IS THIS A GOOD TIME TO SET UP SHOP?
Why would anyone choose to start up a business in a recession? Ruth Le Pla goes to the experts to examine the pluses and minuses of launching a new venture in one of the toughest business climates in living memory.
We wanted to call this story something catchy like ‘Ten reasons why now is a good time to start a business’. But truth is, there are any number of reasons why you should set up shop now. More about them later.
Adapt your message
Laurie J Storey-Manseau, owner of the Storey-Manseau marketing firm in Concord, New Hampshire, says it’s a good idea to adapt your message to fit today’s climate. In an article ‘PR briefing: marketing during a tough economy’ she tells the story of a local pool company that is running radio ads empathising with many people who can’t afford to take a holiday this year. "They’re positioning their pools as a ‘vacation at home’," she says, "and include messaging about financing, ‘no money down’ options and how this investment will provide ‘vacations’ at home for years to come. Smart approach!"
I know one Auckland-based woman who is setting up a luxury lingerie business. She says the recession won’t put her off. But it is slowing her down. She’s thinking more carefully about how she’ll piece together her business so she can launch it on rock-solid foundations.
Another local entrepreneur, Anthony McAnulty, is gliding slowly into the ghost walking business. His new company, Auckland Ghost Tours, takes the bold and the curious on a lantern-lit walking tour of Auckland’s historic downtown streets. Dressed in Victorian garb and carrying an old Gladstone bag, he blends together tales of public hangings, bubonic plague, beheadings and cannibalism in a two hour walk.
McAnulty’s strategy is to run the tours in parallel with his two existing, and very different, businesses. Together with his wife Marlene, McAnulty also owns and operates the Eden Park Bed and Breakfast in Auckland’s Mt Eden. He figures that since he is tied to Auckland every evening for the bed and breakfast, he may as well use his time productively in an additional line of work.
McAnulty is also the principal of SuperCare4u.com which specialises in transport for the aged, infirm and transport disadvantaged within New Zealand. This taps in to what he believes will be a growing demand for care as our population ages.
The unusual cluster of companies is a good example of lateral thinking in what can best be described as unusual economic times.
As the economic plates continue to shift, new business opportunities are popping up just as old ones fall away.
Neil Movold, managing director of SB2 International Ventures, reckons there’s a growing need for New Zealand companies to get practical help in entering overseas markets. His company – which is itself still gathering momentum – focuses on eastern Canada’s ‘technology triangle’. This is the Waterloo region in South Western Ontario.
As Movold sees it, now is the best possible time for a company like his. He talks about the typical Kiwi business ‘explorer’ jetting off on planes to discover new areas. "They forage around but often don’t get what they want when they are there," he says.
"So we’re building a base camp for them. A Scott Base, if you like. We see ourselves as complementary to what New Zealand Trade & Enterprise and the Beachheads programme offer. We can be there for the client 24/7, providing services such as legal, banking or accounting. More and more companies are reacting to the economic downturn. Some are laying off people or not going for opportunities that they might have gone for in the past. So we can help companies stretch their dollars as best they can."
Movold’s is an example of a conscious reaction to different economic times. It’s possible, of course, to sail right through troubled waters without a clear navigation chart. That’s what Kevin Griffen and Ian Potts did back in 1988 when they set up Kev & Ian’s Marine.
Potts has since moved on but, 20 years later, Griffen says he and Ian had no big goals at first. "We were two mechanics. We set up a contract workshop for another company. It was fairly simple. Our only goal was to make a living. About a year later the other company went bust and we carried on on our own. The business just grew from there."
They had set up shop in November 1988, just a year after New Zealand’s big sharemarket crash. "In some ways we were pretty naïve," says Griffen. "The financial crisis didn’t figure in our thoughts."
Financing wasn’t an issue. "We had $2000 each and that was enough to buy some tools and set up," says Griffen. "We rented premises. We weren’t paying anyone else so it was very simple."
Griffen agrees that if he had known then what he now knows about setting up a business, he may not have gone ahead.
"If I had my time again I’d put more thought into where I’d like the company to be in five or ten years’ time. I’d have more of a long-term view and have a better business plan."
He advises others now thinking of setting up a company to be careful with budgets and business plans. "And go into the company with your eyes open. People think everything will be all rosy but often it’s not. Look at your cashflow very carefully. We were lucky because we operated a bit like a typical car mechanic – so when we did jobs for private clients they would pay when they came to pick up their boat. We didn’t have to wait one, two or three months before the customer paid the invoice."
Why now’s good
So why would someone set up a business right now? We asked a series of business specialists to tell us what is driving entrepreneurs to push the start-up button.
Matthew Bellingham is business improvement director at Hayes Knight New Zealand. He says there are opportunities through incumbent suppliers not looking after their existing customers very well. "The weak New Zealand dollar is good for export businesses," he says. "And the labour market is in the process of freeing up, so good quality staff are becoming available."
Deborah Hull-Brown, Auckland office manager of biz Business Information, agrees with Bellingham that a bigger and better pool of experienced and talented employees is coming onto the market and adds that any company starting now with a new idea or service will gain an advantage over the competition who will be waiting for the recession to end.
"Now is a good opportunity to buy supplies/capital goods at discounted prices," she adds.
Terry Hoskins, CEO of Enterprise North Shore, points out that every business idea has a shelf life. "If you don’t do it now one of the millions of entrepreneurs in the world will beat you to the market. What are you going to do instead?" he challenges.
Hoskins reasons that during harder economic times, many industry players are keen for new business "which means you have excellent bargaining power to get a good deal on the necessary services to start yourself up. Similarly, the buyers’ market is hot if you’re looking to purchase a business."
Stuart Trundle, CEO of Venture Taranaki Trust believes the economic slowdown may open doors to opportunities that just don’t exist in a more active economy. Thinking laterally is the order of the day, he says. He adds that the NZD is low against the USD, making exporting a sensible option in the current climate and that interest rates are lower than they have been for some time, making capital or operational borrowing more affordable.
Finally, Andrew Hamilton, CEO of business growth centre The ICEHOUSE, concludes that New technology development is creating market opportunities, changing world demographics are opening up new possibilities and we can tap into the ‘new thinkers’ New Zealand brand image.
In an online advice column for The Industry Standard (www.thestandard.com) earlier this year, Melissa Chang listed her top five reasons why a recession is a good time to start a company. Her topline thinking? A recession forces founders to be frugal. Recessions force entrepreneurs to take another close look at their ideas. Recessions lead to committed start-up teams. Startups get a head start. And recessions toughen up companies.
A cautionary note
All of that positive thinking must be balanced against a raft of not-so-encouraging factors. At the moment, says Hamilton, it boils down to two main issues: customers and funding. "Potential customers in tough times are typically more risk averse and raising funding is very difficult."
Hoskins selects low business and consumer confidence, which can make it difficult for companies to find willing customers. "Prices and markets are volatile thus making the estimation of required costs of supplies and inputs and the prices to be charged more difficult," he says. "And existing businesses will be looking to develop new products, services and markets in order to survive, making it more difficult for new entrants to get started."
Hamilton suggests wannabe business start-ups look at ways to validate real-market opportunities and find ‘pain’ in customers which they can solve. "If you identify something that is hurting a customer, they should pay for it and then you have both a customer and funding!"
Whatever the economic situation, he believes in a ‘measured and objective’ approach to starting a business. "In the establishment phase it is key to answer the question, ‘is my concept viable?’ Don’t start the business until you have answered this – which we call market validation. Then put a plan together around the things you need to do to turn the idea into a business. If you focus on identifying the customer pain, then most things flow from that."
Many local organisations, including both Enterprise North Shore and Venture Taranaki, run a range of training and mentoring programmes to help new startups get off the ground. Bellingham reminds companies to ensure they do the business basics well: documenting sound strategic plans, completing profit and loss cashflow forecasts and allowing for worst case scenarios.
If, after all that, you reckon your new business idea isn’t right for the launch pad, there are still things you can do in the meantime.
"Research, research, research. Prepare an extensive business plan. Go and work for the competition," suggests Hull-Brown.
That advice chimes with Venture Taranaki’s Stuart Trundle, who reckons planning and research are rarely wasted time or effort in the long run.
In any case, as Bellingham points out, there are always plenty of excuses not to do something. "If you always waited for the best time to get into business, you would retire at 65 after being employed all of your life and never end up giving it a go."
And, as Hoskins adds, there’s never an absolute right or wrong time to go into business.
"It can be compared to the best time to invest savings, buy a house, go on holiday or start a family," he says. "Good businesses will have strategies, plans and operating models in place that make allowances for the ups and downs of the business cycle. New businesses should have the same. The best time to start up a business is when you feel you should."
Ruth Le Pla is an Auckland-based freelance writer. Email [email protected]
There are also plenty of reasons to think long and hard about it too. These arguments tend to grab the most airtime. The banks have stopped thrusting money at us. Consumer and business confidence have got the collywobbles. And who’s buying anyway?
So let’s start with a quiz. What do HP, Sports Illustrated, Burger King Corp and the Wikipedia Foundation have in common?
They all started off in times of recession. Collectively they span the Great Depression which kicked off with the Black Tuesday Wall Street crash of October 1929, the tail end of the hard times in 1953-54, and the more recent post-9/11 recession in the US.
We could add to that list companies as diverse as giant international hotel chain Hyatt Corp, research hub LexisNexis, FedEx Corp and MTV Networks.
OK, here’s another question. What do Rayglass Boats, Tuapeka Gold Print, Hurunui Horse Treks and design and prototyping business Protobuild have in common?
They all started out in New Zealand in 1987, when our economy took a nosedive. At the time, we thought our world would never be the same again.
There are very few absolutes for launching a small business during a recession. One commentator, for instance, suggests now may not be a good time to launch luxury goods and services. "People tend to buy cheaper brands and cut back on luxuries," she says.
Intuitively, that makes sense. But even that idea can fly in the face of evidence of a recent and startling splurge on art in the UK. That’s according to AUT senior lecturer, business marketing and advertising, Dr Paul Pickering. Talking at a ‘Marketing in a Recession’ workshop in September/October last year, Dr Pickering cited British artist Damien Hirst who, amidst the economic chaos, smashed Sotheby’s record for a sale dedicated to one artist. In just two days his work netted NZ$198 million.
"It’s proof," says Pickering, "that the dollars have not disappeared."
If that’s the case, then dollars are shifting in unusual ways. Items sold included "The Golden Calf": a real calf in a tank of formaldehyde, with 18 carat gold hooves and horns and a gold disc on its head.
Maybe it’s just a statistical blip. Even Hirst admitted he was ‘amazed’ his art was selling while banks were crashing down around his ears.
Odds are, here in New Zealand there aren’t too many people queuing up for formaldehyde calves with gold bits (we’d like to see you selling that start-up plan to your bank manager!) In any case, luxury is a relative term. So a recession may mean we all just hotch down the sliding scale a bit.