5 Impacts Greater Seattle's Innovation Economy Could Have On Your Business
A few weeks ago we announced the publication of our fourth annual Greater Seattle Innovation Ecosystem Report, an in-depth, 70-Page, guide to Greater Seattle's innovation economy. It is free and chocked full of information that could be valuable to your business, so feel free to download it. This week we want to address what the growth in the innovation economy in Seattle means to your business. Every company, whether in tech or traditional businesses, must incorporate new technologies and ways of doing business to keep up with the rapid pace of change in the innovation economy. So what does the growth in the innovation economy in Greater Seattle mean to your business and what you will you need to do differently survive and thrive in it? Here are 5 insights:
1. Increased competition for talent - Greater Seattle was one of the fastest growing regions in 2018. This had been good for those looking for jobs, but difficult for businesses to find the talent they need. Every business is feeling the squeeze to find and keep good talent. State unemployment remains low, around 3.6% in Seattle-Bellevue-Everett. Overall job growth is expected to be 2.4% state-wide in 2019 while STEM jobs grew at 8.9% in 2018 exacerbating the tight job market. With a tight job market comes wage inflation, and it is impacting every business. Since all businesses need tech professionals of some sort, it is interesting to note the median annual salary for tech professionals has risen to $125,000 not including stock and other incentives. Becoming great at hiring and retaining talent is a necessity.
2. Increased cost of doing business - Growth in Greater Seattle's population and employment has created other costs for companies as well. This year marks the sixth consecutive upward surge in housing prices, which, at 12.7% growth from the previous year, makes Greater Seattle the leader in the entire nation for the 18 months ending August of 2018 (even with recent softening). The cost of living in Seattle is now 52.8 percent higher than the nation’s average. In addition, the City’s Central Business District’s vacancy rate declined to 9.2%, a significant decrease from the 13.6% vacancy rate the CBD posted at the end of 2017. As a result, rental rates for class A and B office grew as much as 16% year over year in some areas. Tech is driving much of the growth with 7 out of 10 of the largest tenants being tech companies.
3. Greater chance of disruption to your business due to technology - Most middle market companies I know have historically been protected from the disruptions that innovation can create, however, that is changing dramatically. With Amazon in our back yard, which I believe has been fantastic for Greater Seattle, it is evident the disruption that is occurring in traditional retail, grocery, music, movies, home automation, and other industries. Also in our back yard, Expedia has disrupted travel, Glassdoor hiring, Zillow real estate, and a number of companies are reinventing areas of health care. The lesson, prepare for disruption NOW, because once it comes it is like falling off a cliff.
4. Greater need for business agility to deal with constant change - The lack of business agility is cataclysmic for companies. The statistics are daunting even for the largest companies in the US. 56% of the original Fortune 500 companies are gone - Caput! If you made it on this illustrious list you could expect to have stayed on the list for 61 years in 1955. In 2015 you could expect to stay on the list for 17 years, and we are not moving any slower in the future. Also, the adoption of technology is getting faster and faster, and the lines are blurring as to who could be your new competitors. Here is a great presentation from CB Insights on these trends. The lesson here is to learn how to effectively adapt your culture, and apply technologies to improve productivity, gather data for better decision-making, create new channels, connect better with customers, and grow new streams of revenue.
5. Requirement to be great at innovation to grow revenue - Consistently, surveys of CEOs show that the need to innovate is one of their top 1 or 2 priorities, however, in my experience company leaders don't know where to start. Most traditional middle market companies have lost the ability to innovate. They had entrepreneurial founders, grew their companies, but haven't been good at constantly identifying new ways to grow. They become good at executing but poor at innovating. Many companies seek to improve innovation by osmosis. They attempt to learn to innovate by partnering with VC firms, starting an incubator, creating an innovation lab, or creating their own VC firm. They see companies every day in Greater Seattle with new business models and technologies that are gaining customer traction, and they feel it will rub off if they can learn what these new, dynamic companies are doing. It won't. Established companies have great advantages over start-ups, however, their innovation needs to be part of an overall corporate strategy. Innovation must be for a purpose to advance the business in explicit and proactive ways. There is an approach to building the strategic innovation muscle in established companies. It is hard, but can yield significantly positive results.