Getting Going in Times of Uncertainty

by Sandy Galland
published in "Auckland Today" Oct/Nov 2009

Starting a business at any time is fraught with obstacles and while some might think starting during a recession is a mistake, there are opportunities to be exploited.

While some would-be entrepreneurs may be reeling with uncertainty, provided you choose the right type of business and go about it in the right way, you can still succeed – possibly better than in boom times. And if your business can thrive in a recession, think how it will soar when the good times come again.

The opportunities come down to what your own personal experience and commercial background is. Anyone starting a business now needs to be offering something very different or to sell their goods in a different, innovative way.

Mi5 launched into the marketplace in October 2008 and now, less than a year into the venture, are selling well above its forecasts. Directors Scott and Helen Wattie and Nick Mooyman have set about taking to market their unique next generation of wire-free security surveillance products.

While the trio at times wondered if they were quite mad launching during a substantial economic downturn, they were confident their past business experience and acumen would stand them in good stead. And it has. “We are all experienced business people and this has helped us to kick start this faster than most startups,” says Helen.

Scott adds that any business must have the fundamentals right, but a recession exaggerates many things. “You have to get more innovative with your sales and marketing, keep tighter control on your cash flow and ensure you really are different.”

On paper, Mi5 looks more like a three year old company, Helen says. They attribute some this to the recession. With sales well above their expectations the company is strong financially. “Because we are in the security sector and because we are in a recession, security becomes something people think more about. In busy times it might be at the back of their minds, but in tougher times there is a fear crime could increase.” Having a differentiated and unique product has also been instrumental to its success.

Recession opportunities

Starting a business during a recession there are many opportunities, among them increased publicity by proving you are doing well going against the trends, there is potential for less competition, talent is waiting to be scooped up, there is the ability to negotiate better deals on products and services, and people are often looking to try something new or change supplier.

Adversely getting finance becomes a major obstacle.

It can also be said expectations are lower during bad times, so it is a good time to be in development mode, building a product, getting an audience, and starting a new revenue stream.

Customers are willing to try new things to save money in bad times. When things are going great they don't want to take risks on a startup.

This is certainly true for Mi5. “Our business is based around forming partnerships and because times are tougher we were able to join forces with New Zealand’s only listed IT distributor.

“In the past, when things were going better, they would have been looking at larger, international companies with large marketing budgets.”

Thanks to the recession, Mi5 partnered with this company and the relationship has been mutually beneficial. “They took the risk of dealing with a startup and it has paid off for them.” Scott adds.

While sales are exceeding the trio’s expectations, raising finance has been a “big negative” for them.

Getting their bank behind them has been a near impossibility. “Its ironical, when we were less experienced and had less behind us (financially) the bank was falling all over themselves to give us money. Now we are more experienced, have more capital and they are less helpful.

“The reality is unless you have liquid funds that support your requirements, the bank will not take a risk on you,” Helen says.

For the company this has meant lost opportunities. A lot of their trade is done internationally, but financial pressure means a more conservative approach. “Just this morning we had an enquiry from Asia for a large order with a good profit margin but funding it is the struggle for us.” While they say they will find a way to meet this order, to reduce risk they have to impose stricter finance terms for international customers. They firmly believe this reduces many of their opportunities.

“When times are good, you can offer better terms which makes your product more attractive.”

Would Mi5 be performing better in the international marketplace if they had better backing from their bank? Definitely, they say.

Nationally the lack of finance is not affecting sales, as typical New Zealand orders are for much smaller quantities, thus the risks and costs, are far lower.