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Recession drives innovation: Have you got what it takes?

We speak to two entrepreneurs who started their businesses in recession and survived

“Recession drives innovation. If you actually believe in what you’re doing, you’ll find a way to do it.”

Starting a business in a recession is hard going. But right-minded entrepreneurs don’t let that deter them. New research shows 49% of British professionals plan to launch their own start-up if made redundant. And why not? Well-known, world beating companies had their birth in economic troughs: household name James Dyson launched his vacuum company in the downturn of the early nineties, while entrepreneurial icon Bill Gates founded Microsoft in the recession of 1975.

These two entrepreneurs – and the thousands more like them – are testament to the fact that if you have a good business idea and are prepared to work hard, success is up for grabs. Even in a downturn. Both David Williams and Mike Dauncey know it’s true: they started up in recessionary conditions and made good, too.

Mike, of recruitment agency TipTopJob, has steered his company through four recessions so far. The original version of his firm was set up in 1975, when the UK was in the depths of a downturn sparked by the oil crisis.

Fellow recession-beater, David, CEO and founder of global people development company Impact International, has made it through three downturns. He set up shop in 1980 when UK unemployment was high, strikes were frequent and fiscal policy was tight.

Both TipTopJob and Impact International are successful businesses with a global reach today. But it’s not like the hard times didn’t touch them: both entrepreneurs attest to the difficulties of dealing with falling sales in a recession; the pains attendant to securing credit; and the headaches of cashflow management.

Interestingly though, neither of our two entrepreneurs experienced the hardships of convincing cautious investors to offer funding: neither sought bank funding for their ventures. Nevertheless, Mike had such money trouble in the early stages that he sold his family home and moved somewhere cheaper; as a result he had sufficient funds to keep him going for about a year. Things were similarly tight for David, who couldn’t afford to pay himself for the first 18 months. “My wife was working as a hairdressers’ assistant at the time and we were living off her wages. It was tomatoes on toast for quite a while.”

But being short on funds when starting out isn’t the end of the world: it just means creating a leaner, more efficient enterprise. You should be keeping costs down anyway, though you don’t have to go as far as the Impact team did: they used to sleep on the roadside in sleeping bags to save money on hotel rooms.

If you set up your business model right, you don’t really need money to fund a start-up: you can fund growth through sales, as David’s company did. His business model insisted on a 25% deposit up front to secure any bookings for leadership or teamwork sessions. “Money shouldn’t be an object. We didn’t have any money at all,” David says of the early days of Impact, which started in his kitchen. “But we had a number of clients because I’d already been operating in this field for a while. Every penny that we earned had to be reinvested into the company.”

** image courtesy of LondonPermaculture on Flickr

So, it’s not a wealthy background, personal circumstance or sheer luck that feeds the subsequent success of any company: it’s business savvy and hard graft. Even though there were times when the futures of TipTopJob and Impact International were not so sure, Mike and David managed to work through the problems. The key to recovery, according to David, was keeping an eye on overheads and outgoings: “You’ve got to be very careful about what you spend and to make sure you get a return from every penny that you invest.”

Mike has a similar mantra: while TipTopJob survived the recession of 1981, he says there were dark periods when it really was touch and go. Between 1981 and 1983, when there seemed to be a general recruitment freeze, he had to close a number of offices down – including the entire secretarial recruitment side of the firm – to save the business. “In hard times, we just battened down the hatches,” he explains. “You have to cut your costs down, lose staff, and try to retain sufficient income to get you through it.”

Both David and Mike believe in finding opportunity in adversity. They are experienced enough to know that it’s easier to find skilled labour and quality premises to let in a downturn. And they can attest to any survivor of a recession taking off in the next period of growth. David explains: “Our business so far has actually grown through recession, because our strategy is to spread the risk. We share our risk out geographically and we work across all sectors. We share it out as far as we possibly can.”

As well as spreading risk, both businesses had marketing tricks up their sleeves to bolster business in a recession. And despite it being one of the first budgets to be cut when hard times hit, research shows businesses are most likely to survive a recession if they retain a focus on marketing.

Impact won a lot of business from low-budget ‘mail shots’ in the early days: “I borrowed one of those really old fashioned typewriters from my grandma. It had letters on the end of an arm, with the ribbon and so on,” he explains. He used to put six sheets of paper into the typewriter with sheets of carbon paper between them and type as many standard letters as he could in his spare time. “Then we sent them off in envelopes with stamps on them: I was convinced that if someone received a letter with a stamp on it, they’d open it up.”

Likewise, Mike has striven to keep TipTopJob in the sights of new and prospective clients. He has always adopted his business to fit with the media of the times: his recruitment firm has developed from a traditional office-based business, to one largely based online. Suitably, the form of advertising he’s used has followed. He explains: “The whole recruitment market has turned on its head over the past few years. Our advertising used to be in trade media and newspapers but today it’s all online.”

However, even with all the marketing, cost cutting and risk-strategy in the world, starting up your business now is not going to be an easy ride. As Mike says: “It is tough at the moment, very tough. Probably tougher than it was in any of the other recessions.” But, it’s a good idea to remain upbeat, because others who did, like David and Mike, got through not just their first downturn, but many subsequently — and they’ve come out, still positive, the other side.

“If what you have to offer is good and is of a good enough quality, you’ll find someone who wants to buy it,” David says. “Believe in what you’re doing and be passionate about it. It’s very hard to keep positive, but that’s what you’ve got to do.”

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