Seize the day
Some of the world’s biggest companies like Microsoft and Hewlett-Packard were started during recessions. Experts and successful entrepreneurs talk about opportunities to be had during a depressed economy.
By Cassandra Chew
Tai Kong Lobster and Fishery owner Ryan Seah, a former financial adviser, keeps costs down by rearing his own lobsters, which he buys from a hatchery. — ST PHOTO: SAMUEL HE
Value above others,’ reads the newly unveiled signboard at Arrow Tyres, which opened last month. A free battery check and a plush waiting room are among the bonuses on offer.
The recession may have forced many businesses to downsize and others to close but Arrow owners Alvin Boey and Ethan Li, both 26, decided that the downturn is an opportunity worth exploiting.
They are among more than 32,600 new businesses that were registered with the Accounting and Corporate Regulatory Authority between October and May, the eight months after the global financial crisis took hold in mid-September.
This number is just 3 per cent shy of the same period a year earlier, suggesting there is still a healthy appetite here for entrepreneurship despite the difficult economic climate.
As Manchester Business School’s enterprise lecturer Martin Henery puts it: ‘Entrepreneurship is simply the bringing together of two things, opportunities and enterprising individuals.’
And new opportunities arise out of changes like recessions, he said.
In fact, some of the world’s most successful businesses emerged from recessions, including global IT company Hewlett-Packard, animation firm Walt Disney Company and software giant Microsoft.
For those willing to leap into the fray, downturns may offer benefits. Singapore Management University (SMU) Institute of Innovation and Entrepreneurship director Desai Narasimhalu highlights three:
First, costs are lower.
Arrow Tyres, for example, secured its Sin Ming workshop in April for 20 per cent less than the quoted price for a similar-sized space in the same building just a few months earlier.
They saved another 20 per cent on renovations, which cost $25,000, and managed to bargain for better than usual deals with their suppliers.
‘We just kept saying hang cheng pai (Hokkien for ‘the economy is poor’) when negotiating with our suppliers, and it helped,’ recalls Mr Boey.
As Mr Phillip Leslie, chief executive of American smartphone software start-up ProOnGo, puts it: ‘Everything is negotiable.’
‘If you aren’t negotiating to get more for less, you aren’t taking advantage of the economic conditions,’ says the University of Chicago Booth School of Business graduate.
Second, competition is reduced as weaker businesses are forced to fold, and those which survive come out stronger.
Third, good talent is more readily available as more workers lose jobs, and can be hired at more reasonable rates.
But experts are quick to point out that these advantages do not make entrepreneurship an easy option.
Business start-ups often fail in both good times and bad. Take, for example, Mr Edwin Chan, 59, who in the 1980s supplied chemical high-pressure cleaners with four partners to ships and shipyards.
Back then, he continued marketing his products even when his customers could not pay. As a result, his company suffered tight cash flow and was forced to fold in 1987.
Dr Henery explains: ‘Regardless of market state, it is essential to understand your customers’ needs and achieve them in the most efficient and effective way.’
In the words of management sage Peter Drucker, ‘entrepreneurs innovate’.
Take the Be-Driven guys, who boldly started their low-priced valet driving service here in gloomy February.
While other valet drivers cost $60 per ride, Be-Driven charges only $38 because the team, led by Mr Lyndon Heng, 25, Mr Glenn Ho, 25, and Mr Melvin Lim, 25, found they were able to keep overhead costs low.
And it is paying off.
Be-Driven has been profitable from its first month of operations, with staff driving about 70 cars a week now.
‘When you offer a premium service to the masses at a cheaper price, people will strike,’ says Mr Heng.
Dr Henery agrees that recessions lead to changed expectations in the market. ‘Customers will become ever more discerning, expecting to get greater and greater value for money.’
For Mr Ryan Seah, 29, owner of marine farm Tai Kong Lobster and Fishery, this means selling his five varieties of lobsters at up to 35 per cent less than prices at supermarkets and other lobster farms.
In addition, the former financial adviser offers buyers free delivery for orders above $200.
He and his partner, fisherman Koh Ng Chang, 46, keep costs down by doing everything themselves, from rearing their lobsters which they buy from a hatchery to catching their own fish feed and setting up a website to advertise their business.
Arrow Tyres hopes to get the edge by investing an extra $10,000 to offer free car battery checks and a comfortable waiting room equipped with sofa seats, air-conditioning and entertainment.
‘We’re taking a very different approach to this business. We want to bridge the gap in customer service in the industry,’ says Mr Li.
But offering a good product is just one part of the equation. Business owners need start-up money, a strong customer base and good cash flow, says SMU’s Professor Narasimhalu.
With banks becoming more selective about lending, new ventures with neither credit history nor an established reputation often need to raise start-up capital through other means.
Most draw funds from their own savings, or take loans from family members. The brave souls who trade on cobbled- together credit do so with trepidation.
When Mr Harish Nim, 50, started global IT solutions firm Emerio here in the thick of the Asian financial crisis in 1997, he drew credit lines from six banks to raise seed money.
Mr Nim says: ‘It was a foolhardy decision in hindsight, but I had no other avenues of raising capital.’
And then there’s the challenge of finding new customers when most are tightening their belts.
Many, like cake boutique Artisan Sweets owner Eileen Tay, have found that the most powerful marketing tool is good old-fashioned word of mouth.
Artisan Sweets began as a home baking business for the Culinary Institute of America graduate, best known for her Parisian macaroons and croissants.
‘I had a growing group of steady clients, 90 per cent of whom were tai-tais and professionals who were recession-proof,’ says Ms Tay, explaining her confidence in setting up shop now.
Artisan Sweets opened its doors in Holland Grove in April. With up to 5,000 macaroons – at $2 each – sold monthly, Ms Tay expects Artisan Sweets to be profitable in a year.
Another key challenge facing a start-up is the day-to-day reality of running a business – and keeping an eye on dollars in and dollars out.
‘Everyone has to keep an eye on cash flow,’ says entrepreneurship lecturer T.S. Toh of Nanyang Business School, who cites small firms’ adaptability in crises as an advantage.
Emerio’s Mr Nim agrees: ‘Being flexible is important for good cash flow. You may not be making money but your cash flow must be okay to survive.’
This is why Varl Office Systems, an office furniture company with 28 staff members, introduced pay cuts, no-pay leave and retrenchments in March to lower overhead costs when sales dropped by up to 50 per cent between December and May.
But like many hardy entrepreneurs, founder-director Raymond Toh, 38, is relentlessly positive.
‘What entrepreneurs need to conquer most is fear. The opposite of that is faith, belief and confidence,’ preaches Mr Toh, who could afford only a 10 per cent contribution to Varl’s start-up capital of $30,000 in 1998 – a contribution he made using a ready credit line.
Today, Varl boasts an annual turnover of $7.8 million, and with June’s sales figures looking up, Mr Toh is hopeful of a similar turnover figure this year.
‘Determination and perseverance build faith. And it is this spirit that will help you survive during difficult times,’ says an upbeat Mr Toh.
Just ask Mr Chan, who – after failing in his chemical cleaner business – started language school Cambridge Institute in 1997, in a desperate bid to turn things around.
In spite of days when he did not have enough money to buy a bao (Chinese bun), he pressed on, determined to keep his students happy.
‘I would go to the toilet and hide, or take the lift after classes, just to listen to what the students were saying,’ recounts Mr Chan, who would improve his classes after collecting feedback.
Cambridge is now an international brand that is expanding into Vietnam, China, South Korea and Australia, with revenue to the tune of $10 million a year.
‘As an entrepreneur, your mindset must be right,’ he says. ‘What keeps you going is your attitude. You must never give up.’
Still, the fact remains that firms in the first two years of business have a high failure rate, says Associate Professor Toh.
But those who survive can move on ‘to fill the shoes of those competitors who have exited the market’ and grow stronger because of it.
It is perhaps the vision of such success that spurred 700 people to sign up for the Action Community for Entrepreneurs’ BlueSky Festival on ‘Growth Opportunities in Difficult Times’ held on July 10, up from 500 last year.
Those attending learnt about creating opportunities from speakers such as non-profit Kauffman Foundation’s vice-president for entrepreneurship Bo Fishback, and entertainment industry leader Octopus Group’s co-founder Elaine Teh.
When all is said and done, however, an aspiring entrepreneur who spots an opportunity must decide to go after it, a decision that involves risk, opportunity costs and full commitment.
To the person standing on the ledge, Varl’s Mr Toh offers encouragement with a smile: ‘Close your eyes and jump in.’
casschew@sph.com.sg
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