With a shrinking economy, rising unemployment and a recession forecast, it may come as a surprise to hear we believe there has never been a better time to start a new business.
These aren’t just empty words. Over the last year, we’ve been advising a number of entrepreneurs to set up shop, in all different sectors and today all are still flourishing. We are in good company too: the founders of companies such as Microsoft, HP and CNN all believed it was the right time for them during their respective downturns.
The comments of Warren Buffet can be applied to this scenario when he said that “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”. So how have so many businesses in the past used their recessions as the springboard to launch themselves and where are the opportunities to be found?
In an environment such as this, there are always opportunities to negotiate with suppliers on everything from the costs of start-up to the costs of inputs as well as overheads. For example with office space there are many businesses out there that have downsized and now have surplus space which they may offer for rental at a discount to current market rates.
There are also deais·to be done in every area i.e. on professional fees or capital equipment such as computers which can be purchased through liquidated assets auctions or through negotiating discounts. With cash at a premium on both sides the ability to agree on prompt payment discounts with suppliers to improve margins should not be underestimated and if possible taken advantage of.
There are inevitable job losses. They do, however, provide an opportunity for those starting out to obtain high-quality staff that were not previously available. The potential to build a strong, committed team from the outset is far easier than in recent years. Potential employees are more likely to take a risk with new business as a direct result of the current climate.
Clear opportunities exist within this environment for new businesses to build their customer base rapidly and effectively. With the current level of business failures, there are the obvious opportunities to pick up those customers that will now be looking for new suppliers.
In addition customers in some markets will be more price-sensitive, therefore those businesses with lower cost bases that are able to pass on these savings via price reductions will thrive. For those that are able to offer or deliver a product or service in more creative ways, the price may not be as much of an issue in developing the customer base. Additional routes to market and new channels can be developed through advertising and marketing which given the reduction in revenues for the marketing sector will now be more accessible than ever before.
In a thriving economy when things are going well the basics of managing a business are often overlooked and the management team will tend to pay less attention to the detail. However, for those businesses that start micromanaging their cash flow, working capital and all aspects of operations, will thrive. It is these entrepreneurs that will learn the valuable lessons on the basics of the finances of a business and the challenges when managing during the early stages.
This will ensure that they are better placed to manage the growth of the business when it comes. A business with the right business plan that can grow and return profits in a downturn will be very well positioned to grow and expand when the recovery comes and will be well ahead of those that will start-up in the future.
Despite the negative media coverage, for businesses with a sound business plan, the ability to obtain finance has actually improved.
This is a direct result of the increased pressure on the banks to lend and the Government sponsoring new initiatives. In addition to low-interest rates and poor returns or other investments, strong business opportunities are far more attractive to friends and family as a potential home for their cash as well.
For some that have lost their jobs, there may not be many options available and starting a business may provide the only solution as a route back to employment. There are significant benefits of having your own business including having control over working hours, earnings and holidays.
Of course, taking the plunge to set up a new business isn’t without risks and at times you may long for the comfort and security of being an employee rather than the boss. However, I’ve yet to meet an entrepreneur who has real regrets about making the move. If you have a sound business plan, the required finance in place, and a team with the drive, energy and passion to succeed – you’re on the road to success. If you have the key ingredient of commitment, you’ll make – all the way.