Silver Lining Provided by Entrepreneurs

Those of us passionate about entrepreneurship will quickly tell you that the solution to any economic problem lies with the innovative thinking of the entrepreneur. Coming up with new, innovative and ultimately profitable solutions to current problems is what entrepreneurs are all about. Whether its a business finance, business planning, customer retention, product or services related or marketing challenge, somewhere there will be an entrepreneur ready with a answer.

A new study has confirmed it. A close look at our entrepreneurial history reveals that entrepreneurship is an engine for job creation and economic growth even during difficult economic times. The study, The Economic Future Just Happened reveals that more than half of the 2009 Fortune 500 companies started in a recession or bear market. Similarly, nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies were launched during a recession or bear market.

This new study by the Kauffman Foundation’s Dane Stangler suggests that policies that support entrepreneurship also support recovery. It also reveals that job creation from startup companies tends to be less volatile and sensitive to downturns when compared to the overall economy. Are there factors in economic tough times that encourage potential entrepreneurs to take the risk of translating their ideas into a startup?

Several are identified. First, firm founders might perceive that their prospective competition might be weakened. Second, entrepreneurs may view unemployment as an opportunity to start a company. In other words, they beat unemployment with a startup. Further, unemployment presents the opportunity to tap into a larger pool of potential employees.

Naturally, not all new ventures survive, not even during healthy economy times. But although the link between new firms and aggregate economic performance is not so straightforward — some of the startups experience an initial expansion only to contract in its second to fifth year before expanding again — in times of recession, the important contribution of new firms regardless of their ultimate fate constitutes their immediate positive impact on job creation. New firms also contribute to innovation, thereby driving economic growth and often restructuring the economy with new patterns of economic activity.

Companies that reach the Fortune 500 and Inc. fastest-growing lists demonstrate strength, innovativeness and flexibility. These companies were once invisible, but their founders were able to turn a problem into an opportunity. I encourage you to read about some of these success stories in “Profiles in Innovation” section. I would not be surprised if some of the entrepreneurs behind these big companies failed for various reasons beyond a depressed economic environment before successfully reemerging. The entrepreneurial process is complex, but as this new study shows, risk-taking offers big rewards in an entrepreneurial economy both to the entrepreneur and the larger economy.

Knowing this, is the government’s response to this recession supportive of entrepreneurs? Despite the spur of entrepreneurship during recessions, obstacles remain, potentially mitigating the positive contributions of entrepreneurs during such difficult economic times. On top of the list is perhaps the tight capital market. In this regard, Financing the Entrepreneurial Recovery: A Kauffman Foundation Summit, offered interesting insights. Its participants, which included economists, researchers, investors, and entrepreneurs, discussed and debated a wide range of policy recommendations. Most urgently, they called for relief from the strangling costs of providing health care and Sarbanes-Oxley compliance. When asked for new models of financing entrepreneurs, participants expressed strong support for the continuation of the SBIR program, federal support for university proof-of-concept centers, and a national tax credit for angel investments.

More is sure to come from this and other similar discussions, but one thing is certainly clear – entrepreneurship is the path forward to recovery.

Jonathan Ortmans is a senior fellow at the Kauffman Foundation where he focuses on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues.

SA small firms not to bothered by slow down

Great news for small business owners is that most of us seems to be coping very well with the recent economic slowdown. An resent research study on Entrepreneurs around the country have found that it does not have to be all doom and gloom and many businesses are maintaining business levels and even growing their revenues. The research is really just proving what we have been saying all along in that the flexibility and increased ability to respond to change in customer needs often provide small firms with an edge compared to their larger counterparts.

In a number of recent conversations with business owners, the subject often came up and more often than not the comments were made that if it had not ben for the large amount of column inches afforded to the slow down in the press, few entrepreneurs really would have known about the slow down simply from looking at their balance sheets and income statements.

The report mainly found that:

67% regard business as profitable
Only 5% have no or low confidence in surviving 


In addition to this we have also found that activity at the Investors Network has been business as usual. Business ideas are still receiving funding and investors are as interested as as they have been.

Please see below for the remainder of the research report I refer to above. Let us know your experiences on this.

Till next time,
Ben




Although small and medium-sized businesses (SMEs) have been hit by the tumultous economic climate, they have proven to be remarkably more resilient than large corporates, according to the findings of a study into the impact of the recession on this sector.

The study, based on interviews with 2 500 business decision makers, was sponsored by Standard Bank in conjunction with Fujitsu and the Umsobomvu Youth Fund (operating as the National Youth Development Agency). 

The research, released last week, also sought to test the sector's confidence levels, and small enterprises' ability to remain sustainable in a recession.

Principal researcher Arthur Goldstuck said small businesses were coping well amid tough conditions, which had seen South Africa experience its first recession in nearly two decades. 

Said Goldstuck: "Make no mistake, they are bowed, but not completely beaten." 

He said only 5 percent of SMEs were making a loss, whereas 67 percent regarded their entities as profitable, indicating a resilience on their part. Twenty-four percent of SMEs were breaking even, representing a 2 percent increase compared to last year.

"This percentage is fairly high and it indicates that any additional shock could knock these companies further over the borderline. But if they hold onto strategies that work for them, they should survive," Goldstuck said.

Only 5 percent of these businesses indicated that they had none or very low confidence to weather the recession, while about 36 percent said they were neither optimistic nor pessimistic, he said. He added that 28 percent reported that they had high confidence while another 31 percent recorded a very high confidence.

He said the aim of the survey was to provide a barometer of expectations for SMEs in the coming year, particularly as many business owners had never before done business in a recession.

Thami Mazwai, the director at the Centre for Small Business Development at the University of Johannesburg, and Nicholas Biekpe, the president of the Africagrowth Institute, said the findings were not surprising as not all sectors had been affected by the downturn.



Mazwai pointed out that as the research was not sector specific, its findings were likely to have limitations.

"It would be interesting to look at small business in terms of sectors. For instance, small businesses in the automotive and textile sectors are bleeding heavily and many have closed shop," he said.

Biekpe said the apparent resilience of the small business sector had more to do with managing costs rather than organic business growth.

"To keep their heads above water, most SMEs are now cutting back on costs, which includes redundancies, marketing and delays or cancellations in investment on new projects," he said.

Biekpe added that every economic cycle had both positive and negative growth sectors. 

"This means that some SMEs are better placed than others. In addition, some owners are naturally good at attracting and keeping clients during lean times."

Ezekiel Madigoe, the managing director of information technology company Mamapo Solutions, complained, however, that business was drying up and that banks were not willing to fund small firms.

He said government tenders were hard to come by as these were given to businesses with political connections, while big corporates preferred to work with small enterprises with sound financial standing.

His views were echoed by Titus Molefe of glass and aluminium company, Tit Glasses in the North West.

"People are postponing orders, some do not pay for months and months," he said. 

Molefe had last year said he would employ about five contract workers in addition to his two permanent employees, but this had not happened this year.

However, Hlekani Mahlaule of Xongi General Trading, which manufactures duvet sets and clothing, said her business was booming and she had hired five people

By Lucky Biyase from BusReport