Ready to enter a recession
Starting a business during a downturn can be nerve-racking, yet some of the most famous brands were launched during an economic crisis. Airbnb and Uber began trading during the global financial crisis of 2008; Burger King opened its doors in 1953 when the US was in recession, while Hewlett-Packard was founded in a Palo Alto garage in 1939 during the Great Depression. With the R-word threatening to rear its head again, the big question is why?
According to John Mullins, associate professor of management practice at London Business School and author of ‘Break the rules! Six Unconventional Mindsets of Entrepreneurs That Can Help Anyone Change the World‘, there are three main reasons.
He says: “First, during or in anticipation of economic downturns, as we’re seeing today, big companies are cutting costs and diving into their ambitions, which means less innovation and less competition for others who are innovating. . Second, many of the resources a startup needs, people, real estate, etc., become more abundant and cheaper. Third, entrepreneurs with great business ideas are probably more inclined to think, why not give them a good idea?”
That was the rationale behind entrepreneur David Davies’ decision to launch Sovereign Beverage during the global recession of 2008. He had noticed a gap in the market a year or so earlier while visiting breweries as part of his part-time job. complete and realized that many of them had an untapped avenue for sales in the form of global export.
He says: “Why start at the beginning of a global recession? My first thought was, why not? If I could get the business to thrive, I knew it would be strong and sustainable, and 15 years on, it has proven to be the case.”
Although the venture was challenged by a lack of cash flow and resources, it eventually developed a sustainable business model. “We don’t hold shares, we sell before we buy and we pay before we get paid,” says Davies. “We also chose to work with product suppliers from several different breweries, allowing us to offer a wider range to global customers while keeping logistics to one supplier.
There were advantages in their time. The breweries they worked with were struggling and looking for new ways to increase sales. Sovereign Beverage Company offered them a new stream of risk-free sales revenue. From there, the company focused on finding customers in markets less affected by the financial crisis.
“The recession forced us to develop a very slick and efficient operation, which we still follow today,” says Davies. “For that reason, I would absolutely do it again. Questions were asked about our decision to start trading during a recession, but in my opinion, it was the best time to start.
2008 was also the year Konrad Bergström founded Swedish tech giant Zound Industries. Zound transformed the famous rock’n’roll Jim Marshall amplifiers – used by Jimi Hendrix at Woodstock – into a range of home speakers and headphones sold in 130 countries.
Before that, he had founded the lifestyle distribution business Megascene Agency and brought the success of international brands such as Quiksilver and Burton to the Nordics. But in 2004, Bergström had to file for bankruptcy. Despite huge debts, business contacts turning their backs on him and having to sleep in the car with his dog, he believed better things lay ahead. Not even the recession can dent his confidence in Zound and its potential to disrupt the market.
“It’s easy to think doom and gloom when the economy goes down,” he says. “What I saw was a huge opportunity to create a lean, well-regulated business and position it for long-term success.”
Lack of external funding in the form of investments, bank loans and government start-up funding was a significant challenge. “We found solutions in adjusting the payment terms, nailing and profiting from the distribution rights and getting family and friends to invest,” he says. “Putting distribution through companies that had survived and were still aggressive was also essential, but required a lot more planning as the market was less fake.”
With a recession looking increasingly likely, Bergström’s advice to other entrepreneurs thinking of starting a business is to keep a positive mental attitude and focus on working with the facts. “Many people consider the recession a hellish landscape,” he says. “It’s an opportunity, and you have to really believe in it to succeed.”
John Mullins agrees that such mindsets are vital to increasing an entrepreneur’s chance of success in adverse startup conditions, enabling them to break many of the conventional rules by which established businesses operate and encouraging them to focus on markets narrowly targeted with compelling problems to solve.
He says: “Big companies tend to ignore opportunities that won’t ‘move the needle’. Entrepreneurs ‘borrow’ unused assets owned by others rather than invest their own money, at least until market demand is established. They ask their customers to pay upfront and use that money to fund the growth of their business, paying their suppliers long after the product is built and delivered.”
Finally, he adds, entrepreneurs in the right mindset don’t ask for permission. Faced with legal or other ambiguities, they move on, figuring they’ll apologize later if they have to. “Had Uber’s founders sought permission from San Francisco’s taxi regulators, Uber, and perhaps the rest of the gig economy, might not exist today,” Mullins adds.
