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How to succeed in a downturn

Last updated on: August 11, 2009 

How to succeed in a downturn

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Anagh Pal, Outlook Money

Starting a business during a recession is a lot like batting first on a green pitch under an overcast sky. The going is tough and one can't afford to make errors.

An ailing economy, repressed consumer spending and shortage of funds can nip any start-up in the bud.

We tell you what differentiates the startups that survive even in these conditions. Here are a few strategies to bring you closer to success. . .


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Help people save money

Your product or service should help your customers save money compared to other similar offerings. The company's marketing strategy should also be geared to promote the money-saving aspect of the business.

Energy and Carbon Productivity Suite (ECPS), founded about a year ago, is a cleantech company that designs products that are targeted at solving energy-saving problems and reducing the carbon footprints of companies.

Says Abhijit Parashar, one of the founders: "Our flagship product, which helps reduce the carbon footprint of a company, results in cost savings of around 10-15 per cent of the total energy costs. We realigned our marketing strategy in the past six months to communicate the cost-cutting potential of our products."

However, start-ups should be careful not to compromise their product quality while doing so in an attempt to offer a cheaper alternative. If they do so, the few customers they win in a downturn may desert them when the good times are back.


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Care for cash

Curb capital: Look for businesses that can be started with little capital. Says Vinnie Vyas, CEO Crossover Advisors, a PE firm, "Capital intensive stuff does not work during a recession."

Bootstrap: In a recession, start-ups have to learn to start and survive without external institutional funding. "Many angel investors evaporated when the markets crashed; bootstrapped ventures, thus, have an advantage," says Amit Singh, founder, Vifinet Technologies, a software development firm, and one of the founding members of The HeadStart Network, an organisation aimed at creating and promoting the innovation ecosystem in India.

ECPS got its starting capital of Rs 5 lakh (Rs 500,000) from family and friends. Later, the founders got about Rs 2.8 lakh as an award from Ecell, IIT Bombay.

Focus on monetization: Amit Ranjan, co-founder & COO, SlideShare, an online presentation sharing community, and Web 2.0 blogger, says: "During a recession, the gestation period of a business needs to crash and crash as much as possible. Focus on those aspects of the business that lead to monetisation."

For example, a software startup that develops both products and services should focus more on its services line as that will bring in cash faster.


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Bond the team

A well-bonded core team is crucial. Says HeadStart's Singh: "Cash crunch leads to breaking away of founding team members. This kills a lot of start-ups." Founders should have the grit to see them through possible failures.

If the team members have the necessary domain expertise and have proven track records that others are comfortable with, it is an added advantage. Parashar feels that one of the core reasons behind ECPS's success has been the founders' ability to put together a committed team from the best management and technical schools in India and the United States.


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Innovate with focus

This is one dilemma that start-ups have to live with during such times. Says Parashar: "We have healthy debates about what we are doing and how we can do it better. This meritocracy and lack of stickiness to a 'gut feel' has helped us weather the difficult times in a better way."

When the downturn started taking its toll on the software industry, Vifinet Technologies moved from software services and training to tech-enabled political campaigning solutions. It is now launching a product in the agri-tech space.

However, Sramana Mitra, entrepreneur and strategy consultant, warns: "Nimbleness is good, but under panic, sometimes companies change strategies every day or every week. They get defocused and the team gets confused and demoralised."

So, even as an ability to innovate according to changing conditions is the need of the hour, a startup should never lose focus of its core vision, the passion that drives its founding members.


Image: Innovate with focus.
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Business opportunities

Retail: As common wisdom goes, it is the 'must-have' rather than the 'nice-to-have' products that have the potential to do well. Anything that falls under discretionary expenses could suffer. That's why a Wal-Mart, which sells products of everyday needs, with its 'Save Money. Live Better' philosophy, is thriving even now. For the same reason, affordable healthcare and education initiatives are likely to do well.

Technology and services: Says Vinnie Aggarwal, chief economist, Frost and Sullivan: "With big companies cutting their R&D spending, there are a lot of technological opportunities for start-ups. It is a good time to start as the competition will come after a much longer run."

Service start-ups, too, have the potential to do well in a recession. First, they have low capital requirement. Second, in the current scenario, companies are looking to reduce their salary bills. If one has the required skills, one can start a service start-up and offer 'part' of the service to the companies at a lower cost.

If you have a business idea and are raring to go, you cannot and should not wait. However, it pays to wear a crash helmet before you take the plunge.


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