Ka-boom! Looks like the economy is finally growing—and guess what's leading the way?

Entrepreneur, August, 2004 by Mike Hogan

THE BEAN COUNTERS FINALLY AGREE: We're knee-deep in magic beans already, and they're going to keep piling up. As the American economy surges forward, technology, as usual, is a catalyst for market expansion, new market creation and more efficient ways of doing business.

America's gross domestic product (GDP) is growing at a 4 to 5 percent annual rate, which doesn't sound like much after the spend-a-thon heading into Y2K. But GDP growth averaged 34 percent during the '80s and '90s, the longest-running economic boom in our history.

The U.S. Bureau of Labor Statistics (BLS) figures that business productivity growth, which averaged a sizzling 5.5 percent over the past two years, will settle down to a still-healthy 4 percent-plus this year. Having trimmed most unnecessary costs, businesses are now turning to capital investment and hiring to keep up with rising factory orders and consumer demand. Capital expenditures started rising again this spring for the first time since 2001, reports financial information provider Thomson Financial, while the BLS reports almost 300,000 new jobs are being created monthly.

As for fear factors: The nation's core lending rate appears ready to budge off its 46-year low into merely fantastic territory. The rationale? Inflation, which hasn't been out of the low single digits since our recent high school grads were in diapers. But let's pretend we believe in the boogeyman that Federal Reserve Chairman Alan Greenspan likes to scare Wall Street with--BLS still predicts productivity will outpace the Consumer Price Index for real net economic improvement.

Suffice it to say that the entrepreneurial traffic light is bright green. Is your business ready to go? You've been tightening your belt and learning to do more with less for the past few years, and the consumer press is still dishing doom and gloom.

But what if you have someone like CEO John Edwardson of IT product distributor CDW in your market? He's been leaning forward since last summer, acquiring one of his competitors and adding sales staff. Sales and net profits for CDW, based in Vernon Hills, Illinois, jumped 31 percent in the first quarter of 2004, compared to the first quarter of 2003, and its free cash almost doubled.

"We're pleased with our progress in taking market share from our competitors," says Edwardson. "We figured, we have less than 5 percent of a $140 billion market, so what are we waiting for? Let's go get some business."

Now, that's something to worry about. Naturally, the best time to move was while everyone else was still frozen by fear, uncertainty and doubt, But this train is just leaving the station.

Remember the Digital Economy, New Economy or Virtual Economy? Whatever you call them, they're back. The U.S. Commerce Department clocked the IT industry growing twice as fast as the overall economy at the start of the year, and subsequent sector reports and Internet advertising totals show things haven't slowed.

Granted, gross margins are fairly lean in commodities like PCs, dial-up modems and basic programming. But the technology wheel is still spinning off "new" opportunities in areas like broadband, VoIP, wireless and networked home electronics. That's not new as in "just invented" but new in the sense that they've all recently achieved sufficient momentum to have a tidal impact.

Broadband, tranquil for years, has surged into more than 40 percent of American homes and three-fourths of American businesses, according to the Web traffic analysis firm Nielsen// NetRatings. That's an environmental change for Internet travelers comparable to the build out of the nationwide high-way system. Broadband also supports VoIP, which is finally gaining traction, as well as multimedia messaging and video on demand, which are coming up quickly.

Telecommunications is already the bargain of the decade. Traditionally high landline prices are losing their regulatory props and getting pressure from still-nascent VoIP. The real pressure, though, comes from consumers migrating to cell phones with providers that are dropping roaming charges and loosening usage restrictions right and left. IT and telecom research firm IDC estimates that cell phone sales, which jumped 29 percent in the first quarter of 2004, may reach 600 million units by year-end.

By then, according to IDC senior analyst Alex Slawsby, exciting features like color displays, built-in cameras and thumb-typable keyboards should attract 1,5 billion cell phone subscribers worldwide, a market primed for sophisticated mobile office applications and location-based sew ices. True, neither cellular companies nor consumers are ready to pay for true 3G bandwidth. But Slawsby expects 25G networks to keep improving to meet consumer demand for things like GPS-equipped phones.

Fast-growing 802.11x networks and hot spots could be the stopgap for broadband data transfers. We're about to see dual-radio phones, PDAs and laptops capable of transferring voice and data traffic between cellular and broadband Wi-Fi networks, says Slawsby. Similarly, while their business value is less obvious, home electronics--a vibrant market in its own right--is extending the wireless network into every room of our homes. Just starting to climb out of its eggshell: wireless broadband, the impact of which could be revolutionary.