Opportunities for Startups During a Recession
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Doug Richard talks about starting up in a recession.
Following the financial crises of 2008, 2009 looks set to be another difficult year for the global economy with severe implications for the UK. With the newspapers filled with doom and gloom, you could be forgiven for thinking that now is not a good time to be thinking of starting your own business. However, technology entrepreneur Doug Richard disagrees, saying: "Businesses can start in a downturn – they don't have to start in an upturn[1]".
This page considers some of the opportunities presented to entrepreneurs during a downturn. In addition you may wish to think about Staying Strong in a Recession.
During a recession, the environment in which you operate will undergo a period of immense change. Not all of this is bad. If you think of a recession as a period in which the economy is setting itself up for the next spell of prosperity, you will understand why. The main opportunity presented by a recession then, is to position your venture to take advantage of the new world in which you will be operating afterwards. John Baldoni of Harvard Business Publishing its important to focus on three things: the organization, the customer and the long-term prospects of your venture[2].
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Know Your Market
Research your market carefully and be critical of your planning. Spot the gaps as they arise: as the economy changes, some gaps will open up in your market, others may close. You need to be able to respond to these changes in order to take advantage of them.
Perhaps you can diversify by launching a cut-price, no frills, version of your product or services. If you are marketing you product or service to younger people, do you have something to offer to older people as well? And finally, as other’s fail, customers will be left behind: do any of these present opportunities to you?
Positioning and Strategy
Michael Clouser, of the Edinburgh-Stanford Link at the University of Edinburgh, discussed opportunities for entrepreneurs in a down-turn economy in a recent presentation to the Edinburgh Entrepreneurship Club (E-Club). He outlined three positions that entrepreneurs could assume in the face of a recession, and the strategies that they could develop with regards to the growth of their ventures based on those positions. [3]
The first position that an entrepreneur can take - what Clouser refers to as "Mowing the Valley," follows from an assumption (hopefully an educated one) that the recession will be a long, drawn out one. A strategy that one might take would be to stay in the valley, stay local, and work on building a small yet solid foundation business.[3]
The second position, "Skiing the Slope," is based on an assumption of a worsening recession and would likely correspond to a short-sell strategy. The third, "Rising with the Tide," assumes exactly what the name suggests - a slow, gradual recovery, which would lead to a similar business strategy.[3]
The final position assumes that the recovery, when it happens, will be a rapid one, and will require a "Climb the Mountain" position and subsequent strategy. [3]With each of these positions and strategies, Clouser emphasises that it is up to you to make your own assumptions based on thorough research and analysis of the economic conditions.[3] The good news, he points out, is that in a recession there is a greater correlation between hard-work, long hours, and success. While these factors always contribute to success, in a down economy their effect is magnified. [3] He also advises the use of creative compensation and rewards to help run a more frugal business; rather than relying on cash rewards for employees, offer non-cash compensation in the form of equity, flexible work schedules, work-from-home options, job-sharing, and non-paid holidays. [3]
Going Green
Green fever is sweeping through the valley! In a recent seminar given for Informatics Venutres at the University of Edinburgh, Alison van Diggelen pointed out that many in California's Silicon Valley are looking towards so-called green technologies to lead them out of the recession. And perhaps the hope is not entirely unfounded: an article in the physics and technology periodical PhysOrg.com pointed out that investment in "clean" technologies has risen 94% since 2005[4].
You could object—and rightfully so—that in Europe we have been championing green technology for many years now. And perhaps because of this we are well positioned to take advantage of the opportunities presented by the rising importance of environmental sustainability. in Scotland alone, there are a number of companies specializing in areas such as energy management systems, thermal imaging and battery management. For more information on green enterprise and on environmental sustainability, see our Green_Enterprises pages.
Web 2.0
In a recent article in the Financial Times, John Newton, CTO and chairman of Alfresco discusses the current state of the web and the opportunities it presents[5], and whilst he does concede there will probably be some pain to come, there are also many reasons to be optimistic. One of those reasons are technologies known as Web 2.0.
Web 2.0 refers to the rise of collaborative and communicative web-based projects, such as FaceBook and Wikipedia and the last few years has seen a staggering increase in the usage of these sites by all types of people. In January 2009, BBC News reported a 1000% rise in the number of people using the micro-blogging site Twitter in the UK[6].
So what comes next? Newton points out the prominence of open source software in the new technologies, and this means that the value of these sites lies not so much in developing original software, but in being able to combine the ideas of others to produce something unique.
According to Newton, Web 2.0 has never been more alive. There are numerous opportunities to capitalize on new Internet technologies such as the next-generation broadband now being trialled in London[7]. Perhaps during the current downturn, entrepreneurs and small businesses can start to identify these and position themselves to take advantage of them as things start to pick up.
Hills and Valleys
Michael Clouser described some of the major advantages and disadvantages that entrepreneurs come across in situations such as the current economic recession; the disadvantages might seem obvious and difficult to overcome, such as a drying up of available capital and weakening of exit strategies, and of course the struggling financial situation of customers. However, the advantages can be significantly greater to the determined entrepreneur. [3]
"Changing climates," Clouser notes, "create new opportunity." [3] The competition lessens, as does turnover, while at the same time the cost of talent decreases and availability increases. What this means is that if you are able to create a solution to one of the many concerns or problems identified in a down-turn economy, you can capitalise on the conditions of that economy to spur your venture on to success. One specific and incredibly successful example of a venture that was launched in a down economy, Clouser points out, is Google. It's hard to believe now, but Google was just another search engine when it started, and it was launched during a period of disillusionment with the dot com industry! [3]
The Weak Pound
When the pound is weak there are opportunities to look beyond the domestic market as goods and
References
- ↑ Small firms can breathe life back into economy says 'dragon' Richard, The Scotsman 18/11/2008 [1]
- ↑ Frame This Crisis to Your Advantage, Harvard Business Publishing Blog 23/03/2009 [2]
- ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 Michael Clouser, Opportunity Landscapes for Entrepreneurs in a Down Economy, Presentation to Edinburgh Entrepreneurship Club - February 2009
- ↑ Green tech blossoms in tough Silicon Valley climate, PhysOrg.com 17/02/2009, [3]
- ↑ 5.0 5.1 Web 2.0 in and beyond the recession, The Financial Times 05/12/2008, [4]
- ↑ Tweet smell of success over Digg, BBC News 22/01/2009, [5]
- ↑ UK elite enjoy next-gen broadband, BBC News 29/01/2009, [6]
- ↑ Calculated using monthly averages from X-rates.com, [7].
