Tough economic times tend to kick-start the enterprise economy, or so the mantra goes. Certainly, previous recessions have been the catalyst for some of the biggest global brands. The much-touted list includes such business superstars as Virgin, Microsoft and Google.
But does this still hold true in the middle of what many are calling the worst recession in living memory? The general theory seems to be that redundancy acts as a catalyst for people who were only held back from doing their own thing by the safety and security of the day job. With nothing to lose, these wannabe entrepreneurs take the leap as soon as they get the boot. While this may happen in the case of many consultancy start-ups, does it also account for the hobbyist home baker convinced his bread is a safe bet for other peoples' dough?
Such opportunists can draw comfort from the fact that as established businesses fold, so competition diminishes and prospects appear. Also, start-up costs decline as rents and premises become cheaper, and the cost of borrowing continues to fall. Surely then, logic dictates that the worse the recession, the better the start-up environment? To the current mix of favourable factors can be added a swathe of government initiatives to help newly established firms.
But consumers, we are reliably informed by economists, have the jitters. Why should they turn now to a new brand? And regardless of the nauseating reports of another crop of bumper bonuses for the investment-banking sector, high street banks are feeling the pinch and are desperately clawing back all the capital they can.
Right now, banks will lend only to very safe bets. That doesn't include every start-up to scratch out a half-baked business plan. Across the UK, relatively stable and established small businesses are fighting like mad just to keep hold of the credit facilities they need in order to stay in business. Meanwhile, private investors are also reporting a drop in their "deal libido". One well-respected angel told me recently that he's adjusted his criteria from this "should be a good investment" to this "will be a good investment". And such certainty is rare.
In truth, there is little, if any, hard evidence to support the theory. While the next Microsoft or Google is no doubt hatching somewhere, the timing is irrelevant. Great businesses start in booms as well as in recessions. While those born in recession often boast of frugal habits, successful entrepreneurs are always resourceful rather than wasteful. And the basic rules for a successful start-up don't change. The winners turn a bright idea into the right product in the right market. It's about timing and opportunity, mixed with hard work and determination. In other words, it's about the sort of things that don't go in and out of fashion, or up and down with the FTSE-100.
Richard Cree
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