Economic news may be pessimistic, but there are reasons for entrepreneurs to be optimistic about new ventures
AUTHOR: Daire Burke, Head of Canada at Swoop
The best time to plant a tree, they say, was twenty years ago. The second-best time to plant a tree is now. Twenty years ago, that advice was still the same. Does it hold true for businesses?
Would-be founders should remember that uncertainty goes with the territory. “A computer in every home” sounded like a fantasy when the likes of Apple and Microsoft built their first machines. Today, just the one computer would mark your home out as unusually technology-lite.
Not every business can reshape the world as profoundly as Apple and Microsoft, but they can turn uncertainty to their advantage. Uncertainty presents opportunities: for example, the wave of digital transformation that hit the financial services sector ten years ago saw the birth of disruptive and upstart banks, lenders, insurers and the like, all of them digital-first, agile, data-driven and speaking directly to their customer. The big banks were no longer competing with each other, they were fighting off dozens of tiny startup competitors.
Today, when you speak with the legacy banks, their main concern is around how they can compete with the disruptors. Their outlook has completely changed. The big beasts of the financial world haven’t been knocked sideways by even bigger beasts, they’ve been tripped up by insects powered by digital technology.
What industry would you be getting yourself into? There are two kinds: industries being turned upside down by disruption and those to which transformation has yet to happen. There are opportunities for SMEs in both.
A report by Scotiabank found that SMEs had not experienced the same recovery as larger businesses after COVID-19:
“While 66% of large businesses (100+ employees) earned higher revenues in 2021 compared to 2019, this was true of less than 50% of smaller businesses (1–19 employees). In addition, 40% of firms in the latter category reported a contraction in revenue of between 1% and 50%, a much larger share compared to those with 100+ employees.”
This was explained by consumer demands in the worst-hit parts of the economy (such as arts and recreation, accommodation and food) taking longer to return to normal levels. Further factors could include
“the increased premium placed on the economies of scale in the post-pandemic economic landscape, as i) sales move online, which reduces the need for a retail sales network and puts larger firms with sophisticated logistics at an advantage, and ii) smaller firms lack bargaining power when competing with larger companies for labour and scarce supplies. The latter is more important in the context of global supply chain disruptions.”
The advantages of starting small
Let’s use accommodation services as an example of a fledgeling SME. Emerging trends are for smaller and more local, especially around food services and accommodation: digital disruptors such as AirBnB have made the online marketplace accessible to smaller, boutique hotels and holiday lets.
The big trends for remote working may mean that there could be more opportunities to let out properties, even in locations that aren’t obvious tourism destinations.
Smaller should mean more agile and better at finding workarounds (the larger businesses we hear from look on SMEs with envy in this regard). Take the supply chain issues that have been dogging the world throughout the pandemic: these would be less of a barrier to our new boutique hotel. If there is a problem with the preferred brand, finding complimentary toiletries is easier for the SME owner with six bathrooms than it is for the manager of a 600 room hotel.
Big businesses also struggle with finding talent. In the SME world, those who set up by themselves already have the best employee they could wish for. Big organisations have long chains of command and complex structures. Simplicity could put you at an advantage and buck the wider trend.
If you are thinking about starting a business, it can be demoralising to see the macro trends and imagine yourself becoming another sad statistic.
The evidence is that if you have a good idea, the means of putting it into practice, a market that wants what you have to offer and the resources to get busy, waiting for the perfect moment will be wasted time because the perfect moment can only ever be seen in the rear view mirror.