Why Crisis Is A Good Time To Start
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“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” Said Charles Darwin.
While Darwin used the above to emphasize the theory of evolution, it seems to be quite apt in the current pandemic, which has affected one and all and where survival is totally linked to the ‘adaptability quotient’ of individuals and corporates alike. The point to ask though; Is there a silver lining amongst all this gloom?
A close look at the crisis in the past indicates that companies who took a contra bet and ventured out (started afresh or pivoted themselves) during crisis led to creating massive impact and wealth creation in their respective sectors.
Big names such as Disney, Microsoft, FedEx, Airbnb, GM, GE, Hyatt, IBM, HP and many more either started or pivoted themselves totally (almost starting afresh with a new theme or line of business) during some sort of crisis like the Great Depression, 1973 oil crisis, and dot com bubble, which led to creation of behemoths. Just wonder, if they would have taken a call, like thousands of others, to just wait for things to settle down, probably the world would very different today without the impactful innovations, solutions, products, perspectives which led to massive impact across sectors, countries and global economies.
Great minds echo, when they say that crisis should never be wasted, but rather capitalized upon. This is something which can be correlated with the stock markets, where it is common prudence, to entre when markets are on the downside and the loss is limited investor gets great business at a discounted price.
So why actually it makes sense to start during the crisis? A look at the nine points below helps to highlight the reasons, drawing from the underlying thoughts of the winners of various crisis.
Riding the down cycle of business
Any business goes through cycles, and it might be couple of years before a business’s maturity is tested against odds. When one starts on the down cycle, the business witnesses and pivots to withstand tides against it and if it passes these, which can only happen if right nodes are ticked and basic foundation has been laid, the journey in the upcycle is going to be relatively easier.
Low cost of resources
Typically, down cycle leads to redundancy, lower efficiency and focus moves towards cost savings leading to lower real estate and associated infrastructure cost, more time in hands of your prospective customers (since business momentum is low, everyone has relatively more time to listen and find out products which can add value), collaboration and shared services are expected norms, and ready Infrastructure at throwaway prices and easy payment terms. These can easily lead to savings of upwards of 20 per cent, which can be added to the bottom line directly.
Availability of quality HR pool
These times, unfortunately, see large scale job cuts, salary cuts and redundancy in roles. The expectation of the talent hence is low and, they are flexible on the terms. Organization can look at lower fixed and high variable linked to productivity, contract-based roles, only equity-based association. Also, since the association is happening in distress times, there is a feeling of fight back which is good for business.
Among all the noise which exists in normal times, downturn clears the air and the companies know that all the focus and resources must be only on finding and delivering real customer value. Companies who can solve real customer problem, more so during a downturn retain a high chance of being on top of mind recall for the customer.
Relatively lesser competitive intensity
Majority of competitors are either fighting for survival or trying to solve their internal problems; so, one can have a good chance to capture market share and capitalize the momentum further in the upturn.
Focus on unit economics
Probably, external money might not be available so freely to support aggressive expansion and ‘Burn model’ which moves the focus totally on building a business on positive unit economics. This is one approach, if successfully executed will get VCs to appreciate and money availability will not be a challenge in future. This is where real maturity of the organized is reflected.
Availability of risk capital
While the stress levels are evident, the environment also sees bit of relaxation on the funding side from PE/VC/angels on the structure and valuation. At times government provides fund of funds to be made available to the start-up, to ensure that flow of capital is not restricted.
A particularly good time for aspiring entrepreneurs to either look at buying start-up, companies at a stagger payment terms or look at complementary acquisition, acqui-hires, mergers with bigger players. In essence, it brings in economies of scale and help in larger market share for the combined entities.
High government support
As it is commonplace that tides are totally against the economy, it is seen that government’s policies during these times are liberal and business friendly. Be it in terms of taxation, funding, debt repayment, government contracts, compliance costs and many more. These make it quite conducive for the business environment and helps both top line and bottom line.
To sum it, creating a winning company is a journey of lifetime and it is bound to see crisis. The earlier one gets an opportunity to embrace it, the stronger will one emerges out of it.