I picked up some really interesting ideas about why tough times (recessions) are great times to grow (or start) businesses. An inspiring evening for us last night at our 29th and final event of the year – and our second CEO Tales drinks networking event.
It got me thinking about some of the opportunities that recessions offer to startups and growth businesses. So I made a list…
Tough times drive brave decisions
No one likes pain but tough times force you to deal with it – cash flow, profitability, planning all become more important issues. Successful entrepreneurs and companies thrive on the challenges and remember the lessons as times improve. One person told me that they cut their staff back by 20% 18 months ago and are now generating more revenue (and are now profitable). The remaining staff work less hours but are more motivated as they feel that the ‘dead wood’ has been cut from the team.
Technology saves money and drives competitive advantage
Recessions are great times to invest in technology to reduce costs and to crystalise the advantages your business has over others. Investing in technology doesn’t always mean reducing head count: it can mean allowing people to focus on more valuable activities; it can increase the reach of your business through the use of inbound marketing techniques; help manage supply chains more efficiently and improve your interactions with customers.
Less dumb businesses = more smart businesses
Building crappy businesses is perfectly possible when times are good. Much harder in a downturn. Lots of investment, flash offices and rock star hires can give bad businesses a superficial veneer of success. Most of those businesses will fail (unless they are sold before they get the opportunity). Money is less available for bad ideas these days.
- Recessions make people ask these questions before they start:
- How can I make this happen without taking investment?
- Will people buy our product or service when they are cutting their personal or corporate spending?
- If I need to raise money, how much do I need to give a cash runway that doesn’t rely on me raising more cash in 6 months?
- Do I rely on an M&A exit or can I actually grow a sustainable business?
- How do I scale when the economy picks up?
These are fairly basic questions for any business so it seems strange that it takes a recession to get people to think hard about them. Seems to though.
Great people are available to work for you
The best people to work in startups are not necessarily from large corporates – cultures are so different. But there are more brilliant engineers, coders, product & project management people available for hire affordably and often in quite flexible ways. Growth businesses may even want to take on MBAs.
People are committed and work harder
Many of the businesses that I have talked to say that when they shed staff, the remaining team worked harder and were actually more motivated even in the short term. Recessions make people realize that there is no such thing as job security, even in large companies. Not everyone is ‘stage appropriate’ for working in startups or growth businesses but if you can find the right people, they are more committed to your business in hard times.
People look to save money
People and companies behave in the same way in recessions. They look for ways to save money. As a new entrant in the market, this is actually great news as there is a higher propensity to switch suppliers for lower priced products or services.
Some businesses benefit by offering the same service cheaper as they take advantage of disruptive technologies to drive down their internal costs.
Others offer replacement services – a night at home with a bottle of wine and a DVD from LoveFilm is a lot cheaper to than a night out at the cinema and dinner for two.
Poor stock market returns mean some people are prepared to invest in you
Whilst some traditional sources of capital have dried up, the last 18 months has seen a rise in the number of active ‘professional’ angels. They are typically successful entrepreneurs who want to get involved in businesses and bring more than cash. Others report that their friends and family have been hugely encouraging about supporting their startups financially for the same reason.
Some argue that all companies should be bootstrapped. It gives founders more control over their destiny for longer. Taking money too early can encourage bad habits – both from founders and investors. There hasn’t been too much evidence of Boo.com type excess in the past few years. This is less entertaining but better business.
Things are cheaper
Taking advantage of the misfortune of others means that you can equip offices very cheap, you can do deals with landlords, companies are more likely to rent out some spare space that is both cheap and well serviced. You can get what you need at auctions, you can negotiate for everything. You can also take advantage of programmes like Microsoft’s Bizspark and Sun’s StartUp Esssentials to get access to cheap software, hardware and hosting. You would be foolish not to.
Be the smiling face in a sea of media misery
The media loves to complain about how bad things are in a recession but very soon it realizes that it also likes to talk about plucky people who are going against the grain. Take advantage of their interest.
Use cost effective marketing
The world of marketing communications has changed in the past 5 years even if your existing marketing, PR and design agencies have forgotten to tell you. Inbound marketing makes use of the web and social media to help consumers find you. It can be a lot, lot cheaper to use the new rules, tools and techniques. It can also be much more effective. Best of all though, you can measure the effectiveness of your activity in a way that Lord Coleman/Lever (depending on who you believe) could only have dreamed off.
Another great BLN evening… Hope Darren/Mark are now officially on holiday!
Agree with the post – the “corrections” in the market are a bit like a forest fire – they clear the space, and get rid of some of the excesses. It also focuses the mind on what’s important. Businesses that can demonstrate that their products/services really have an incremental value to either their consumer, or if they are B2B, to their Client, will tend to succeed.
Running a startup in this market has its challenges, but it can be a blessing – for all the reasons listed in the post. It was great to hear Jay and the others talk about the opportunities (not the risks) in the current economic client.
It was a great event and I particularly enjoyed meeting Kieron as I am a huge fan of The Book Depository.
Personally, I knew when I started my company that the recession would be an opportunity: customers would be looking to save money, so start-ups that could cut costs while raising quality would be welcomed with urgency.
Mark, Darren, Many thanks for organising such a positive and helpful event. As a company seeking investment the evening provided a timely opportunity to network with potential equity partners.
It was reassuring to learn that our approach to managing the recession are mirrored by other, successful, ventures. Still, shedding staff is never fun, particularly when you have grown as a close-knit team.