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Entrepreneurship

Why Bad Economies Are Good For Business

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Why start your own company in a bad economy? Try to ignore the gloomy media picture of the world coming to an end, a crashing economy, high unemployment, business failures and difficulty accessing loans. Yes, I might be asking for a lot, but why not focus on the positive?

The amount of registered US companies does not change drastically from year to year, regardless of the economic climate. Although there is no clear trend towards more companies being launched, the Kaufmann Foundation noticed something interesting: startups initiated in tough times have increased chances of success, with half of 2009’s Forbes 500 companies having been launched in bad economies. The same is true for the world’s fastest growing companies. If you would actually like to see some of the companies that made the best out of recessions, look at Inc.com’s report. Suddenly, a recession doesn’t sound too bad now, does it?

What are the potential reasons behind it? It is quite simple: to succeed in such an economy, you will need talented people, a great business idea, a clear need for your product or service, eager customers interested in your offer and the ability to perfectly manage finances.

Find Your Co-founder

It’s usually difficult to find the right people for the job because they are usually in comfy offices and well-paid jobs working for the dinosaurs running the economy. Now, thanks to round after round of layoffs, talented people are losing their jobs or having their paychecks decimated. This leaves them resenting their current employer and considering a swift departure. What could be better than running your own company, being your own boss, working with equally talented people and escaping the bureaucratic world for one in which you dictate all the rules? Finding the right co-founders gets easier as the number of creative people looking for a change increases.

Unleash Your Creativity

It seems that the entire business world is under scrutiny right now and most flawed business models are likely to show their true colors and be either revised or abandoned. Every industry is being analyzed for possible flaws and improvement areas, so if you think your idea could revolutionize the business world, or at least your industry, now is the time. The tough economy will allow the most creative, resourceful individuals to succeed, not the ones with the most finances; and since the ones that do succeed enjoy long-term success, why not unleash your creativity, get the little black notebook where you jotted down all your crazy ideas, and see which ones could literally transform the world?

Shai Agassi started Better Place after being challenged to find an idea for how he would go about reducing the global dependency on petroleum. Now, his business model could cause a paradigm shift that would result in a massive disruption to the automobile industry through the creation of an infrastructure that would support EV cars.

Pick an industry and think how you would change it for the better, brainstorm it with other people interested in your market, discuss it with your friends and family, and you might be able to generate equally brilliant ideas.

Find Your Niche

The businesses that manage to thrive in harsh economies are the ones whose services or products are truly needed. Why? Because most clients are likely to cut down on unnecessary expenses in order to save money. In all likelihood, if your product seems more of a luxury than a necessity, chances are you will not make it right now and you should maybe shelf the idea for a later time; but if you can deliver a revolutionary product, or service, then your chances of success are higher. If your product is a necessity, weaker competition from larger corporations means more chances to succeed, especially in niche markets which are usually overlooked as they do not meet the investment demands of large firms, but have growth potential and are attractive for startups. Market and technological discontinuities are the basis of market entry triumph; either can generate success and together they are unbeatable. Just find your niche!

Customer Development

There is probably no company out there not trying to cut down costs. Can you use this “spend-less” attitude to your advantage? Avoid the costs of hiring a huge team of testers or developers and use alpha-testers to fine-tune your product; offer it for free to the first customers so that they can test its features and give you valuable tips on how to improve it. The result? Valuable customer feedback that can make your firm customer oriented and focused on delivering customer satisfaction. If your initial testers are happy with the product, they are likely to continue to support your efforts, and they will also provide valuable testimonials and word-of-mouth that will help you promote your business and gain new clients. Offering your product to companies that cannot live without it but cannot afford it either will gain you the status of “life-saving”; not too bad in terms of publicity if you can keep your costs low enough to afford it.

Also, whenever a firm will need a certain service or product, each supplier will be under more scrutiny than ever and managers use extensive information gathering before each purchase decision. So if your product is at least equally good or who knows, even better, your chances of getting key accounts increase.

A Lack of Capital Can Lead to Clear Focus

Small budgets equal smart investments. If you only have a little money to spend, you have to focus on the important aspects of your business by using your funds to develop a better process, increase your product’s quality or provide better customer service. All of which can be transformed into significant competitive advantages and sources of revenue in the long-term. When differentiation is not based on who has the most money to advertise, then startups with a better product have a better chance of success.

Setting up an typical business will only cost you about 25K, and if you followed our previous blog post, then you know we don’t really think significant amounts of capital are absolutely necessary when setting the foundations of your business. Money is no longer the holy grail of setting up a successful business in a weak economy, so take your chances while finances lack importance and ideas get the spotlight.

Stick Together

Cooperation can help your company grow and small firms have to stick together. Partnering up with other small companies that can complement your offering is sure to provide you with an edge. If you are just at the beginning, it is highly unlikely you can cover an entire service area; you need viable partners.

The new economy should be about co-creation and not about destroying competition; if there is a way a different business out there could help yours, why pass on the opportunity? Find the right partners, research what they are doing, understand how they could add value to your own product or service and you might just get the recipe for success. It is up to new companies to set the pace for the future, so you can be one of the innovators that choose to stop regarding every other firm out there as your competitor. Instead, try to implement a new business philosophy that could render a better economic model.

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About the Author

This article was written by Carmen Neghina of Grasshopperherder.com. The website is dedicated to entrepreneurship and insights about the lean startup method. see more.

Entrepreneurship

What Kills A Startup

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1 – Being inflexible and not actively seeking or using customer feedback

Ignoring your users is a tried and true way to fail. Yes that sounds obvious but this was the #1 reason given for failure amongst the 32 startup failure post-mortems we analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. For instance, ecrowds, a web content management system company, said that “ We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”

2 – Building a solution looking for a problem, i.e., not targeting a “market need”

Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing. “Companies should tackle market problems not technical problems” according to the BricaBox founder. One of the main reasons BricaBox failed was because it was solving a technical problem. The founder states that, “While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.”

3 – Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a starti[ company. Failure post-mortems often lamented that “I wish we had a CTO from the start, or wished that the startup had “a founder that loved the business aspect of things”. In some cases, the founding team wished they had more checks and balances. As Nouncers founder stated, “This brings me back to the underlying problem I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made.” Wesabe founder also stated that he was the sole and quite stubborn decision maker for much of the enterprises life, and therefore he can blame no one but himself for the failures of Wesabe. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.

4 – Poor Marketing

Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure. Oftentimes, the inability to market was a function of founders who liked to code or build product but who didn’t relish the idea of promoting the product. The folks at Devver highlighted the need to find someone who enjoys creating and finding distribution channels and developing business relationship for the company as a key need that startups should ensure they fill.

5 – Ran out of cash

Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the group or develop gradually over time is a tough act to balance. The team at YouCastr cited money problems as the reason for failure but went on to highlight other reasons for shutting down vs. trying to raise more money writing:

The single biggest reason we are closing down (a common one) is running out of cash. Despite putting the company in an EXTREMELY lean position, generating revenue, and holding out as long as we could, we didn’t have the cash to keep going. The next few reasons shed more light as to why we chose to shut down instead of finding more cash.

The old saw was that more companies were killed by poor cashflow than anything else, but factors 1, 2 and 4 probably are the main contributing factors to that problem. No cash, no flow. The issue No 3 – the team – is interesting, as if I take that comment ” I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made” and think about some of the founders and startup CEOs I know, I can safely say that the main way that any decision was made was by agreeing with them – it was “my way or the highway”. I don’t therefore “buy” the team argument, I more buy the willingness of the key decision makers to change when things are not working (aka “pivoting” – point 9).

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About the Author

This article was produced by Broadsight. Broadsight is an attempt to build a business not just to consult to the emerging Broadband Media / Quadruple Play / Web 2.0 world, but to be structured according to its open principles. see more.

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Callum Connects

Jasmine Tan, Director of Stone Amperor

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Jasmine saves her clients time and effort when doing kitchen fit outs with her biz Stone Amperor.

What’s your story?
I started working in the industry in 2003. I was in a marble and granite supplier company for 5 years. Even though I left the company, I still had customers calling me for my services. I referred them back to my previous company but they refused to because they loved the fast response service that I offered. I realised that customers do look at prices, however most of them prefer quality over quantity. Thus I have decided to establish a sole proprietor company also known as 78 Degrees which later rebranded as Stone Amperor in 2014.

What excites you most about your industry?
The kitchen countertop industry is a very confusing market. There are many brands, materials and prices to choose from. What excites me the most is my ability to help clients choose the best materials and brands within their budgets, whilst saving them time and effort.

What’s your connection to Asia?
I have been in Asia all my life and I love Asia. No matter where you go there is no place like home.


Favourite city in Asia for business and why?
I love Singapore. This is because Singapore has always been a stable country and it is great for doing business. However as it is a small country, it can be really competitive. I believe that if just do your best and give your best to your customers, you can overcome this.

What’s the best piece of advice you ever received?
“Take actions. Learn and improve continuously. An idea without action is just a dream.” This was really good advice that I received from my partner.

Who inspires you?
A very down to earth billionaire from Malaysia, Robert Kuok

What have you just learnt recently that blew you away?
Property is the foundation of every business.

If you had your time again, what would you do differently?
Own instead of renting property for my business.

How do you unwind?
I enjoy going shopping, watching movies and hanging out with friends. I am quite a simple being.

Favourite Asian destination for relaxation? Why?
I love going to Taiwan as I love the culture there. Everyone is so polite and the weather is great.

Everyone in business should read this book:
Sun Tzu, Art of war

Shameless plug for your business:
Perfect top, Perfect price, Perfect life from Stone Amperor

How can people connect with you?
Email me at [email protected]

Twitter handle?
@StoneAmperor

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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