Optimistic outlook from Houston business chiefs in survey

Editor's note: this article originally appeared in the Houston Business Journal

Houston has one of the most diverse economies in the country. Historically known as an oil and gas powerhouse, the city has evolved into a hotbed for a wide range of industries, including aerospace and aviation, advanced manufacturing, digital technology, transportation and logistics and life sciences and biotechnology.

This diversity is perhaps one reason 90% of Houston businesses surveyed in Capital One’s recent business pulse survey feel conditions in their area are “good” or “excellent,” compared with 58% nationally.

Eighty percent of respondents said they are doing “much” or “somewhat” better than they were 6 months ago, compared with just 55% nationally. Challenges persist, however, and at the top of the list sits inflation, technology integration and supply–chain issues.

“The survey’s results reiterate what we know to be true here in Houston—local business owners are optimistic about the economic outlook, and, overall, feel more optimistic than business owners nationwide,” said Yasmin Huebinger, middle-market banking senior vice president with Capital One’s corporate banking group and the company's Houston market president. “This robust local business environment is apparent to our commercial banking team, who are continuing to partner with middle market companies as they determine how to achieve their goals amidst change and uncertainty.”

Capital One worked with Morning Consult, a provider of specialized research and intelligence, to develop the survey about perceived opportunities and challenges facing middle market business leaders. The self-reported, anonymous survey, conducted March 2–13 by Morning Consult, had participation from 405 middle market decision-makers across the U.S., and another 205 from the Houston area. The margin of error was 5 percentage points.

Here are highlights from the survey, along with insights into proactive steps business leaders are taking to grow, navigate today’s challenges, mitigate risk and prepare for the future.

In an ongoing attempt to cool inflation, in July the Federal Reserve raised interest rates another quarter of a percentage point, taking the benchmark borrowing costs to their highest levels in more than 22 years.

Some of the top steps survey respondents in Houston are taking to navigate rising interest rates include:

• 40% are increasing prices to business partners and customers to keep revenue stable.
• 38% are working with their strategic financial adviser to restructure debt.
• 36% are stress testing their business to see where changes are needed.
• 34% are evaluating paying off high-interest debt versus earning a higher yield on cash balances.
• 30% are in discussions with or relying on advice from a strategic financial advisor.
• 29% are working with treasury management specialists to review the cash conversion cycle.

“As bankers, we believe in the power of being proactive business partners. It is no longer sufficient to simply provide finance services,” said Steve Hemperley, head of regional commercial banking at Capital One. “We must engage with our clients to understand their goals, challenges and ambitions to provide strategic solutions that deal with both opportunities and challenges.”

Businesses across the U.S. learned to pivot in 2020 when the pandemic changed life as we knew it. They implemented new technologies for remote work, changed service delivery models and created new business lines to cater to people spending more time at home. Even though the pandemic has subsided, being nimble to adjust to changing economic conditions has not. The survey found Houston businesses are continuing to pivot operations in new growth areas, investing in technology and diversifying lines of business and sources of cash flow.

Houston companies are investing the most in:

• New product development—51% are spending $100,000 or more and 27% are spending at least $500,000.
• Merger and acquisition opportunities—51% are spending $100,000 or more and 21% are spending at least $500,000.

“Houston businesses aren’t standing by—they’re investing for the future to position themselves to seize new opportunities,” Huebinger said. “This translates to 79% of Houston business leaders feeling they are prepared to achieve their goals in 2023.”

Stress tests are commonly used by financial institutions as risk management tools to determine whether they have enough capital on hand to withstand negative economic events. However, businesses should consider putting themselves to these types of tests, too.

According to Harvard Business Review, “a stress test can help you home in on the most important issues to address, whatever the economic climate.”

Harvard Business School professor Robert Simons identified 7 questions all executives should ask to ensure the success of their business strategies. They are meant to identify confusion, inefficiencies and weaknesses.

1. Who is your primary customer?
2. How do your core values prioritize shareholders, employees and customers?
3. What critical performance variables are you tracking?
4. What strategic boundaries have you set?
5. How are you generating creative tension?
6. How committed are your employees to helping each other?
7. What strategic uncertainties keep you awake at night?

“There is no magic bullet that can zero in on the pitfalls of your business strategy,” Simons wrote. “There is only one route to success: You must engage in ongoing, face-to-face debate with the people around you about emerging data, unspoken assumptions, difficult choices, and, ultimately, action plans. You and they should be able to give clear, consistent answers to the seven questions posed above. Only then can you be confident that your strategy is on track.”

When there’s economic uncertainty, many business leaders look to their bank for more than just transactional services.

“We are a financial partner that leverages our deep understanding of clients' businesses and needs to deliver reliability and flexibility in helping our clients grow,” said Bob McCarrick, head of middle market banking at Capital One.

With Capital One, businesses can leverage dedicated teams that offer tailored services and products to businesses, such as industry-specific financing options. The bank also provides a variety of resources with insights on topics like adding value and automation, customizing commercial real estate financing options, diversifying suppliers, fraud protection, stress testing potential disruptions and building resilience into business processes.

“Our mission is to support growth and employment in the U.S. economy by being the premier provider of banking services to companies in the middle market,” McCarrick said. “Our middle market focus is driven by the critical role these companies play in the U.S. economy—supporting growth and employment.”

Learn more about solutions Capital One offers to help Houston businesses execute their growth plans.