Starting a business during a downturn - Aussie Stock Forums

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  1. #1
    harbouring +ve expectations... cashcow's Avatar
    Join Date
    Jan 2006

    Default Starting a business during a downturn

    Hi all

    I'm not sure if this has been asked before, but a search didn't seem to find it.

    Do you think a economic slump (such as the present) is a good or a bad time to start a business? Does it depend entirely on the type of business or is it possible to make generalisations?

    I don't have specific plans, nor would I act purely on opinions voiced, but purely out of curiosity I sometimes wonder about which factors would prevail in their influence on one's business success. For example, at the moment we know that credit is nominally hard to come by, and that's something most if not all startups need. We know also that people and existing businesses are much more judicious with their money (at least you'd hope so ), yet on the other hand perhaps the playing field is leveled somewhat in that a particular industry or market demographic would welcome a fresh entry who could do things better or cheaper. Similarly suppliers ought to be more efficient and cheaper as there's more competition, which helps out with the expenses.

    Any thoughts? And can anyone recommend a book on macro- and micro-economics for an interested and reasonably literate beginner? Something that introduces principles with examples would be great.

    Look forward to ASFers' views.
    Nothing I post constitutes financial advice: My style of liberating money from my wallet is inimitable.

  2. #2
    Mod: Call me Dendrobranchiata prawn_86's Avatar
    Join Date
    May 2007
    Los Angeles
    Blog Entries

    Default Re: Starting a business during a downturn

    Personally i think the number of variables is too great for there to be any one answer. It would depend on the area, the management, the start-up capital needed (IE- do you need a loan or not) etc etc

    A good microeconomics book is 'Microeconomics, 7th edn, by Jackson and McIver'. Easy to read and understand, not full of too much economic jargon imo (it was my first yr economics text)

  3. #3

    Default Re: Starting a business during a downturn

    Thanks prawn

    I've never studied economics formally, but a first-year text is about the level I was aiming at.

    Nothing I post constitutes financial advice: My style of liberating money from my wallet is inimitable.

  4. #4

    Join Date
    Nov 2005
    Noosa Heads

    Default Re: Starting a business during a downturn

    In 2001 I did the NSW Enterprise Workshop, run by the NSW Entrepreneurship Centre at UTS in Sydney. It's not cheap but you will learn about starting and running a business. Your lecturers are real life business operators from every field imaginable - accountants, marketing, advertising, management, finance, personnel, small business, large corporates, private, public, etc etc etc.

    The basic output is that you learn whether or not a business is viable before starting it. It's like backtesting a trading system before starting with real money, except you have professionals coaching you the whole way. Indeed they can actually kick you out should you not be serious or have a non-viable business plan. You start to learn very quickly how much you do actually know, or not know. about your business. Their goal is to ensure you know your business will actually succeed before you start it.

    I cannot stress this enough with business, or with trading.

    I know I can't fail at trading because I know my business of trading can't fail.

    The same is true for any business. You need to know beforehand that it will be successful. If you don't know, you don't start it (like trading). It's about understanding EVERYTHING about your business; your market, your customer. your competition, seasons, cycles, recessions, booms, etc etc etc.

    Bottom line is that it allows you to know BEFORE whether you should start the business because it will tell you if you will be successful or fail.

    The course is funded by venture capitalists whose end goal is to find great business idea's and run with them, so there is more than a theoretical approach to it all - which is why it's not cheap to get into it.

    I won the award for Best Financial Plan & came second for Best Business Model.

    I highly recommend it.

    My brother-in-law won Best Business Model when he did - he now owns the largest plumbing business in Sydney.

  5. #5

    Default Re: Starting a business during a downturn

    Given and accepting the answers above particularly with due diligence,which apply in any time or economic circumstance,the question is starting a business in a downturn.

    Like everything it can be done.
    But I think you need to

    (1) Be well cashed up.
    (2) Understand that now more than ever clients will be price focused.
    (3) Small ticket items will be the worst effected by price slashing.
    (4) Larger ticket items less so as consumers also demand,Quality,Reliability,Backup. These clients need more VALUE.

    These time are the most challenging and the times in which you'll learn the most in business and if your on top of it can rise quickly to face the better times leaner and more profitable than in the past.

    Economic Downturns are the great business vacuum cleaners.
    Those who have been
    Over committed
    Over complacent
    Under serviced
    and poorly run will go to the wall. This leaves gaping holes in areas not normally available to the smaller operator who can often fill the void left by those who once shared the success of the good times but are and were poorly situated to take advantage of tougher times.

    In times like these you need to use a business/marketing strategy which sets you apart,one which puts you at the fore front of your clients mind. Not only potential clients but those who you have need to be well maintained.

    There are many parallels with trading.
    Just as the time comes where endless analysis needs implementation so to does a business plan.

    In these times application of "Guerrilla Marketing" type,ruthless business should be a culture within all businesses which wish to succeed.

    For those who like an in your face practical read for these times in business I can recommend

    Mal Emery
    Crisis exposed
    Recession Proof Your Business and Income

    Magnetic Marketing and Publications
    08 9201 2122 Phone or
    Fax 08 9201 2133

    If you cant find it in a book store like I did.
    Mal has his own agenda in the book and I wouldnt expect any less!!
    But it is jam packed with great insight for tough times.
    All you need to do is implement it in your own way.

    Ive already implemented 3 excellent ideas.

    Exciting and challenging times like these are rare---enjoy them!
    Take advantage of them.

  6. #6
    Currency Trader
    Join Date
    Jan 2008

    Default Re: Starting a business during a downturn

    recessions are when inefficient and unprofitable businesses go out of the market; and the efficient profitable businesses survive ready to grow during the upcoming boom.

    which side of the market your new business would fit in is up to you.

  7. #7

    Default Re: Starting a business during a downturn

    It all depends as others have mentioned on many factors......

    1 main part of business for example (buying scrap gold) is actually the strongest when we are in tough times like these.

    Simple things to look at when starting:

    *Capital Outlay
    *Running Costs
    *Return on risks


    I find the 2 biggest things are the 1st 2 points as people over extended themselves and leave no room to move incase things dont go too well.

  8. #8

    Default Re: Starting a business during a downturn

    Thanks all, some pearls of wisdom in there for everyone I think. I have a few questions, though, if I may:

    In your post you mentioned that it would be possible to learn in advance whether the business would succeed or fail, and thus determine whether you should start it or not. Is that to say that it's possible to determine that a business will fail, or only a particular model for that business? Another thing I'm wondering about is that we all enter trades without knowing for sure whether they're going to give returns (on an individual basis, even though the overall plan should have positive expectancy), but we employ money management to protect our downside. I'm guessing the basic reason you can't do exactly the same with a business is that taking a null position (ie closing the business) is that it's much more of a hassle (and costly) than getting out of a market position? Or am I missing something else besides?

    "Economic Downturns are the great business vacuum cleaners." That quote is gold. Many of the points you made I suspected myself already, and it's nice to have people more experienced than myself espouse those same views. I may have some further questions in future, once I really digest these posts. Thanks also for the book recommendation.

    @Ageo & Stormin_Norman
    I think you've captured the essence of businesses that will survive (efficiency on the bottom line), but I find it interesting that there are complementary ways to compete (quality, value, etc). Also it seems capital is the big decider, ie having enough to be able to weather the troughs in between the highs. I'm really beginning to appreciate the parallels between that and trading also.
    Nothing I post constitutes financial advice: My style of liberating money from my wallet is inimitable.

  9. #9

    Join Date
    Nov 2007

    Default Re: Starting a business during a downturn

    One thing that springs to mind is the economic theory of normal goods and inferior goods. Basically as income falls, demand increases for inferior goods (this would happen during a downturn). As income rises, demand for inferior goods fall. So you could have a good (inferior) that you do well out of during a downturn but as the enconomy recovers you would be expecting business to improve when in actual fact it would get worse.

    As an example how many people switch from a premium "name brand" product to "home brand" during a downturn, with the "home brand" prouducts being the inferior good.

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