David Sandahl, managing partner of Decision Consulting in Pennington, has been viewing the world through an economic prism since majoring in economics at Bowdoin College. For him, the severe downturn we are living through is not a surprise.
“This great recession is the product of at least a decade and maybe a generation of bad public and private choices,” he says. “We have managed to distort the economy in ways it can’t sustain itself to go forward, and we are ill-prepared for the challenges of the 21st century.”
Sandahl traces our current woes to the enormous federal budget deficit in the early 1980s and the deregulation of the savings and loans. The adjustable-rate mortgages made legal in 1982, Sandahl suggests, led to the creative approaches to finance that culminated in subprime mortgages and eventually the subprime disaster.
The problem, says Sandahl, was that policy makers convinced themselves of three ideas that were, in actuality, fallacies: that deficits don’t matter; that financial markets will regulate themselves; and that housing prices will always go up. “If you believe these, you could believe that the kind of economic activities we engaged in during the past decade were healthy,” says Sandahl.
Although the economy did grow between 2000 and 2009, the numbers behind the gross domestic product tell an alarming story. They revealed a shift away from business investment in equipment and software and toward residential and commercial real estate investment.
People were flipping homes and living a home-equity-based lifestyle, says Sandahl; and at the top of the food chain were supposedly risk-free mortgage-based securities that actually were very risky.
But Sandahl does not spend his time bemoaning the past. Instead he founded the Princeton Job Creation Forum to marry creative business ideas and the financing that will get them off the ground. He got the idea for the forum while participating in a task force set up by the state of New Jersey to monitor its spending of federal stimulus money.
Listening to a presentation by heads of state agencies, Sandahl realized that although the stimulus did stop the decline of the economy, government was limited in what it could do to make the economy grow. Furthermore, the economy could no longer rely on consumers — they no longer have the same access to credit and can no longer depend on a rise in the value of their homes to support purchases.
Sandahl will present “Getting It Right This Time: Accelerating Economic Sustainable Growth” on Thursday, January 7, at 11:30 a.m. before the Princeton Regional Chamber of Commerce at the Princeton Marriott. Cost: $50. For information, call 609-924-1776, or visit www.princetonchamber.org.
The gross domestic product dropped 9 percent over the decade, leaving a huge gap between what the overall economy should be and what it is. Much of the activity lost in this enormous reduction will never come back, Sandahl says, noting that 500 mortgage companies have gone out of business. He adds that residential real estate and construction will not return to peak levels for decades, if ever.
Despite this rocky economic present, Sandahl is hopeful that the development of new, innovative businesses and product lines will yield the job growth our economy needs.
The solution is to create new business, usually based on technology, that produces real value and increases productivity in things people care about. China, for example, decided to go into the manufacture of solar panels and created an entire university to train the engineers to create them.
Sandahl outlines three broad swaths of opportunity where new and existing businesses can respond to 21st century challenges:
Green tech. “If you can come up with a smart way to improve energy efficiency in homes by 30 percent, you have a great business proposition,” says Sandahl. Princeton Air Conditioning, 39 Everett Drive, dove into this new area when its owner, Scott Needham, saw the air-conditioning business turning down; he created a new business unit to do energy assessment and retrofits. Business is booming, and Needham has hired nine new employees, says Sandahl, who had to wait until the new year for an assessment on his own house, because appointments were fully booked.
Health care. Better care for patients and better therapies that prevent disease are a good first step. Viocare, based at 145 Witherspoon Street, took software that tracks an individual’s nutrition and activity and turned it into a community-based wellness program for Princeton. After signing up for the service, a person sets goals, monitors activities, and after earning enough points can take advantage of incentives offered by restaurants and other organizations.
Smart infrastructure. One focus, says Sandahl, will be the creation of a smart electric grid using the Internet to replace the current one, which was designed by Thomas Edison. The new grid will use information technology to shift supply and demand around the grid as needed, ultimately requiring less energy production.
Another growing area is high-speed rail, which we are already starting to see in the Northeast corridor, California, and Chicago.
To aid job growth in these areas, Sandahl established the Princeton Job Creation Forum, which seeks to match investable funds from a variety of sources with new business ideas — “companies that might be in a garage, have incorporated, and have a business plan and little bit of financing, but not enough money to get to a commercial scale,” says Sandahl.
Money made available through the forum will enable these companies to hire more people and experience a faster rate of growth. “One of the advantages that the Princeton area has is a lot of smart people and a lot of investable capital,” he says.
Another goal is to encourage existing businesses to grow by adopting or helping to create new businesses in these areas of opportunity. Suppose an established company in the healthcare business finds a technology that markedly improves the administration of dialysis through a 40-fold improvement in the efficiency of the equipment. “Take a chance on it,” says Sandahl. “It might be a relatively small amount of money for you in terms of your product line and an easy way for you to get into a new line of business.”
Sandahl grew up in Morristown, where his father, inventor of the first fiber-optic connector, was a researcher at Bell Labs for 31 years. The fibers, a strand of glass the width of a human hair, and his father’s connectors made it possible to send signals along fiber-optic networks. His mother started her career as an elementary teacher and then became a specialist in learning disabilities, including assessment.
Sandahl graduated from Bowdoin College in 1976, with a bachelor’s in economics. During college he interned for the newly formed budget committee of the U.S. Senate and observed firsthand the lack of understanding between the public and private sectors. As a result, he decided to get a master’s degree in public and private management at Yale.
His first formal position was with the White House Office of Management and Budget, where he stayed for six years, two years under Jimmy Carter and four under Ronald Reagan. “The OMB was considered to be like a graduate school for people in policy and public choices,” he says. “I have often been told that a year there is worth two years of graduate work.” He emphasizes that he was a career civil servant. “We believed in neutral advice,” he says. “We gave policymakers the best advice, and it was up to them to make the choices.”
In 1984 Sandahl moved into the private sector, where he did acquisitions analysis for Boice Dunham in New York City. Although he gained a good understanding of what people look for in terms of value, that period was one of the great “go-go” times, he says. “If you advised a client not to do something on a financial and economic basis, they often went ahead and did it anyway.”
In 1987 he moved to Kepner Trego’s strategy practice in Princeton, where he helped clients shape and implement business strategy. Using the same principles, he worked in a variety of venues, including Fortune 50 companies, the American Heart Association, and even a group of Catholic priests.
In 2004 Sandahl started Decision Consulting, where he advises senior executives on strategy implementation. “You can’t hire out to a consultant to say this is what you should do,” he says.
A friend told him that he functions like a Sherpa guide helping people who want to climb the mountain by telling them which paths to take and which to avoid.
On Tuesday, January 26, the PJCF will bring together banks, venture capitalists, private equity, private investors, and corporate development with people who have good ideas at a “speed dating for money” event at Princeton University. “On that date two dozen new businesses will have the opportunity to meet two dozen different sources of finance in two hours,” says Sandahl. “You have five minutes to explain your business and start a relationship with that potential investor.”
At least a dozen businesses have registered by completing a two-page summary business plan. To find out more about the event, go to pjcf.org or contact Sandahl at 609-818-0595 or email@example.com.
Creating jobs is a challenge we face as a nation, and Sandahl believes the fastest way to raise employment is to grow small business. “I have completely convinced myself that unless we start innovating and investing in the good old-fashioned, capitalist way,” he says, “we will be left in the dust by other countries.”