Starting a business during a recession can be nerve wracking, but some of the most famous brands were started during the economic crisis. Airbnb and Uber started business in 2008 during the global financial crisis. Burger King By threatening to grow his neck again, the real question is why?
According to John Mullins, associate professor of management practice at the London Business School and author of ‘Break the rules! The six paradoxes that can help anyone change the world: common ideas of entrepreneurs“, there are three key reasons.
He says: “First, during or in anticipation of a recession, as we see today, large companies are cutting costs and shrinking from demand, which means less innovation, less competition for other innovators.” Second, most of the resources a startup needs, people, real estate, etc., will be more plentiful and cheaper. Third, entrepreneurs with good business ideas are probably more inclined to think, “Why not give him that good idea?”
That was the reason entrepreneur David Davis decided to launch Sovereign Beverage Company during the 2008 global recession. A year or so ago, while visiting breweries as part of his full-time job, he noticed a gap in the market and realized that many had an untapped way to sell in the form of international exports.
He says: “Why should it start when the global recession starts? My first thought was why not? If I can grow the business, I know it will be strong and sustainable, and 15 years later, that’s proven.
Although the enterprise was challenged by a lack of cash flow and resources, it ultimately created a sustainable business model. “We don’t hold stock, we sell before we buy, and we pay before we get paid,” Davis said. We have also chosen to work with a variety of breweries’ product suppliers, allowing us to offer a wider range of products to international customers by keeping logistics to a single supplier.
There were advantages to their time. The breweries he worked with were struggling and looking for new ways to increase sales. Sovereign Beverage Company offers a new, risk-free sales revenue stream. From there, the company focused on finding customers in markets that were less affected by the financial crisis.
“The failure forced us to develop a very efficient and effective operation, which we still follow today,” Davis said. “For that reason, I would absolutely do it again. Questions were asked about our decision to start a business during the recession, but in my view it was the best time to start.
In the year 2008 was the year Konrad Bergström founded the Swedish tech giant Zound Industries. Zound has transformed the famous Jim Marshall rock ‘n’ roll amps – used by Jimi Hendrix at Woodstock – into home speakers and headphones sold in 130 countries.
Prior to that, he founded the lifestyle distribution business Megascene Agency and brought international brands such as Kukisilver and Burton to success in the Nordics. But in 2004, Bergstrom had to file for bankruptcy. Even though he had a lot of debt, turned his back on business connections and started sleeping in the car with his dog, he believed that better things awaited him. Even an economic downturn cannot shake the confidence in Zound and its ability to disrupt the market.
“When the economy is down, it’s easy to think doom and gloom,” he said. “What I saw was a huge opportunity to create a lean, well-tuned business and position it for long-term success.”
Lack of external financing in the form of investment, bank loans and government start-up funding was a major challenge. “We’ve found solutions to adjust payment terms, nail down distribution rights and leverage and get family and friends to invest,” he said. “Establishing distribution through surviving and still aggressive companies was key, but the market is more forgiving and requires more planning.”
With the recession looming, Bergstrom’s advice to other entrepreneurs thinking about starting out is to keep a positive mindset and focus on working with the facts. “So many people see failure as a hellish landscape,” he says. “It’s an opportunity, and you have to really believe in it to achieve it.”
John Mullins agrees that such mindsets are critical to increasing an entrepreneur’s chances of success in difficult startup situations, allowing them to break many of the conventional rules by which established businesses operate and encouraging them to focus on narrowly defined target markets and compelling problems to solve.
He says: “Big companies tend to ignore opportunities that ‘don’t move the needle’. Instead of investing their own money, entrepreneurs ‘borrow’ assets owned by others that are underutilized, at least until market demand is established. They demand that customers pay up front and use that cash to grow their business, paying their suppliers long after the product is built.
Finally, right-minded entrepreneurs don’t ask for permission, he added. In light of legal and other ambiguities, they are driven by the assumption that they will apologize later if necessary. “Had Uber’s founders sought the approval of taxi regulators in San Francisco, Uber and perhaps the rest of the gig economy might not exist today,” Mullins added.