DNA of an Entrepreneur 2014: Optimistic start-ups – the upside of the economic downturn
September 11th, 2014
Start-ups founded since the economic crash are feeling more optimistic and more determined for 2015 compared to their pre-recession peers. So how important is a positive attitude to success for a small business?
The results of our DNA of an Entrepreneur Report 2014 found an overwhelming and perhaps surprising wave of positivity from small businesses founded since the start of the recession.
Of this new generation of entrepreneurs – which we’ve called Generation Recession – nearly half (48%) are feeling optimistic for the year to come (up 4% on their pre-recession counterparts), and a third say the economic crisis has made them even more determined to succeed compared to a quarter of older firms.
However, they’re not just feeling upbeat, they are more likely to have seen a profit in the past year (49% versus 42% for older firms), and their strategies are also optimistic: 17% are planning to add to staff numbers in the coming year, up 4% on older businesses, and fewer are concerned about finding new customers, just 33% – 3% less than older businesses.
We’ve talked to two start-ups founded since the recession to find out why they’re feeling positive, and how they feel an optimistic outlook will contribute to their plans for 2015.
Success from difficult beginnings
Are businesses founded during the economic crash really at an advantage? Oliver Sidwell, co-founder of Rate My Placement, a leading website for undergraduate work experience in the UK, certainly thinks so.
“Because we started in a recession it’s all we’ve ever known. We’ve always had limited budgets to deal with, and had to react accordingly.
“When money is tight you are constantly scrutinised by your clients, and we’ve always been very conscious that we want to be building our portfolio rather than just trying to line our pockets. For us it’s more about conservative growth than a big boom.”
Working with the positives of the recession is a sentiment echoed by Ben Brown, CEO of Shopwave, an app which enables an iPad to become a point of sale hub for retail businesses.
“I see the recession as a positive thing for several reasons, one being that redundancies bring fresh new talent to the marketplace.
“Because there are so many bright grads looking for work and talented professionals on the job hunt, you have the opportunity to build an awesome team from the very start.”
Thinking outside the banks
Renegotiating bank loans was a test one in three small businesses faced in the past year, but it was Generation Recession start-ups who had a tougher time getting access to finance.
So how did Shopwave work around this limited access to finance? “The recession was good because of the availability of unconventional investment,” explains Ben. “We found, due to the crash in the stock market and poor performance of traditional investment products, high net-worth individuals were and are still looking for other ways to invest.
“As a result of SEIS (Seed Enterprise Investment Scheme) there are lots of people willing to put small amounts of money into businesses, and on the other side of the coin you also still have institutional investors willing to put big money into a sure thing. Between these two there is a gap in the UK funding ecosystem. That’s why we decided to go down the route of crowdfunding, which has become a much more viable route of investment.”
Launching a business during a time of limited access to finance, low consumer confidence and cautious clients means you need to be even more confident, says Oliver Sidwell.
“The recession was obviously a consideration for us when we launched Rate My Placement. However, if you’ve got a good idea it doesn’t matter what the market is like, you can use it to your advantage. Ultimately, the recession will help some companies more than others. But you need to know when to adapt, and how to grow without overstretching.”
And for Ben, who worked for Lloyds Banking Group before launching Shopwave, the lack of a viable Plan B can be a spur in itself.
“As a start-up, and even more so in recession, you have no choice but to make it work. You have more fear because you can’t walk straight back into a big corporate organisation, as a lot were making redundancies.”
So what will 2015 bring?
According to Oliver things are improving.
“The more we grow in experience, the more we grow in confidence,” he says. “We renew around 80 per cent of business year-on-year. It’s really important to have confidence in what you’re doing, but equally you can’t stand still.
“We’re constantly looking for ways to introduce new products; at the moment we’re expanding into the school-leaver market, which is where our focus is for 2015.”
So would Ben advise all new start-ups to feel optimistic, based on his experience with Shopwave?
“You should be very optimistic, but a realistic optimist,” he explains. “You need to understand the risks and know some new businesses fail. But if you can build a decent team and you have the right skills, then you can be optimistic. If one of these elements is missing then you need to have a hard look at what you’re doing.
“If I’m honest I don’t think it’s all to do with the recession; these days we’re seeing better teams and better products. Ten years ago you didn’t hear much about start-ups in the mainstream news, but now it’s everywhere and people are more inspired, and more and more people want to be a part of it. It’s an exciting time.”
For more information on Generation Recession see our infographic guide here.
How has the recession changed your small businesses in recent years? Let us know via Twitter @HiscoxUK (external link).