One Step Ahead

Hard Economic Times Make SI Smarter

By Shahvar Pirouznia, Balance Automation Solutions

Last year started out with a bang. But as the year progressed, our backlog shrunk and those ever-important requests for quotes gradually started diminishing. We saw the signs of a slowdown, but we didn’t react fast enough to the changes and our customers’ needs.

As a result, the last quarter of the calendar year negated much of the gains of earlier in the year. So we sat in meetings and discussed the future of our business and the market, and our thoughts ranged from the typical head-count reduction to completely changing our business direction. Our goal was simple: stay ahead of what we thought would be significant changes in 2008.

Many of the changes are out of our control. The significant surges in commodity prices and the materials derived from these commodities resulted in price increases in most of the components that go into our custom automation designs.

As a small-sized system integrator, we have to pass these price increases to our customers. We’ve noticed that some of our larger suppliers have kept their prices steady, but most have passed them on to us.

Looking at the big picture, the increase in commodity prices puts a strain on the profitability of our customers, possibly resulting in project delays or cancellations. At the consumer level, pricing pressures, inflation and job losses result in tighter spending habits and reduce the dollar outflow that keeps our economy humming. We’re all familiar with this trickle-down effect because we’re living it today.

We pulled through last year and can report a strong and solid 2008 so far. But this is a changing market, particularly for smaller custom integrators like us. The hardships of last year shaped us into a company that stays more informed of changes and in spending and market trends. It’s forcing us to be better businesspeople.

In a difficult business climate, negative news typically seems to be more visible than positive news. However, as business owners we know that business cycles are just that, cycles. Our job in tough economic times is to find the current and future markets and trends that will allow us to continue growing our business and maintaining our profitability.

Some hold a long-term view that higher oil and gas prices, which are tough to deal with now, ultimately will result in the development of new technologies. Cleaner cars will reduce the widespread use of internal combustion engines. Generally speaking, these folks believe replacing fossil fuels with alternative sources of energy will create more engineering jobs and opportunities in the future.

Our short-term view is there are market sectors worth penetrating. The alternative energy industry in particular is a relatively young growth industry facing a largely untapped market. It appears it's ready to ramp up to meet a surge in demand that will result from an extension and increase in U.S. subsidies.

I’ve read that China has efforts in place to increase the use of solar power. We also have been approached by some international companies and have the impression that perhaps international markets are a bit stronger than the U.S. market for automation needs.

As we progress through the second half of this year, we plan to stay the course while monitoring the market and our customers. We will look for changes and opportunities where we can provide significant added value. We also plan to stay abreast of new technologies.

The main lesson learned from last year is that we need to continuously evaluate our business model so that we can at least keep pace with changes that are out of our control.

Shahvar Pirouznia is founder and engineering manager at Balance Automation Solutions (balanceautomation.com), a material-handling equipment designer and builder in Longmont, Colo.

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