Starting the Business During Recession
1. Introduction
Many people around you are feeling depressed. They think that there is no hope. Maybe you or some of your friends and family have lost their job. The picture right now is a lot darker than it was a short two years ago. So, what are the options? What should you do to get your life back on track? You see, if you listen to the nay-sayers and doom merchants you can do nothing. You are just a passive spectator as greater powers try to rebuild the global economy. If you sit idly by, waiting for an economic upswing your situation is not likely to improve. In fact, your situation is likely to get a lot worse. You must wake up and smell the coffee. Look, everything has changed. This is great news for innovators and creative people who will help bring about a new economic paradigm. Are you one of those people? Businesses are failing right now because their business model is obsolete. They didn’t change with the times. They couldn’t or in a lot of cases, wouldn’t adapt. You should at least investigate the possibility of setting up a business with a sustainable business model that can not only survive, but thrive in the current economic climate. You owe it to yourself and your family. But just remember, you have to be smart about it. Setting up and running a business today has never been cheaper. In fact, you can set up a business for next to nothing. That’s not the major issue (although you will find some great tips on how to do this in this e-book). The major issue is attitude and specifically your
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attitude. With the right attitude you can accomplish more than you can imagine in these testing economic circumstances. So, the next time someone thinks that you are crazy for starting up in today’s recession, Ask yourself, what makes them so ignorant? The r-word - recession - what does it mean small businesses? Unsurprisingly, economists are divided in their opinions on this topic. This disparity could be likened to the chicken and the egg conundrum. Does small business suffering contribute to a recession or does a recession cause suffering to small businesses? There is a clear relationship between small business and the economy in general, especially in the in United States because much of economic growth is fueled by startup business. In spite of the hype about the internet startups, new companies come from every sector of the economy and every part of the world. All told, these small firms make a significant contribution to the economy simply by hiring one or two employees. The belief that small businesses fare poorly in economic slowdowns is a common misconception. Most solidly run small businesses actually hold their own during downturns. One reason for this misconception is that entrepreneurial ventures experience a different growth curve than more established businesses. Few businesses fit the popular "increasing returns" model in which a market leader can increase sales faster than expenses. Most entrepreneurs are seeing costs keeping pace with sales at least for the first few years. Unless a business is well run, it folds rather rapidly. One indicator that small business is doing well is that
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new ventures continue to be formed while the rate of failure has been relatively stable. Because of their size and attunement to their customers, new businesses are more flexible and quick to respond than many established businesses. By the very nature of their learning curve, well-run, new businesses are in tune with what their market is doing and adjust accordingly. Even mom and pop businesses that have been operating with a static clientele are more aware and able to be more flexible than many large businesses. One could even make the case that boom times when larger businesses are expanding are more of a threat to new businesses because of the intensity of the competition in the marketplace and the greater resource base larger businesses can draw from in a robust economy. One reason many small businesses do well is that there has been a shift away from traditional sources of capital for small business. In spite of the efforts by the Small Business Administration to support loans for small business from traditional lenders, many businesses have not found success through this path or have found the obstacles too big of a challenge. Consequently, many entrepreneurs turn to credit cards, home equity, commercial lenders, and angel investors for their funding - and even in a good economy, they are not turning to traditional sources of funding. Therefore, when those sources dry up in a recession, small business is not affected. A number of entrepreneurs, in fact, see a downturn as a time of opportunity. Not only do they have excellent employee choices, but as other areas of the economy tighten, many larger businesses are outsourcing services that small business can step in to supply. Entrepreneurs, after all, are noted for finding opportunity in the most unlikely places - why not a recession?
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2. What is Recession?
In economics, a recession is a business cycle contraction, a general slowdown in economic activity over a period of time. During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; bankruptcies and the unemployment rate rises. Recessions are generally believed to be caused by a drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
What Does Recession Mean?
A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.
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Investopedia explains Recession: Recession is a normal (albeit unpleasant) part of the business cycle; however, onetime crisis events can often trigger the onset of a recession. The global recession of 2008-2009 brought a great amount of attention to the risky investment strategies used by many large financial institutions, along with the truly global nature of the financial sytem. As a result of such a wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered extreme setbacks and numerous government policies were implemented to help prevent a similar future financial crisis. A recession generally lasts from six to 18 months, and interest rates usually fall in during these months to stimulate the economy by offering cheap rates at which to borrow money.
Extra
Recessions are hard on everyone - aren't they? Actually, just as wars have their war babies (companies that perform well during war and suffer during peace), recessions have their tough offspring as well. In this article we'll take a look at the industries that flourish in the adversity of a recession and why they do so well when everyone else is struggling to make ends meet. ? Discount Retailers It makes sense that, as budgets feel the strain of an economic downturn, people turn to the stores that offer the most for the least. Discount retailers like Wal-Mart do well at any time, but this is not entirely true. They often suffer in good times as people flush with money buy higher-quality goods at competing outlets. To remain competitive, they are forced to upgrade their product lines and change the focus of
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their business from thrift to quality. Their profits suffer from either lost sales or less margin on the goods they sell. In hard times, however, these retailers excel by going back to core products and using vast economies of scale to give cheap goods to consumers. Designers and producers of lower-end products also see an upswing as more people jump from brand names to make their paychecks go further. People may not like discount retailers, but in a recession most people end up shopping there. ? Sin Industries In bad times, the bad do well. Although it seems a little counterintuitive, people patronize the sin industry more during a recession. In good times, these same people might have bought new shoes, a new stereo or other, bigger-ticket items. In bad times, however, the desire for comforts doesn't leave, it simply scales down. People will pass on the stereo, but a nightly glass of wine, a pack of cigarettes or a chocolate bar are small expenditures that help hold back the general malaise that comes with being tight on cash. Be warned, though - not all sin businesses prosper in a recession. Gambling, with the exception of the truly troubled gamblers, becomes an extravagance and generally declines during recessions. In fact, casinos do their best trade when the economy is roaring and everyone feels lucky. The most prosperous businesses in this industry are the purveyors of small pleasures that can be bought at a gas station or convenience store. ? Selected Services Expect a downturn in the service industry as a whole, as companies and families are willing to do more themselves to save money. A certain class of service
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providers will see an upswing during hard times though. Companies that specialize in upgrading and maintaining existing equipment and products see their business increase as more clients focus on working with what they have now rather than buying a newer model. ? The Statics In a recession, simply carrying on with business as usual can be an achievement. Pharmaceuticals, healthcare companies, tax service companies, gravediggers, waste disposal companies and many others are in a category that, while not jumping ahead during a recession, can plod along while other companies suffer. This is simply because people get sick, get taxed and die (not always in that order) no matter what the economy is like. Sometimes the most boring businesses offer the most and, in
consistent context, returns.
exciting
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3. Benefits of Starting Business in Recession
1. Everything is cheaper. Let's face it: There is great value right now in this and in world markets. This is the right time for fantastic deals in virtually every category, from land and equipment to commercial office space, personnel and labor. As asset prices have been knocked down, there is no better time to get into the real estate or financial markets, or even heavy equipment and construction. Some people have waited years to find value in these markets--and now that time has come. 2. You can hire more and better-qualified people. In an era when even Microsoft is laying off, you can find great resources at affordable rates. Thinking about getting your high-tech startup off the ground? There are plenty of engineers waiting to be hired. Thinking about forming a
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professional services firm? There are many accountants and attorneys looking for their next opportunity. 3. People are looking to change suppliers. From a cost perspective, everything is on the table for most companies. Even if your prices are higher, if you can come in with greater value, you have a good chance at winning new business. You also have the advantage of being the new kid on the block when it comes to pitching your products and services. Many companies are desperate to find new partnerships with new companies that have a different, better or more innovative way of delivering those products and services. 4. Ownership equals tax incentives. Business ownership offers a variety of tax benefits that aren't available to employees. While taxes should never be the sole reason to go into business for yourself, it should be one reason to add to you "benefits of business ownership" list. 5. Family and friends don't want to (or can't) invest more money into the stock or real estate markets. That means they may be willing to finance a portion of your new venture, or the expansion of an enterprise that has proven itself over time. The main benefit is that they know you and have a relationship with you--and if you have a solid business plan that delivers real numbers, your chances of raising the capital you need increase exponentially. 6. Suppliers are giving better credit. Because the credit markets have virtually shut down, the B2B credit flows are keeping money circulating out of sheer necessity. That means a bullish outlook for companies looking for
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good terms on stock and/or inventories. The main advantage is that all parties have more incentive than ever for finding true win-win situations that allow for cash and stock flow. When everyone is looking to survive, great deals can be had. 7. You can get good PR by showing you are going against the trend. The media loves aberrations, and if you are optimistic by expanding or getting into business now, you would be in that category. That means you can generate some great PR by demonstrating your "alternative" view of the market. 8. You can buy everything you need at auction. In addition to everything being less expensive, you can find great deals at auctions, especially in terms of any large equipment and office furnishings. Auctions are also a great place to find hardly used or "gently" used restaurant and bar supplies at great prices. These days, you may even be able to get deals on fleets of vehicles and trucks for a delivery service or hauling or construction company. 9. You can find great "low money" or "no money" down deals. This is simply being aware of good opportunities others have buggered up, and finding deals where you could get an entire business simply by taking over a lease (along with all the equipment). Many business owners want out at any cost, meaning you can negotiate great win-win deals that allow the current owners an escape while giving you an opportunity to turn around what could be, if run right, a very viable business. And finally . . . 10.You've lost your job, and you have to do something. Sometimes, the best business decision is the one you are forced into, and the incentive (as well as
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need) for income is often enough to push those previously "on the fence" to
Starting the Business During Recession
strike out on their own. There's nothing wrong with being in this position; it simply means there is greater urgency to do something that will start to generate income as quickly as possible.
4. How Marketers Faced the Recession
Marketers respond to recession in different ways. Faced with slowing demand, cost reduction and negative sentiments, some marketers react to downturn by withdrawing to a shell. On the contrary there are marketers who become aggressive during these tough times. They come with new ambitious products and offers trying their level best to provoke the customers who postpone their purchases. It is interesting to see how Indian marketers responded to recession. Although there is a perception that Indian marketing practitioners are conservative, this recession proved the skeptics wrong. Many Indian brands reacted aggressively to the downturn determined to ride the storm rather than hiding in a safe place. ? Introducing new products
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While the global auto industry was reeling under pressure, Indian automobile markets were witnessing hot action. While global automakers were pruning their product lines and selling off their brands, Indian auto makers were launching new brands like never before. Leading the pack was the market leader Maruti Suzuki. In this difficult period, Maruti launched models like A-star and Ritz and has been aggressively investing in the new product development. Tata Motors shook the market with the launch of Nano . International auto majors who have their presence in the Indian market also joined the party with new launches. Latest in the list was Honda with their premium hatchback Jazz. The new product launches were not limited to automobile industry. This summer witnessed lot of action from the softdrink marketers. Parle Agro was in an aggressive mode launching brands like Grappo Fizz and LMN. Soft drinks major Pepsi introduced the lemon variant 7Up Nimbooz ? New segments Indian marketers also took the risk of searching out new segments for their brands and even
introducing new products for new segments. Honda which was focusing on sedans entered the premium hatchback segment with its brand Jazz. GSK is expanding its blockbuster brand Horlicks into new segments like
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Nutrition Bar and milk based beverages. Many personal care brands like Nivea, Garnier etc are launching products in the male grooming segment where there is a plenty of opportunity for growth. Mahindra launched Xylo which is expected to create a new segment that is looking for a cross over between a sedan and SUV.
? Increasing promotional spends Several Indian marketers viewed the downturn as an opportunity to get heard. Despite the credit crunch, brands spend heavily in the recent months. The IPL and 20-20 world cup saw many brands upping their media spends. Notably Vodafone stole the show through ZooZoo. This period also saw brands seriously focusing on the social media. Social media provided the much needed window through which brands could reach many customers with less cost. In terms of the nature of promotions, many brands used celebrities more than ever before. Despite the initial expenses, marketers felt that the presence of celebrity will give more credibility and push to the brand. Recession did not stop Indian brands from fighting each other. Horlicks and Complan are challenging each other and spending on comparative advertising as if there is no recession. Pepsi and Coke also upped their noise bring in new campaigns for their brands. Snack food brands like Bingo and Lays also did not hesitate in making noise.
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? Reinforcing best selling brands One of the most important steps that marketers did was to reinforce their existing mega brands. FMCG majors like HUL, P&G, and Godrej devoted much of their resources in reinforcing and strengthening their core brands.
Automobile marketers strengthened their core brands by bringing in product improvements and variants. Bajaj came out with the new generation Pulsar while Hero Honda launched an improved Passion Plus. Tata Motors launched the next generation Indica Vista and Honda launched the new generation City. Maggi celebrated its 25th Anniversary by reaching out to the customers. Many banks including the public sector banks revamped their positioning strategies and even invested lot of money on rebranding .HUL invested in further reinforcing its leading Deo brand Axe by launching yet another international campaign. Reckitt & Benckiser is currently running a high decibel campaign for its flagship brand Dettol. Honda Motors restyled its bestseller Activa scooters with a new look ? Repricing Indian marketers viewed recession as the best time to rework on the pricing strategies. HUL spent a lot of time and resources in repricing some of their major brands. The company observed that the consumers are cutting spends on certain FMCG categories either by postponing the purchase or moving towards low priced products. Many brands tried various price promotions and sales promotion activities to motivate the consumers to splurge. The recession also prompted certain marketers to introduce luxury products.
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The current downturn saw Indian marketers coming off age. While being cautious, Indian brands showed remarkable resilience and maturity in dealing with the current situation.
5. First Things First: Establish a Point of Reference
Believe that before you even prototype, you should put together a
questionnaire and get 600 or so responses. Then you should statistically analyze your results. You should also run a focus group with your target market. On top of this, it was also a great idea to do interviews with some potential customers. But that’s not all; you need to read report upon report on your market segment. You must also dissect each one of your competitor’s businesses from all analytical standpoints. After all of this is done, you should have a good idea if your business is feasible. The theory goes further, if you determine that your business has significant potential to become a success you then write a business plan which will help you get investment. It all sounds reasonable, doesn’t it?
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However, it’s not practical. It takes too long to complete (remember you can’t go for an extended period of time without any money coming in). It’s too expensive to outsource for a start-up. If you do it yourself nobody will believe it, no matter how objective you are. The results are likely to be biased in some way. It doesn’t help you get traction (traction is the most important thing). The good news is that there is a better way to go about market research for your new business. I like to call it “Organic Market Research”. In summary, Organic Market Research involves putting together a prototype or beta and getting it out there. Show people what you have. Allow them to use it. After they tell you why your product is awful, make the appropriate changes to improve it. You will know when your product is at a good standard when the early adopters start telling their friends. Look, traditional market research is sub optimal for a new start-up. You must listen to real world feedback and make the appropriate adjustments in real time. By taking a step back and viewing the market research and initial prototyping stage as one process you are leveraging the most from your time and resources. As you know, this is extremely important in a start-up setting. Remember, you’re not Procter and Gamble so get your hands dirty from the word go. However, you must realize that your product will be criticized. The key is to listen to the criticism and then do something about it. Another key point to remember is that you are probably not going to be “right first time”. People who think this, are either delusional or complete geniuses. And there are not a lot of geniuses walking around these days. No matter what you do, building your business is a process. There is no magic formula that always works. You must constantly evolve. You will make mistakes, but if you accept these mistakes as part of the learning curve you have a great chance of building a
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successful business. Another major reason for throwing a marker dart earlier is that you can reach traction quicker. This is the most important factor in getting external investment (if you need it). What you do in the real world is worth 100X what you do in a “scientific” market research scenario. Therefore, by focusing on improving your business from your initial starting point you are spending your time generating traction. My friend, that’s what this start-up game is all about.
6. Will People Rave About You?
In his excellent book “Purple Cow” Seth Godin talks about being remarkable. As a start-up, you must be remarkable. It’s important for you to understand that word of mouth is your only shot. How are you going to get people to tell their friends about you, if your product is “run of the mill”? I’m sure you agree, you can’t.
Traditionally
marketers
called
this
the
Unique
Selling
Point
(USP).
However, as Seth points out, it’s a lot more complicated than just being unique. People must care about how you are different or unique. It must be something that motivates people to comment. They must feel the need to tell their friends, to post on message boards, to bookmark your site, and so on. I have talked to many fellow entrepreneurs who rattle on about how many sales people they are going to put on the road. They seek hundreds of thousands of dollars in equity investment just to put a sales force on the road. To me, if you need a sales force you haven’t generated enough word of mouth. Think of it like this. Why don’t you make your customers the sales force? You don’t pay them, they do the job for free. All you have to do is be, as Seth Godin would
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say, “remarkable.” The important thing is to be remarkable with meaning. This is the most critical component in your marketing mix. By achieving this you will get maximum leverage with any other marketing tactic you use on top of this base. Being remarkable and comment worthy is only the first step. However, it’s probably the most crucial. When you get early adopters to use your products listen to what they have to say. If they make suggestions not only are they helping you improve your product but they are also telling you how to press their “word of mouth” button. The chances are that if you implement their suggestions successfully they will tell all of their friends, blog about you, social bookmark you, review you and so on. ********************************************************************
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7. Build a Fan Base
Once you have generated word of mouth you need to build a loyal fan base. Even though there is a Global recession going on right now, Apple have achieved some great results. The main reason for this is their fan base. People who buy Apple computers are not simply customers they are fans. Apple means more to them than a simple computer. To them Apple is a way of life. This is infectious. Have you ever taken your MacBook on a train and gotten a thumb up from a complete stranger. The generic laptop user beside you always looks on with envy. So, why do thousands of people follow a band across a continent? Why would someone want to see a band play more than once? Well, it’s like a drug. The great thing about the band is that the set list changes just enough to make you want to find out what will be played the next night. You definitely “got value”, 3 hrs and 15 mins! (That in itself is remarkable for an international touring band) and got to hear “Sherry Darling” but they didn’t play “The River”, but they might play it next time. Wow, better buy the plane tickets and fly to the next show.
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Once you have made something comment worthy and created word of mouth you must keep people interested. How you do this depends on who your customers are. Apple has the keynote at MacWord for their fans. This is more fuel for the word of mouth fire. How many times has a friend e-mailed you a video link for Steve Jobs at MacWorld announcing the new iPhone when it first came out? Always remember that you are an engineer building a word of mouth engine.
8. The Business Plan Myth!
Lets get this straight from the word go. Nobody invests in an idea and a business plan is just one big idea. As a result, it is not that important for you to get funding. Instead your plan should be created to get you traction. Don’t worry about fancy formatting. Don’t worry about detailed descriptions for other people. Just worry about getting traction.
See, traction is the key to getting investment not the actual plan. If your plan gets you traction then it’s a good plan. Let me redefine the “Business Plan” right here. To me a “Business Plan” is a story about how you got traction, and also, a description of how you are going to get more. Nobody has time to read it. So do them a favor. Keep your plan for investors simple and to the point. People should be able to understand your plan in 5 minutes. Remember, your objective is to convey a message and not to put people to sleep. In summary, the business plan that you write for yourself should look like a
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scorecard and the business plan that you write for investors should be a 10-15 slide
Starting the Business During Recession
deck.
The next time you hear someone insist that you need to write a 60+ page business plan, think about the research from the Robert H. Smith School of Business, University of Maryland which shows that entrepreneurs need not worry about writing an in-depth business plan to get funding from VCs. The research shows that business plans play an insignificant role in the decision making process of Venture Capitalists. The paper titled “Form or Substance? The Role of Business Plans in Venture Capital Decision Making.” which was co authored by David Kirsch, Brent Goldfarb and Azi Gera, contains research on 718 funding requests from the period April 1999 - February 2002. There are some great resources on business planning such as sample templates and videos on LostJobStartBusiness.com. Be sure to check them out.
The key is not to focus on the plan as a standalone issue. Focus on actually building your business and use the plan as a reflection of what you are doing as well as what you intend to do in the medium term.
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9. The Internet a Start-up’s Best Friend
The Internet is a vehicle for communication. Ideas spread quickly and widely through this medium. A simple link sent over MSN or Facebook by one person to their friend has profound influence. See, the Internet makes it easy for people to tell their friends about stuff. That’s what makes it a powerful tool. Traditional advertising and marketing techniques are in decline. As a start up entrepreneur you should leave them to Nike and Pepsi. Use the Internet to leverage people telling their friends about you. That’s your primary objective. Getting people to talk, link, review, blog,
comment, recommend, rate and endorse you, is what the game is about. The Internet is the only way you can get in the mix. Forget about PR firms and Ad agencies, they are not for you. Focus your resources on the Internet. This gives you the biggest leverage for your time spent on “marketing” which today means generating word of mouth. However, we can’t overstate the need for you to have your fundamental word of mouth generator in place. This is the part of your product that is comment worthy. Internet marketing does not work without it. It doesn’t matter how many Twitter posts you make. If what you do is not comment worthy, it will not spread.
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In other words. If you are bland you will lose. Simple huh?
10. Build a Business Model That Works in Recession.
What’s wrong with the US car companies? Simply put, their business model was outdated and obsolete. What was wrong with all the banks? Their business model could only survive in an economically opulent time. The same can be said with most businesses that are struggling right now.
So,
what
are
the
options
open
to
established
businesses
that
are
struggling? Well, they can either change or fail. However, change is extremely difficult. Core beliefs and practices that have been ingrained in the organization must change. To anyone familiar with organization behavior. This is a nightmare. You, on the other hand, don’t have to worry about change. You can start with a business model that not only will work in a recession but will position you excellently for any economic upswing. We know that some of your friends are neigh-sayers. They like to criticize your plans. I guess that some people will always take the negative stance no matter what. However, the next time you hear “Hey, you are crazy for starting that business in this recession” put it down to their lack
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of business knowledge. See, this recession is caused by business
models and a good business model can do well despite the recession.
“The Recession” is the biggest excuse out there right now. The key for you is not to use it as an excuse. There’s plenty of opportunity out there for you. Keep your business as lean as possible. Really squeeze the costs down to a minimum. Bootstrap like your life depended on it (it does). ********************************************************************
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11. Do Your Research the Practical Way.
Earlier on we touched on Organic Market Research. Here are some practical tips that can help you. When doing market research you can do it either the scientific or practical way.
Since you are building a business in the real word that you hope will make real money I would suggest doing your market research the same way. Are you doing a Phd.? Do you even own a lab coat? Then why would you do scientific market research? Its normal to know what you’re thinking. What does this guy mean by “practical market research”. Well, here goes (I will try to make my explanation as practical as possible). Find similar listed companies in your sector and read their annual
reports. Find out what is and isn’t working for them. Also, find out what their future strategy is and why they will be following it. Go onto LinkedIn and ask advice. Post questions. Use forums and Google Groups to do the same. Build a beta or prototype and start showing it to early adopters/geeks. Listen to them tell you how awful your beta/prototype is and make the appropriate
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changes. Get more feedback from the early adopters. Repeat this process until they
Starting the Business During Recession
start telling their friends about you. Sounds simple, doesn’t it? Well it is. It’s much less time consuming than writing out questionnaires and running focus groups. You are achieving the same results but in a real world practical setting. And here is the important part, by doing practical market research you are also getting traction. That’s the third favorite word after profit and sale. ******************************************************************
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12. What to Copy from Established Company?
Some of your competitors have been around the block a few times. As a result, they have learned a thing or two. Why not piggy back on their experience and copy them on a few things?
You must be selective on what you copy. Remember you must have something that people want to talk about. You must be different in some way. But if people don’t care about that particular aspect of a business model then it’s a good idea to copy it from a competitor. No point in reinventing the wheel, huh? Typically, look to areas like distribution, technical support, warrantees, licensing etc. for opportunities to follow in the footsteps of you competitors. Just make sure that your product does not become generic as a result. Keep the remarkable elements. As you can see, this is a tougher decision than you may have thought at first. It’s a balancing act and does require tweaking over time. It’s sure you agree that by copying your competitors in some “behind the scenes” operations you are benefiting from their experience without having to make the mistakes. If you are seeking external investment you can use your competitors as back-up for any operational question that you may be asked. A great way to find out what your competitors are doing is reading annual reports and also doing a news search on Google for businesses in your
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sector.
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13. Your Start-up Team
Currently, work alone but have a start-up team before. A three person team is good at the start. Two on development and one on marketing. As said before, all members of the start-up team must be obsessed. Even if one member is only 3/4 obsessed your team will not work. You have to realize that trial and error is part of being an entrepreneur so
this will happen a lot at the start. Here are some start-up team pointers. 1) Be in constant communication. Tell the team exactly what you have done and what you plan to do. Always ask for clarity if you don’t fully understand what another team member is saying. 2) Don’t set unrealistic deadlines. Let each member set their own deadlines because they know their area of expertise best. 3) As soon as you start having difficulty with something tells the team. 4) Be honest with everything. If you think someone should be doing a better job then tell them straight away. 5) Hold your hands up when you make a mistake. 6) Don’t expect miracles. Everything takes time and effort. 7) If someone wants out, refer to the shareholders agreement. There will be problems. The key is how you deal with the problems that will determine how successful your founding team is.
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14. The Lotus in the Swamp
These are tough times for entrepreneurs. We are going through one of the worst economic crisis in history. The meltdown in financial markets has plunged economies all around the world into a recession. Entrepreneurs are finding that revenues are declining as customers cut back spending. Given these woes in the capital markets and the economy, it seems that this is a very bad time to start a new company or to grow a start-up business. Yet, history suggests that difficult economic conditions may actually be the best of times for entrepreneurship. Like a lotus that thrives in a dirty swamp, some of the most innovative companies have emerged during deep recessions. And just as the lotus relies on the swamp for its nutrition, start up companies can actually benefit from difficult economic conditions. The great depression on 1929 was the most severe and prolonged economic crisis the world has ever seen. And yet, it was during these times that great companies like Motorola and Texas instruments were founded. Ironically, it was during the depression that Fortune was launched, when there wasn’t much business to talk about. The next biggest recession the United States experienced was in 1982, as the economy shrank by 2.2 per cent and unemployment spiked at 10.8 per cent. However, it was during this time that we saw the birth of IBM PC, the founding of Sun Microsystems, and the creation
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of Cisco systems. These events gave birth to the PC industry, the computer workstation industry and the networking industry. Twenty years later, as the US was again mires in recession in 2001, Apple launched its first retail store and introduced its revolutionary iPod digital music player. As Steve Jobs notes, Apple does not pay attention to the state of the economy. Instead, it believes that as long as it keeps putting great products in front of the customers, they will continue to open their wallets. Here are some tips for surviving and thriving in difficult economic times: Grow organically: Think about how you can grow your start-up company with minimal or no external capital. This might sound difficult, but on deeper reflection, investment capital is usually required for two reasons: to fund product development and to get big fast in a competitive race. Entrepreneurs should begin with project-based services that can provide quick revenues and lessen cash burn, and then gradually invest in product development as they generate resources organically. The mantra is “servicise to learn, and then productize to earn”. Further, in difficult economic times, getting big fast may not be essential, because the race will be won not by those who run the fastest, but by those who last the longest. So you can afford to slow down and pace yourself to run a marathon, instead of burning out quickly in a frantic sprint fuelled by venture capital. Sharpen your value proposition: As customers become more demanding, you can’t afford to be wishy-washy about why they should be doing business with your company. You need to communicate your proposition clearly, crisply and concisely. What benefits do you offer? When, where and who should be using your products? What situations or scenarios have you
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optimized your offerings for? How are your offerings better than competing
Starting the Business During Recession
alternatives, including the alternative of not buying anything at all? How can you make it easier for the customers to do business with you? How can you reduce their perceived risk of using your products or doing business with a small company? These are questions one should pay close attention to. Diversify your markets: For a start-up company, it is good idea not to have all your eggs in one basket. If you focus exclusively in one market, you are more vulnerable to sharp downturns in the market or in currency fluctuations. For instance, the US market looked very lucrative a few years ago for Indian IT companies, but over-dependence on the US is now hurting them. As an entrepreneur, think about how you can make your products and services relevant to the Indian market as well as to developed markets. Variablize your assets: You need loads of capital to acquire fixed assets, and they greatly limit your flexibility once you have acquired them. So, whether it is real estate, computers, software, and office equipment or even staffing, think ten times before you put a single rupee into the ground. Rent your office furniture, office space, and your office staff. Use part timers where you can, to reduce your burn rate. The spirit of entrepreneurship lives on in times good and bad. Entrepreneurship may thrive in difficult economic times, because entrepreneurs need to be more disciplined, more focus, and less distracted by competition. If entrepreneurs can adapt their strategies to position themselves for the downturn, the same economic headwinds that are slowing them down can become the wind at their back, propelling them to be Promised Land. ******************************************************************
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15. Conclusion
To some up the project we have come to the conclusion as in why do people become entrepreneurs? In these times of economical crisis, we are taken by surprise by the fact that more and more people decide to set up their own businesses and venture in the world of entrepreneurship. This is crucial to the economy of every country and it can have a positive effect not just on the individual, but also on the economy, by supporting economic growth. These are a few of the main reasons why people decide to become entrepreneurs: 1. Need for financial independence and security Setting up and managing your own business can be a tricky and stressful endeavor; however, it can prove to be very profitable. Having your own business can provide total financial independence and this is an enormous accomplishment for most people, especially when the economy is in a period of decline. 2. Frustration with their current workplace or career Some people become frustrated with their past achievements and feel like their current career path is not going the way they expected or fulfilling their goals. This is when they make the brave decision to give up on their current job and take on the difficult challenge of setting up their own business.
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3. Desire for achievement and self-fulfillment For many, having a business of their own is a childhood dream or a lifelong aspiration. The natural desire to fulfill this ambition will drive some people to pursue their aspirations to become entrepreneurs. Having your own business can bring a lot of satisfaction and a deep sense of achievement. This is especially true for people who have an inborn entrepreneurial spirit: they are excited by the challenge and they enjoy taking risks. 4. Need for money The current state of the economy has resulted in a dramatic increase in the unemployment rate. Many of the people who lost their jobs are forced by the circumstances to search for new ways of earning a living and supporting their family. For some, setting up a business can be the way to regain their financial stability. 5. Willingness to invest their current resources People who are already wealthy may find that setting up a business can be a very good way of creating more wealth and generate a steady flow of income. Entrepreneurs come from all the paths of life. The diverse motivations of people that become entrepreneurs account for a large number of businesses being opened at any given time. The same diversity of reasons to become an entrepreneur also explains why some businesses are a huge success, while others fail. Nevertheless, the amount of people who get involved in business is growing quite rapidly and having a positive effect on the economy.
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15. Bibliography
Websites
http://www.usnews.com/money/blogs/outside-voices-small-business/2009/01/12/why-do-peoplebecome-entrepreneurs http://www.helium.com/items/1614398-why-do-people-become-entrepreneurs http://en.wikipedia.org/wiki/Entrepreneur http://www.entrepreneur.com/interstitial/default.html
Magazines
India today
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doc_194451753.docx
1. Introduction
Many people around you are feeling depressed. They think that there is no hope. Maybe you or some of your friends and family have lost their job. The picture right now is a lot darker than it was a short two years ago. So, what are the options? What should you do to get your life back on track? You see, if you listen to the nay-sayers and doom merchants you can do nothing. You are just a passive spectator as greater powers try to rebuild the global economy. If you sit idly by, waiting for an economic upswing your situation is not likely to improve. In fact, your situation is likely to get a lot worse. You must wake up and smell the coffee. Look, everything has changed. This is great news for innovators and creative people who will help bring about a new economic paradigm. Are you one of those people? Businesses are failing right now because their business model is obsolete. They didn’t change with the times. They couldn’t or in a lot of cases, wouldn’t adapt. You should at least investigate the possibility of setting up a business with a sustainable business model that can not only survive, but thrive in the current economic climate. You owe it to yourself and your family. But just remember, you have to be smart about it. Setting up and running a business today has never been cheaper. In fact, you can set up a business for next to nothing. That’s not the major issue (although you will find some great tips on how to do this in this e-book). The major issue is attitude and specifically your
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attitude. With the right attitude you can accomplish more than you can imagine in these testing economic circumstances. So, the next time someone thinks that you are crazy for starting up in today’s recession, Ask yourself, what makes them so ignorant? The r-word - recession - what does it mean small businesses? Unsurprisingly, economists are divided in their opinions on this topic. This disparity could be likened to the chicken and the egg conundrum. Does small business suffering contribute to a recession or does a recession cause suffering to small businesses? There is a clear relationship between small business and the economy in general, especially in the in United States because much of economic growth is fueled by startup business. In spite of the hype about the internet startups, new companies come from every sector of the economy and every part of the world. All told, these small firms make a significant contribution to the economy simply by hiring one or two employees. The belief that small businesses fare poorly in economic slowdowns is a common misconception. Most solidly run small businesses actually hold their own during downturns. One reason for this misconception is that entrepreneurial ventures experience a different growth curve than more established businesses. Few businesses fit the popular "increasing returns" model in which a market leader can increase sales faster than expenses. Most entrepreneurs are seeing costs keeping pace with sales at least for the first few years. Unless a business is well run, it folds rather rapidly. One indicator that small business is doing well is that
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new ventures continue to be formed while the rate of failure has been relatively stable. Because of their size and attunement to their customers, new businesses are more flexible and quick to respond than many established businesses. By the very nature of their learning curve, well-run, new businesses are in tune with what their market is doing and adjust accordingly. Even mom and pop businesses that have been operating with a static clientele are more aware and able to be more flexible than many large businesses. One could even make the case that boom times when larger businesses are expanding are more of a threat to new businesses because of the intensity of the competition in the marketplace and the greater resource base larger businesses can draw from in a robust economy. One reason many small businesses do well is that there has been a shift away from traditional sources of capital for small business. In spite of the efforts by the Small Business Administration to support loans for small business from traditional lenders, many businesses have not found success through this path or have found the obstacles too big of a challenge. Consequently, many entrepreneurs turn to credit cards, home equity, commercial lenders, and angel investors for their funding - and even in a good economy, they are not turning to traditional sources of funding. Therefore, when those sources dry up in a recession, small business is not affected. A number of entrepreneurs, in fact, see a downturn as a time of opportunity. Not only do they have excellent employee choices, but as other areas of the economy tighten, many larger businesses are outsourcing services that small business can step in to supply. Entrepreneurs, after all, are noted for finding opportunity in the most unlikely places - why not a recession?
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2. What is Recession?
In economics, a recession is a business cycle contraction, a general slowdown in economic activity over a period of time. During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; bankruptcies and the unemployment rate rises. Recessions are generally believed to be caused by a drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
What Does Recession Mean?
A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.
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Investopedia explains Recession: Recession is a normal (albeit unpleasant) part of the business cycle; however, onetime crisis events can often trigger the onset of a recession. The global recession of 2008-2009 brought a great amount of attention to the risky investment strategies used by many large financial institutions, along with the truly global nature of the financial sytem. As a result of such a wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered extreme setbacks and numerous government policies were implemented to help prevent a similar future financial crisis. A recession generally lasts from six to 18 months, and interest rates usually fall in during these months to stimulate the economy by offering cheap rates at which to borrow money.
Extra
Recessions are hard on everyone - aren't they? Actually, just as wars have their war babies (companies that perform well during war and suffer during peace), recessions have their tough offspring as well. In this article we'll take a look at the industries that flourish in the adversity of a recession and why they do so well when everyone else is struggling to make ends meet. ? Discount Retailers It makes sense that, as budgets feel the strain of an economic downturn, people turn to the stores that offer the most for the least. Discount retailers like Wal-Mart do well at any time, but this is not entirely true. They often suffer in good times as people flush with money buy higher-quality goods at competing outlets. To remain competitive, they are forced to upgrade their product lines and change the focus of
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their business from thrift to quality. Their profits suffer from either lost sales or less margin on the goods they sell. In hard times, however, these retailers excel by going back to core products and using vast economies of scale to give cheap goods to consumers. Designers and producers of lower-end products also see an upswing as more people jump from brand names to make their paychecks go further. People may not like discount retailers, but in a recession most people end up shopping there. ? Sin Industries In bad times, the bad do well. Although it seems a little counterintuitive, people patronize the sin industry more during a recession. In good times, these same people might have bought new shoes, a new stereo or other, bigger-ticket items. In bad times, however, the desire for comforts doesn't leave, it simply scales down. People will pass on the stereo, but a nightly glass of wine, a pack of cigarettes or a chocolate bar are small expenditures that help hold back the general malaise that comes with being tight on cash. Be warned, though - not all sin businesses prosper in a recession. Gambling, with the exception of the truly troubled gamblers, becomes an extravagance and generally declines during recessions. In fact, casinos do their best trade when the economy is roaring and everyone feels lucky. The most prosperous businesses in this industry are the purveyors of small pleasures that can be bought at a gas station or convenience store. ? Selected Services Expect a downturn in the service industry as a whole, as companies and families are willing to do more themselves to save money. A certain class of service
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providers will see an upswing during hard times though. Companies that specialize in upgrading and maintaining existing equipment and products see their business increase as more clients focus on working with what they have now rather than buying a newer model. ? The Statics In a recession, simply carrying on with business as usual can be an achievement. Pharmaceuticals, healthcare companies, tax service companies, gravediggers, waste disposal companies and many others are in a category that, while not jumping ahead during a recession, can plod along while other companies suffer. This is simply because people get sick, get taxed and die (not always in that order) no matter what the economy is like. Sometimes the most boring businesses offer the most and, in
consistent context, returns.
exciting
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Starting the Business During Recession
3. Benefits of Starting Business in Recession
1. Everything is cheaper. Let's face it: There is great value right now in this and in world markets. This is the right time for fantastic deals in virtually every category, from land and equipment to commercial office space, personnel and labor. As asset prices have been knocked down, there is no better time to get into the real estate or financial markets, or even heavy equipment and construction. Some people have waited years to find value in these markets--and now that time has come. 2. You can hire more and better-qualified people. In an era when even Microsoft is laying off, you can find great resources at affordable rates. Thinking about getting your high-tech startup off the ground? There are plenty of engineers waiting to be hired. Thinking about forming a
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professional services firm? There are many accountants and attorneys looking for their next opportunity. 3. People are looking to change suppliers. From a cost perspective, everything is on the table for most companies. Even if your prices are higher, if you can come in with greater value, you have a good chance at winning new business. You also have the advantage of being the new kid on the block when it comes to pitching your products and services. Many companies are desperate to find new partnerships with new companies that have a different, better or more innovative way of delivering those products and services. 4. Ownership equals tax incentives. Business ownership offers a variety of tax benefits that aren't available to employees. While taxes should never be the sole reason to go into business for yourself, it should be one reason to add to you "benefits of business ownership" list. 5. Family and friends don't want to (or can't) invest more money into the stock or real estate markets. That means they may be willing to finance a portion of your new venture, or the expansion of an enterprise that has proven itself over time. The main benefit is that they know you and have a relationship with you--and if you have a solid business plan that delivers real numbers, your chances of raising the capital you need increase exponentially. 6. Suppliers are giving better credit. Because the credit markets have virtually shut down, the B2B credit flows are keeping money circulating out of sheer necessity. That means a bullish outlook for companies looking for
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good terms on stock and/or inventories. The main advantage is that all parties have more incentive than ever for finding true win-win situations that allow for cash and stock flow. When everyone is looking to survive, great deals can be had. 7. You can get good PR by showing you are going against the trend. The media loves aberrations, and if you are optimistic by expanding or getting into business now, you would be in that category. That means you can generate some great PR by demonstrating your "alternative" view of the market. 8. You can buy everything you need at auction. In addition to everything being less expensive, you can find great deals at auctions, especially in terms of any large equipment and office furnishings. Auctions are also a great place to find hardly used or "gently" used restaurant and bar supplies at great prices. These days, you may even be able to get deals on fleets of vehicles and trucks for a delivery service or hauling or construction company. 9. You can find great "low money" or "no money" down deals. This is simply being aware of good opportunities others have buggered up, and finding deals where you could get an entire business simply by taking over a lease (along with all the equipment). Many business owners want out at any cost, meaning you can negotiate great win-win deals that allow the current owners an escape while giving you an opportunity to turn around what could be, if run right, a very viable business. And finally . . . 10.You've lost your job, and you have to do something. Sometimes, the best business decision is the one you are forced into, and the incentive (as well as
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need) for income is often enough to push those previously "on the fence" to
Starting the Business During Recession
strike out on their own. There's nothing wrong with being in this position; it simply means there is greater urgency to do something that will start to generate income as quickly as possible.
4. How Marketers Faced the Recession
Marketers respond to recession in different ways. Faced with slowing demand, cost reduction and negative sentiments, some marketers react to downturn by withdrawing to a shell. On the contrary there are marketers who become aggressive during these tough times. They come with new ambitious products and offers trying their level best to provoke the customers who postpone their purchases. It is interesting to see how Indian marketers responded to recession. Although there is a perception that Indian marketing practitioners are conservative, this recession proved the skeptics wrong. Many Indian brands reacted aggressively to the downturn determined to ride the storm rather than hiding in a safe place. ? Introducing new products
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While the global auto industry was reeling under pressure, Indian automobile markets were witnessing hot action. While global automakers were pruning their product lines and selling off their brands, Indian auto makers were launching new brands like never before. Leading the pack was the market leader Maruti Suzuki. In this difficult period, Maruti launched models like A-star and Ritz and has been aggressively investing in the new product development. Tata Motors shook the market with the launch of Nano . International auto majors who have their presence in the Indian market also joined the party with new launches. Latest in the list was Honda with their premium hatchback Jazz. The new product launches were not limited to automobile industry. This summer witnessed lot of action from the softdrink marketers. Parle Agro was in an aggressive mode launching brands like Grappo Fizz and LMN. Soft drinks major Pepsi introduced the lemon variant 7Up Nimbooz ? New segments Indian marketers also took the risk of searching out new segments for their brands and even
introducing new products for new segments. Honda which was focusing on sedans entered the premium hatchback segment with its brand Jazz. GSK is expanding its blockbuster brand Horlicks into new segments like
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Nutrition Bar and milk based beverages. Many personal care brands like Nivea, Garnier etc are launching products in the male grooming segment where there is a plenty of opportunity for growth. Mahindra launched Xylo which is expected to create a new segment that is looking for a cross over between a sedan and SUV.
? Increasing promotional spends Several Indian marketers viewed the downturn as an opportunity to get heard. Despite the credit crunch, brands spend heavily in the recent months. The IPL and 20-20 world cup saw many brands upping their media spends. Notably Vodafone stole the show through ZooZoo. This period also saw brands seriously focusing on the social media. Social media provided the much needed window through which brands could reach many customers with less cost. In terms of the nature of promotions, many brands used celebrities more than ever before. Despite the initial expenses, marketers felt that the presence of celebrity will give more credibility and push to the brand. Recession did not stop Indian brands from fighting each other. Horlicks and Complan are challenging each other and spending on comparative advertising as if there is no recession. Pepsi and Coke also upped their noise bring in new campaigns for their brands. Snack food brands like Bingo and Lays also did not hesitate in making noise.
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? Reinforcing best selling brands One of the most important steps that marketers did was to reinforce their existing mega brands. FMCG majors like HUL, P&G, and Godrej devoted much of their resources in reinforcing and strengthening their core brands.
Automobile marketers strengthened their core brands by bringing in product improvements and variants. Bajaj came out with the new generation Pulsar while Hero Honda launched an improved Passion Plus. Tata Motors launched the next generation Indica Vista and Honda launched the new generation City. Maggi celebrated its 25th Anniversary by reaching out to the customers. Many banks including the public sector banks revamped their positioning strategies and even invested lot of money on rebranding .HUL invested in further reinforcing its leading Deo brand Axe by launching yet another international campaign. Reckitt & Benckiser is currently running a high decibel campaign for its flagship brand Dettol. Honda Motors restyled its bestseller Activa scooters with a new look ? Repricing Indian marketers viewed recession as the best time to rework on the pricing strategies. HUL spent a lot of time and resources in repricing some of their major brands. The company observed that the consumers are cutting spends on certain FMCG categories either by postponing the purchase or moving towards low priced products. Many brands tried various price promotions and sales promotion activities to motivate the consumers to splurge. The recession also prompted certain marketers to introduce luxury products.
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The current downturn saw Indian marketers coming off age. While being cautious, Indian brands showed remarkable resilience and maturity in dealing with the current situation.
5. First Things First: Establish a Point of Reference
Believe that before you even prototype, you should put together a
questionnaire and get 600 or so responses. Then you should statistically analyze your results. You should also run a focus group with your target market. On top of this, it was also a great idea to do interviews with some potential customers. But that’s not all; you need to read report upon report on your market segment. You must also dissect each one of your competitor’s businesses from all analytical standpoints. After all of this is done, you should have a good idea if your business is feasible. The theory goes further, if you determine that your business has significant potential to become a success you then write a business plan which will help you get investment. It all sounds reasonable, doesn’t it?
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However, it’s not practical. It takes too long to complete (remember you can’t go for an extended period of time without any money coming in). It’s too expensive to outsource for a start-up. If you do it yourself nobody will believe it, no matter how objective you are. The results are likely to be biased in some way. It doesn’t help you get traction (traction is the most important thing). The good news is that there is a better way to go about market research for your new business. I like to call it “Organic Market Research”. In summary, Organic Market Research involves putting together a prototype or beta and getting it out there. Show people what you have. Allow them to use it. After they tell you why your product is awful, make the appropriate changes to improve it. You will know when your product is at a good standard when the early adopters start telling their friends. Look, traditional market research is sub optimal for a new start-up. You must listen to real world feedback and make the appropriate adjustments in real time. By taking a step back and viewing the market research and initial prototyping stage as one process you are leveraging the most from your time and resources. As you know, this is extremely important in a start-up setting. Remember, you’re not Procter and Gamble so get your hands dirty from the word go. However, you must realize that your product will be criticized. The key is to listen to the criticism and then do something about it. Another key point to remember is that you are probably not going to be “right first time”. People who think this, are either delusional or complete geniuses. And there are not a lot of geniuses walking around these days. No matter what you do, building your business is a process. There is no magic formula that always works. You must constantly evolve. You will make mistakes, but if you accept these mistakes as part of the learning curve you have a great chance of building a
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successful business. Another major reason for throwing a marker dart earlier is that you can reach traction quicker. This is the most important factor in getting external investment (if you need it). What you do in the real world is worth 100X what you do in a “scientific” market research scenario. Therefore, by focusing on improving your business from your initial starting point you are spending your time generating traction. My friend, that’s what this start-up game is all about.
6. Will People Rave About You?
In his excellent book “Purple Cow” Seth Godin talks about being remarkable. As a start-up, you must be remarkable. It’s important for you to understand that word of mouth is your only shot. How are you going to get people to tell their friends about you, if your product is “run of the mill”? I’m sure you agree, you can’t.
Traditionally
marketers
called
this
the
Unique
Selling
Point
(USP).
However, as Seth points out, it’s a lot more complicated than just being unique. People must care about how you are different or unique. It must be something that motivates people to comment. They must feel the need to tell their friends, to post on message boards, to bookmark your site, and so on. I have talked to many fellow entrepreneurs who rattle on about how many sales people they are going to put on the road. They seek hundreds of thousands of dollars in equity investment just to put a sales force on the road. To me, if you need a sales force you haven’t generated enough word of mouth. Think of it like this. Why don’t you make your customers the sales force? You don’t pay them, they do the job for free. All you have to do is be, as Seth Godin would
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say, “remarkable.” The important thing is to be remarkable with meaning. This is the most critical component in your marketing mix. By achieving this you will get maximum leverage with any other marketing tactic you use on top of this base. Being remarkable and comment worthy is only the first step. However, it’s probably the most crucial. When you get early adopters to use your products listen to what they have to say. If they make suggestions not only are they helping you improve your product but they are also telling you how to press their “word of mouth” button. The chances are that if you implement their suggestions successfully they will tell all of their friends, blog about you, social bookmark you, review you and so on. ********************************************************************
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7. Build a Fan Base
Once you have generated word of mouth you need to build a loyal fan base. Even though there is a Global recession going on right now, Apple have achieved some great results. The main reason for this is their fan base. People who buy Apple computers are not simply customers they are fans. Apple means more to them than a simple computer. To them Apple is a way of life. This is infectious. Have you ever taken your MacBook on a train and gotten a thumb up from a complete stranger. The generic laptop user beside you always looks on with envy. So, why do thousands of people follow a band across a continent? Why would someone want to see a band play more than once? Well, it’s like a drug. The great thing about the band is that the set list changes just enough to make you want to find out what will be played the next night. You definitely “got value”, 3 hrs and 15 mins! (That in itself is remarkable for an international touring band) and got to hear “Sherry Darling” but they didn’t play “The River”, but they might play it next time. Wow, better buy the plane tickets and fly to the next show.
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Once you have made something comment worthy and created word of mouth you must keep people interested. How you do this depends on who your customers are. Apple has the keynote at MacWord for their fans. This is more fuel for the word of mouth fire. How many times has a friend e-mailed you a video link for Steve Jobs at MacWorld announcing the new iPhone when it first came out? Always remember that you are an engineer building a word of mouth engine.
8. The Business Plan Myth!
Lets get this straight from the word go. Nobody invests in an idea and a business plan is just one big idea. As a result, it is not that important for you to get funding. Instead your plan should be created to get you traction. Don’t worry about fancy formatting. Don’t worry about detailed descriptions for other people. Just worry about getting traction.
See, traction is the key to getting investment not the actual plan. If your plan gets you traction then it’s a good plan. Let me redefine the “Business Plan” right here. To me a “Business Plan” is a story about how you got traction, and also, a description of how you are going to get more. Nobody has time to read it. So do them a favor. Keep your plan for investors simple and to the point. People should be able to understand your plan in 5 minutes. Remember, your objective is to convey a message and not to put people to sleep. In summary, the business plan that you write for yourself should look like a
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scorecard and the business plan that you write for investors should be a 10-15 slide
Starting the Business During Recession
deck.
The next time you hear someone insist that you need to write a 60+ page business plan, think about the research from the Robert H. Smith School of Business, University of Maryland which shows that entrepreneurs need not worry about writing an in-depth business plan to get funding from VCs. The research shows that business plans play an insignificant role in the decision making process of Venture Capitalists. The paper titled “Form or Substance? The Role of Business Plans in Venture Capital Decision Making.” which was co authored by David Kirsch, Brent Goldfarb and Azi Gera, contains research on 718 funding requests from the period April 1999 - February 2002. There are some great resources on business planning such as sample templates and videos on LostJobStartBusiness.com. Be sure to check them out.
The key is not to focus on the plan as a standalone issue. Focus on actually building your business and use the plan as a reflection of what you are doing as well as what you intend to do in the medium term.
*******************************************************************************************************
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9. The Internet a Start-up’s Best Friend
The Internet is a vehicle for communication. Ideas spread quickly and widely through this medium. A simple link sent over MSN or Facebook by one person to their friend has profound influence. See, the Internet makes it easy for people to tell their friends about stuff. That’s what makes it a powerful tool. Traditional advertising and marketing techniques are in decline. As a start up entrepreneur you should leave them to Nike and Pepsi. Use the Internet to leverage people telling their friends about you. That’s your primary objective. Getting people to talk, link, review, blog,
comment, recommend, rate and endorse you, is what the game is about. The Internet is the only way you can get in the mix. Forget about PR firms and Ad agencies, they are not for you. Focus your resources on the Internet. This gives you the biggest leverage for your time spent on “marketing” which today means generating word of mouth. However, we can’t overstate the need for you to have your fundamental word of mouth generator in place. This is the part of your product that is comment worthy. Internet marketing does not work without it. It doesn’t matter how many Twitter posts you make. If what you do is not comment worthy, it will not spread.
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In other words. If you are bland you will lose. Simple huh?
10. Build a Business Model That Works in Recession.
What’s wrong with the US car companies? Simply put, their business model was outdated and obsolete. What was wrong with all the banks? Their business model could only survive in an economically opulent time. The same can be said with most businesses that are struggling right now.
So,
what
are
the
options
open
to
established
businesses
that
are
struggling? Well, they can either change or fail. However, change is extremely difficult. Core beliefs and practices that have been ingrained in the organization must change. To anyone familiar with organization behavior. This is a nightmare. You, on the other hand, don’t have to worry about change. You can start with a business model that not only will work in a recession but will position you excellently for any economic upswing. We know that some of your friends are neigh-sayers. They like to criticize your plans. I guess that some people will always take the negative stance no matter what. However, the next time you hear “Hey, you are crazy for starting that business in this recession” put it down to their lack
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of business knowledge. See, this recession is caused by business
models and a good business model can do well despite the recession.
“The Recession” is the biggest excuse out there right now. The key for you is not to use it as an excuse. There’s plenty of opportunity out there for you. Keep your business as lean as possible. Really squeeze the costs down to a minimum. Bootstrap like your life depended on it (it does). ********************************************************************
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11. Do Your Research the Practical Way.
Earlier on we touched on Organic Market Research. Here are some practical tips that can help you. When doing market research you can do it either the scientific or practical way.
Since you are building a business in the real word that you hope will make real money I would suggest doing your market research the same way. Are you doing a Phd.? Do you even own a lab coat? Then why would you do scientific market research? Its normal to know what you’re thinking. What does this guy mean by “practical market research”. Well, here goes (I will try to make my explanation as practical as possible). Find similar listed companies in your sector and read their annual
reports. Find out what is and isn’t working for them. Also, find out what their future strategy is and why they will be following it. Go onto LinkedIn and ask advice. Post questions. Use forums and Google Groups to do the same. Build a beta or prototype and start showing it to early adopters/geeks. Listen to them tell you how awful your beta/prototype is and make the appropriate
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changes. Get more feedback from the early adopters. Repeat this process until they
Starting the Business During Recession
start telling their friends about you. Sounds simple, doesn’t it? Well it is. It’s much less time consuming than writing out questionnaires and running focus groups. You are achieving the same results but in a real world practical setting. And here is the important part, by doing practical market research you are also getting traction. That’s the third favorite word after profit and sale. ******************************************************************
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12. What to Copy from Established Company?
Some of your competitors have been around the block a few times. As a result, they have learned a thing or two. Why not piggy back on their experience and copy them on a few things?
You must be selective on what you copy. Remember you must have something that people want to talk about. You must be different in some way. But if people don’t care about that particular aspect of a business model then it’s a good idea to copy it from a competitor. No point in reinventing the wheel, huh? Typically, look to areas like distribution, technical support, warrantees, licensing etc. for opportunities to follow in the footsteps of you competitors. Just make sure that your product does not become generic as a result. Keep the remarkable elements. As you can see, this is a tougher decision than you may have thought at first. It’s a balancing act and does require tweaking over time. It’s sure you agree that by copying your competitors in some “behind the scenes” operations you are benefiting from their experience without having to make the mistakes. If you are seeking external investment you can use your competitors as back-up for any operational question that you may be asked. A great way to find out what your competitors are doing is reading annual reports and also doing a news search on Google for businesses in your
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sector.
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13. Your Start-up Team
Currently, work alone but have a start-up team before. A three person team is good at the start. Two on development and one on marketing. As said before, all members of the start-up team must be obsessed. Even if one member is only 3/4 obsessed your team will not work. You have to realize that trial and error is part of being an entrepreneur so
this will happen a lot at the start. Here are some start-up team pointers. 1) Be in constant communication. Tell the team exactly what you have done and what you plan to do. Always ask for clarity if you don’t fully understand what another team member is saying. 2) Don’t set unrealistic deadlines. Let each member set their own deadlines because they know their area of expertise best. 3) As soon as you start having difficulty with something tells the team. 4) Be honest with everything. If you think someone should be doing a better job then tell them straight away. 5) Hold your hands up when you make a mistake. 6) Don’t expect miracles. Everything takes time and effort. 7) If someone wants out, refer to the shareholders agreement. There will be problems. The key is how you deal with the problems that will determine how successful your founding team is.
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14. The Lotus in the Swamp
These are tough times for entrepreneurs. We are going through one of the worst economic crisis in history. The meltdown in financial markets has plunged economies all around the world into a recession. Entrepreneurs are finding that revenues are declining as customers cut back spending. Given these woes in the capital markets and the economy, it seems that this is a very bad time to start a new company or to grow a start-up business. Yet, history suggests that difficult economic conditions may actually be the best of times for entrepreneurship. Like a lotus that thrives in a dirty swamp, some of the most innovative companies have emerged during deep recessions. And just as the lotus relies on the swamp for its nutrition, start up companies can actually benefit from difficult economic conditions. The great depression on 1929 was the most severe and prolonged economic crisis the world has ever seen. And yet, it was during these times that great companies like Motorola and Texas instruments were founded. Ironically, it was during the depression that Fortune was launched, when there wasn’t much business to talk about. The next biggest recession the United States experienced was in 1982, as the economy shrank by 2.2 per cent and unemployment spiked at 10.8 per cent. However, it was during this time that we saw the birth of IBM PC, the founding of Sun Microsystems, and the creation
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of Cisco systems. These events gave birth to the PC industry, the computer workstation industry and the networking industry. Twenty years later, as the US was again mires in recession in 2001, Apple launched its first retail store and introduced its revolutionary iPod digital music player. As Steve Jobs notes, Apple does not pay attention to the state of the economy. Instead, it believes that as long as it keeps putting great products in front of the customers, they will continue to open their wallets. Here are some tips for surviving and thriving in difficult economic times: Grow organically: Think about how you can grow your start-up company with minimal or no external capital. This might sound difficult, but on deeper reflection, investment capital is usually required for two reasons: to fund product development and to get big fast in a competitive race. Entrepreneurs should begin with project-based services that can provide quick revenues and lessen cash burn, and then gradually invest in product development as they generate resources organically. The mantra is “servicise to learn, and then productize to earn”. Further, in difficult economic times, getting big fast may not be essential, because the race will be won not by those who run the fastest, but by those who last the longest. So you can afford to slow down and pace yourself to run a marathon, instead of burning out quickly in a frantic sprint fuelled by venture capital. Sharpen your value proposition: As customers become more demanding, you can’t afford to be wishy-washy about why they should be doing business with your company. You need to communicate your proposition clearly, crisply and concisely. What benefits do you offer? When, where and who should be using your products? What situations or scenarios have you
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optimized your offerings for? How are your offerings better than competing
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alternatives, including the alternative of not buying anything at all? How can you make it easier for the customers to do business with you? How can you reduce their perceived risk of using your products or doing business with a small company? These are questions one should pay close attention to. Diversify your markets: For a start-up company, it is good idea not to have all your eggs in one basket. If you focus exclusively in one market, you are more vulnerable to sharp downturns in the market or in currency fluctuations. For instance, the US market looked very lucrative a few years ago for Indian IT companies, but over-dependence on the US is now hurting them. As an entrepreneur, think about how you can make your products and services relevant to the Indian market as well as to developed markets. Variablize your assets: You need loads of capital to acquire fixed assets, and they greatly limit your flexibility once you have acquired them. So, whether it is real estate, computers, software, and office equipment or even staffing, think ten times before you put a single rupee into the ground. Rent your office furniture, office space, and your office staff. Use part timers where you can, to reduce your burn rate. The spirit of entrepreneurship lives on in times good and bad. Entrepreneurship may thrive in difficult economic times, because entrepreneurs need to be more disciplined, more focus, and less distracted by competition. If entrepreneurs can adapt their strategies to position themselves for the downturn, the same economic headwinds that are slowing them down can become the wind at their back, propelling them to be Promised Land. ******************************************************************
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15. Conclusion
To some up the project we have come to the conclusion as in why do people become entrepreneurs? In these times of economical crisis, we are taken by surprise by the fact that more and more people decide to set up their own businesses and venture in the world of entrepreneurship. This is crucial to the economy of every country and it can have a positive effect not just on the individual, but also on the economy, by supporting economic growth. These are a few of the main reasons why people decide to become entrepreneurs: 1. Need for financial independence and security Setting up and managing your own business can be a tricky and stressful endeavor; however, it can prove to be very profitable. Having your own business can provide total financial independence and this is an enormous accomplishment for most people, especially when the economy is in a period of decline. 2. Frustration with their current workplace or career Some people become frustrated with their past achievements and feel like their current career path is not going the way they expected or fulfilling their goals. This is when they make the brave decision to give up on their current job and take on the difficult challenge of setting up their own business.
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3. Desire for achievement and self-fulfillment For many, having a business of their own is a childhood dream or a lifelong aspiration. The natural desire to fulfill this ambition will drive some people to pursue their aspirations to become entrepreneurs. Having your own business can bring a lot of satisfaction and a deep sense of achievement. This is especially true for people who have an inborn entrepreneurial spirit: they are excited by the challenge and they enjoy taking risks. 4. Need for money The current state of the economy has resulted in a dramatic increase in the unemployment rate. Many of the people who lost their jobs are forced by the circumstances to search for new ways of earning a living and supporting their family. For some, setting up a business can be the way to regain their financial stability. 5. Willingness to invest their current resources People who are already wealthy may find that setting up a business can be a very good way of creating more wealth and generate a steady flow of income. Entrepreneurs come from all the paths of life. The diverse motivations of people that become entrepreneurs account for a large number of businesses being opened at any given time. The same diversity of reasons to become an entrepreneur also explains why some businesses are a huge success, while others fail. Nevertheless, the amount of people who get involved in business is growing quite rapidly and having a positive effect on the economy.
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15. Bibliography
Websites
http://www.usnews.com/money/blogs/outside-voices-small-business/2009/01/12/why-do-peoplebecome-entrepreneurs http://www.helium.com/items/1614398-why-do-people-become-entrepreneurs http://en.wikipedia.org/wiki/Entrepreneur http://www.entrepreneur.com/interstitial/default.html
Magazines
India today
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