Midwestern Business Challenges and Opportunities We’re Following Into 2021
At Heartland Ventures, we often see things from a different perspective due to our work connecting large Midwestern companies with technology being developed on the coasts. Here are some trends we’re following as we close one year and start another.
Sustainability is hot, but Midwestern businesses aren’t moving as quickly as the national and international dialogue
Our small to medium Midwestern business partners seem to agree that they aren’t incentivized at the moment to be the first movers on sustainability measures. Most business-to-business operations aren’t feeling the full force of consumer demand and the financial cost of making a dramatic shift in business models remains uncertain.
As policy debates heat up, it’s likely that large enterprises will need to make the first moves and pave the way for the rest of America’s economy. Change is coming, it’s just a matter of timing.
“Made in America” is set for a huge comeback in Middle America
With a global pandemic, the rise of nationalism, and trade wars, American industry (making made in America goods) has seen a resurgence. We firmly believe that American manufacturing will grow stronger. The dropping costs of automation will enable American business to become cost competitive again. The connectivity of even the smallest operators will create supply for ever increasing demand.
This year, international multi-channel supply chain risks became blatantly obvious. The importance of supply chain transparency and knowing your suppliers (and your suppliers’ suppliers) demands that businesses have contingency plans for even the most dire situations. Interstate has become safer than international.
“Can’t find the right people” is a regular lament from SME employers
The demand for skilled workers is the number one “pain point” we hear about from employers in the Heartland. Structural unemployment, meaning the mismatch between the skills that workers in the economy can offer and the skills needed by employers, continues.
Smaller markets like Elkhart, IN, home to over 80% of recreational vehicle manufacturing, are not only fiercely competitive on product and distribution, but also have to draw from a limited labor pool. Many employers have been forced to nix normally accepted hiring standards, such as background checks and drug testing.
We believe this leads to further incentives for automation in manufacturing facilities, an increase in training and upskilling for non-task-oriented work, and a dramatic shift in internal culture to promote employee retention and development. Turnover in some facilities has been as high as 400% per year, which doesn’t help the employer who needs to continue production or the employee who needs a steady job.
Safety in the workplace is essential and now part of corporate strategy
Since late March, worker safety has propelled to the top of the priority list for almost all American businesses. Whether you’re a fast-growing technology company forced to WFH or an industrial corporation closely monitoring the health of thousands of in-person workers, you’ve been forced to make shifts and investments in procedures and protocols…quickly.
Health and safety leaders in many organizations now have a seat at the table when discussing corporate strategy and future planning. We have heard that this will be a mainstay due to the increase in demand on operations and the ability to scale up to meet that demand so effectively. We anticipate that worker safety and optimizing conditions for peak performance will remain a key initiative for most industrial companies in 2021.
Privately held enterprises will move slower than publicly traded companies on diversity measures (but Heartland is here to help move them along!)
Nasdaq’s newly proposed regulations signal that board diversity may no longer be optional for publicly traded companies. These are welcome actions. Diverse companies are statistically more likely to have greater financial returns than their less-diverse industry peers. Diversity of background, gender, ethnicity, race, and thought lead to creative problem solving and stronger companies.
We believe that there will likely be a slower adoption among privately-held companies than their closely watched public counterparts. In many cases, family owned companies and single-shareholder companies are unlikely to make changes to their boards. However, with calls for racial justice, equity, and representation throughout the year in the US, customer voices and leveling policies will drive nationwide change in the future.
Flexible WFH options will become more universal post-pandemic and will force Commercial Real Estate to ‘get creative’
The most obvious business challenge to emerge during the pandemic has been the necessity for many people to remain at home and set up home offices or virtual meeting spaces. It’s tough to build a sense of camaraderie and energy outside of the traditional office setting. The Washington Post reports that ‘head of remote work’ is becoming a hot job title. Companies will need to grapple with all of this and devise ways to train, onboard, upskill, and inspire workers remotely well into next year and beyond.
This will unquestionably have an impact on the Commercial Real Estate industry where many of our partners have indicated: “now is not the time to panic, but a great time to get creative.” Large anchor tenants in buildings should remain, but we can also expect to see alterations to the way that space is leased, the length of these leases, the design and layout of the facilities, and the amenities offered.
Automation will continue to change how the world works and our future
Automation has already drastically changed our lives and how many people work across the world. It’s not just limited to robotics and heavy machinery, but process automation and the digitization of manual workflows is becoming more apparent with our corporate partners and how they make their products.
Since it’s so difficult in many industries to recruit, train, upskill, and retain strong workers, employee time needs to be used as efficiently as possible to process orders and meet demand. At Heartland, we consistently look at deals that seek to automate almost anything, from insurance paperwork to ordering a pizza, and we expect more startups to find ways to automate business practices and optimize worker time.
E-commerce logistics hubs are sprouting up across the Midwest
The connectivity of the Midwest is a huge economic driver. Heartland’s LPs are predominantly spread throughout Indiana and Ohio — both states with big logistics advantages. Indiana ranks first in going the shortest distance to reach the median center of the US population and Ohioans can reach 60% of Canadian and American customers within a day’s drive.
This makes the Heartland a natural place to strengthen logistics and distribution hubs. This “Amazon-ification” is changing how people shop and purchase goods and also the economies of many American communities. We’re hearing from our construction partners that more E-commerce hubs will be popping up across the Midwest in the years to come and traditional brick and mortar retail locations will partially transition into smaller distribution hubs for national brands.
What do Midwestern unicorns mean for markets outside of Silicon Valley?
The recent Root Insurance IPO and Olive AI’s emergence as another Columbus unicorn have shed more light on VC markets outside of Silicon Valley. These moves have brought legitimacy to tech development and investing outside of California and have shown the importance of proximity to your target customer base when scaling a company.
A diaspora of sorts is happening from Silicon Valley. Many entrepreneurs are starting businesses elsewhere, tech talent can now live and work anywhere, and VCs and companies feel as though they can build a team and operate in new home bases. The most apparent example of this trend is in Elon Musk’s move to Texas, along with Hewlett Packard and Oracle. Some of these moves relate to California’s tax rates, but culturally and economically, the shift over time eastward and southward will change how startups are born and take off.
We’re glad to be positioned as the connector between coastal tech and the American Heartland as we start a new decade.
