You’ve been planning for ages to leave your day job and strike out on your own. Now along comes this global financial crisis and you’re thinking "hell, this is the worst time to do it."
Yet despite the gloom and doom there are some who say that downturns, recessions, even great depressions, are the best time for an enterprising person to hang out his or her own shingle.
Nice words of encouragement, but should you be staking your livelihood on this advice?
The answer is "maybe." It really depends on what kind of business it is we’re talking about.
First, let’s get a grip on the economic facts on the ground. Are we or are we not going to have a recession?
The odds on a recession are shortening but in any case it is going to feel like one even if it technically isn’t.
At least you can be assured that everyone in Australia right now who has their mitts anywhere near an economic policy lever is pulling on it like mad.
The government has a $10.4 billion stimulus package out there.
Rates move down
Interest rates are down by 200 basis points since September. The fight against inflation that dominated the Reserve Bank’s agenda until early spring is now all but forgotten in the scramble to keep the economy afloat.
The fact that CPI hit 5% in the September quarter doesn’t count for much anymore.
The Reserve’s hasty reshuffling of priorities is looking a bit like the pleading of the young and lustful St. Augustine: "Lord grant me chastity, but just not now!"
Conveniently, the talking heads in the media have provided ample cover for the Reserve’s retreat, just as they rode shotgun for the bank’s policy makers when they were trampling on small business and Aussie battlers throughout the latter part of 2007 and the first half of 2008.
Despite fiscal stimulus and monetary easing though, you cannot have failed to notice that the tone of public discourse about the Australian economy has become decidedly more sour in recent days.
Recession talk
Just a few weeks ago all the talk amongst the chattering classes was about how Australia was well placed to avoid recession.
That has now been replaced by a creeping pessimism, wrapping its tentacles around the business media like a giant octopus.
But this is no more than a healthy sign that reality is now taking hold.
After all these months of red flashing lights, of smug Aussie ‘she’ll-be-right-mate’, we are finally getting somewhere.
Our minds are at last focused, but in all candor if you’re a company employee looking to leave the mother ship and start your own business, you can’t afford not to assume the worst.
World beaters
So should you hunker down and wait for the storm to pass before going it alone? Not necessarily.
A plethora of business writers are saying that start-up entrepreneurs have a field day in situations such as this.
The argument runs that as older uncompetitive companies get carted out in a downturn, there is more room on the playing field for newer and more innovative ones, who also benefit from lower costs for real estate and employees.
Vivek Wadhwa of Harvard Law School, writing for Business Week a few days ago, points to the impressive number of world-beating high-tech companies that started up in recessions or downturns. Among them: Adobe, Intel, Compaq, Microsoft and Sun Microsystems.
Note the pattern - many of these companies started off in garages with relatively low capital requirements and an awful lot of intellectual property.
This may be particularly important in the current environment where the credit crunch has made the availability of finance relatively more limited than in past recessions.
So knowledge workers- those who wish to start consulting businesses in knowledge-intensive sectors - such as information technology and real estate, have an edge.
You can set up your office at home, giving you the additional possibility of a lifestyle improvement.
You can plausibly market yourself as a nimble competitor who has few overheads, low costs, quick turnaround and complete devotion to the client.
And as the downturn takes hold, you may well find a lot of work comes your way as faulty projects and business models are exposed, and your expertise is called upon to fix them.
Many knowledge workers begin as one-person shops with their previous employer as first major client. This can an excellent way to get started as it lowers the initial start-up risks.
Regardless of whether you are starting a business in the same industry as your current employer or not, be sure you leave on good terms and don’t burn your bridges. Have the support of the employer behind you—it will be a source of business, contacts, expertise and other resources that cannot be underestimated.
Riskier
Some businesses are much riskier to start right now than others. For example, businesses with significant inventory or other capital requirements - like retailing - are going to be tough.
Sure, you can negotiate a better lease with a prospective landlord but that won’t help you much if no one is shopping.
Retailers that are largely non-differentiated, in commoditized merchandise categories, should be particularly wary.
In the next 12 months, risks to retailers in all discretionary categories are abnormally high, and unless you’re about to get pushed from your company anyway, 2009 will be the year of leaving dangerously.
Michael Baker is a global retail and property analyst and consultant. He can be contacted at: Michael_Baker@earthlink.net
