Focus on gratitude: This is last, but certainly not least. During the hardest points of my life, I’ve always kept a gratitude journal of at least 3 things I’m grateful for each day. I’ve always been able to come up with three, even on the worst days. This has been one of the single most effective habits in my life of keeping me focused on what is going right and how life is working for me. Dan Sullivan says that “Eyes only see, ears only hear what the brain is looking for.” As you see more of how life is working for you, it gives you the vision and the hope to turn things around.
These mindsets will help you in any economy, but they won't cultivate themselves. It takes daily practice and intentional focus for any new mindset to be useful. One of the easiest ways to put them into practice is to pick one that stood out to you and take action on the idea it sparked. Enjoy :)