Location, location, location…

Efficiency and competitiveness

It’s been a crazy, busy time for me over the past month. I’m sorry that I’ve been mostly silent here as well as on social media. It’ll all get better soon.

I’ve moved from a live-work situation in Denver’s Ballpark District to actually living and working in two different places. This is the first time I’ve done this since 2004! I have a commute and I’ve joined the throng of daily commuters. Wow. My respect for all of you has climbed stratospherically. It’s the sort of thing you quickly forget about until you have to do it once again.

My commute is short, though. It’s nearly walkable, which means it is walkable in a pinch. It’s 20 minutes on the #10 bus as well as if I bike. It’s ten minutes if I drive. I’m excited about my new office since it’s no longer in a neighborhood that causes people to look over their shoulder as they furtively glance for my doorway. (The City of Denver likes to call my old home base a “neighborhood in transition.”) Now, my office is a block away from The Brown Palace, a Denver institution, and two blocks off of the 16th Street Mall, a landmark nearly every Denver visitor and resident is familiar with. This is transformative. Come on over! It’s nice ‘round here.

Many clients I work with have to listen to my diatribe about location and urbanism. I fully confess to being an urbanist but many people misunderstand what that is. Urbanism is defined by density, not size. Many villages in New England are urban. I grew up in a small town in California that had a population of about 5000 at the time—4000 of them in suburban areas but about 1000 of them—me included—lived an urban life in the ten or so square blocks that made up the oldest part of town. If you lived there, you never looked at your car unless you were going to Bakersfield (ie, the “big city”) or to visit one of your suburban friends. I was an urban dweller in a small town.

Urbanism is important not only for cultural, culinary, and entertainment opportunities but for the larger expanse of available talent. When your business depends upon a traditional office where people come together on a regular basis nothing beats an urban area where people can walk, bike, bus, or train their way to the office.

I am quick to tie together urbanism with energy efficiency. That’s not always the case, though. One can choose to commute three miles in a Hummer. One can live wastefully anywhere. Still, the next time we find ourselves in a 2008-like doubling of energy costs that three mile commute will be a whole lot better than a 30 mile commute.

You may have noticed the substantial decline in gasoline prices recently. This has many people cheering. I’ve had a couple of calls from clients asking if they can stop worrying about energy.

No!

From a strategic standpoint, energy will only continue to become more expensive and scarce. This is especially true of fuels like gasoline and Jet A, the latter being the fuel that flies you home to visit Gran at Christmas. It’s critical, however, not to mistake tactical trends for strategic ones. The world produces a lot of liquid petroleum fuels. There will be times, at least in the next decade or so, when supply and demand get out of whack and glut the market. Keep in mind such a backflip is the natural response to consistently high prices. Production spikes as suppliers look to capitalize on high prices. Big swings in prices are nothing more than an indication of demand pushing the limits of supply. Our rapidly falling gasoline prices—and they may remain low for a year or two—are a counter-intuitive indication of an overall supply problem.

A market in equilibrium is stable. One that is unstable behaves as we have seen with gasoline. Prices have risen for years to a point where demand drops significantly. People find alternatives and then prices fall. Instability in either direction—to your advantage or against it—is a warning sign. Expect the unexpected with energy prices.

What’s the best way to protect your business from the unknowns around the price of energy? Locate your business where there is easy access to multiple transportation options. Be as close to public transportation and your face-to-face clients as possible. Yes, it’s more expensive right now to locate in these prime urban areas. But how will that “bargain” five-year lease in the suburbs look when gasoline is once again four dollars per gallon and climbing?

The average American uses twice the energy as the average European, who uses twice as much energy as the average Asian.(1) These are all modern, industrial economies so there are some wildly varying efficiencies at play. If the cost of gasoline doubles (say, from $2.50 per gallon to $5.00 per gallon), it impacts a European twice as much as an Asian and an American four times as much as an Asian.

It takes third-grade math to understand just how catastrophic that would be and who would be impacted most severely by this scenario. Our global competitiveness depends upon being able to match the efficiencies of other economies. Right now, we are near the bottom of that list when it comes to energy consumption.

Location, location, location….

(1) http://en.wikipedia.org/wiki/Listofcountriesbyenergyconsumptionper_capita

#energy #geography #globalism