When the economy falls flat, it doesn’t necessarily mean all is lost for business owners. Not only can the smart and the adaptable survive, they can also thrive.
Lord Young, the prime minister’s adviser on enterprise, was in hot water recently when he suggested, off the back of his Growing Business Report UK, that starting a business in current conditions is a doddle.
“It is easier now than ever before,” he said, adding that failure to embrace the internet was the death knell for businesses such as Jessops and Comet.
The Tory grandee said 400,000 new firms started up last year, but his critics told him to get a reality check.
But is he really out of touch? Figures from the Small Business Survey 2012 suggest not. They show that not only are companies starting up, they are growing.
Of the 5,723 small businesses polled (those with 250 employees or fewer), 72% made a profit in the last financial year. That figure was even higher for medium-sized businesses (86%) and small businesses (75%), but was marginally lower for micro ventures (71%).
The survey also found that businesses are not just surviving, they are thriving, with 68% of SMEs planning to grow over the next two to three years.
So, how do you do that in a downturn? We spoke to three people who can draw on their experience for a lesson.
Case study: Faisal Butt, co-founder and managing partner, Hamilton Bradshaw Real Estate
Faisal Butt is the partner of serial entrepreneur James Caan at property investment company Hamilton Bradshaw Real Estate.
The 36-year-old claims to be the most active venture capitalist in property over the past 18 months, having backed everything from a construction consultancy to an interior design firm and the higher-profile 90 North, a Shariah-compliant property firm run by industry stalwarts Philip Churchill and Nicholas Judd.
The pair are testament to one of Butt’s principal beliefs, that some of the best entrepreneurs are trapped in a corporate grind. The recession, he says, has been a catalyst for some to brave the choppy waters outside the safety of nine-to-five.
“They were two guys who were doing exactly what they had been doing before, but in a corporate world,” says Butt. “For me, they were of little risk in terms of their knowledge.”
So Butt advises being wary of starting a business in an area where you have little experience because you will need a pipeline of business to bring to the table from the start. And it’s right from the get-go that you will want to be making money, too.
“You shouldn’t be waiting 12 months before fees are generated. I have backed businesses where in the first month they have had half a million turnovers.”
That is not beyond the realms of possibility today. Butt agrees with Lord Young’s assertion that now is a good time to launch a business.
“The opportunity costs are not high and you have a buoyant job market. Just weigh up the risks first. Ask yourself: ‘what am I giving up?’ and ‘what’s my alternative?’”
The investor also suggests starting a business with another person, someone who complements your personality and your professional type – yin and yang.
Also, be prudent with cash management in the early stages. Rash spending is a “key business killer”, he says.
And when the chips are down, make sure you can bounce right back again.
“Resilience is crucial in a journey of entrepreneurship,” Butt says. “If you can’t handle it in the first 12 months, how do you expect to continue? The worst may be yet to come.
“If I can’t see resilience in an entrepreneur, I won’t get involved.”
Finally, you have to be networked to the right places, he says. When someone approaches Butt to back a venture, he leaves no stone unturned in finding out exactly who they are and who they know.
“I have got to know how the market speaks to them and if they are linked into the right places for lead generation. Openness and transparency are important.”
Case study: Jim Nash, sales manager, Omni Capital
Globalisation can be a goldmine for more than just the big players, says Jim Nash, sales manager at Omni Capital.
“It is an unstoppable force, so where once most businesses relied almost exclusively on domestic markets, new and potentially lucrative ones abroad are there to be attacked.
“It can provide a very effective hedge for when the economic cycle turns against you.”
Nash speaks from the experience of a 30-year career in financial services, including a high-street bank, a major global conglomerate and several boutique outfits.
Now is the time to start a business, he says, because modern technology has lowered the barriers that allow them to diversify.
Nash knows what it is like to be a small business owner, having run his own mortgage and secured loans brokerage – in a downturn.
The disciplines required to grow a business in a downturn are the same as those that apply when times are good. But when the economy goes wrong, treat them as a “survival guide”, Nash says.
Firstly, ensure your product or service is relevant, or be ready to diversify.
Secondly, manage your costs. “This might mean difficult decisions, particularly involving loyal staff, but decisive early action can make the difference between short-term pain and long-term failure,” says Nash.
But don’t be too hasty in letting people go, he warns. Replacing highly skilled and experienced employees is costly.
Thirdly, ensure your core customers are well-serviced and happy. “When the complaints start, it’s too late,” he warns.
Finally, pick up the phone and talk to your bank in the old-fashioned way.
“Having an ongoing dialogue with your lender means you are far more likely to get a sympathetic hearing,” he says.
Case study: Andy Portlock, finance director, Hadley Property Group
Hadley’s development solutions arm began life in 2008 when developers were going bust and lenders had to recoup their costs. Its solutions included seeking new planning permission for stalled projects or finishing buildings off itself.
But just when the company thought it was positioned right, the recession came.
“Things emerged when our business model evolved that we had never previously seen as part of our USP,” says finance director Andy Portlock. “Everything I had learned in 20 years was eroded.”
Hadley’s team realised their enemy was inertia, which “makes you come into work to do things like you did them yesterday”.
The firm dropped six from its headcount of 20 (“we weren’t developers any more”), then two years later grew to around 25.
“One of the advantages of growing in a recession was the availability of good staff,” says Portlock. “We had access to a rich pool of graduates who would normally have had their sights set on larger property firms, but they had stopped taking them.”
Graduate recruitment is now a key strategy for Hadley.
“The problem with recruiting experienced people is they hadn’t worked in a downturn. The concept of falling property values was alien to them.”
The recession also forced the Hadley team to “roll up their sleeves” and grab opportunities when they arose. That steered them to the end of the tunnel.
Portlock says maintaining relationships and working hard to develop new ones, particularly with the public sector, has been integral to Hadley’s growth in the downturn.
“As a single entity, you can’t do everything, be good at everything and bring everything to the table,” he says.
? Faisal Butt and Jim Nash spoke at a London Property Professionals forum on 23 May.
