Establishing a company in changing times: danger and opportunity
The Chinese word for “crisis” is “wēijī” in the Latin alphabet. It has become a cliché (after JFK used it in a speech) that it is made up of two Chinese characters that mean “danger” (wēi) and “chance” (jī).
The second character is part of the Chinese word for “opportunity” (jīhuì), but this has several meanings, in isolation it means something like “point of change”.
Another stereotype is that recessions are a great time to start businesses. The flagships are Uber and Airbnb, both of which were founded during the global financial crisis around 2007. Further down, General Motors started in 1908 after another financial crisis, and McDonald’s was founded during World War II and immediately evolved into an efficient franchise model (while being accompanied by ore competitor Burger King). I could go on
More specifically, you could name each year and context, and there would be examples of great companies being born.
While generalizing doesn’t help, it always helps to think about whether you are stronger or weaker or more relative than your competition over time, especially when we are at a point of change (‘ji’).
Nature gives us some examples. Be sure to stumble upon a bear in the woods. The danger is not in running faster than the bear, but the danger disappears when you can run faster than your companion. If you stay in the forest, it helps when dead wood dies and gives younger shoots room to grow. While large companies have many advantages in stable times, a start-up should always be more responsive and adaptable in changing times.
Worth Capital has an investment in a direct-to-consumer bedding business called Bedfolk. It was already growing rapidly, but accelerated significantly in 2020 as stores closed and a home, nesting and wellness offering was hugely important. The team was quick to respond to demand and maintained customer satisfaction, fulfillment speed and availability throughout the year.
However, the longer-term systemic changes in the market are more critical. The growth in e-commerce and physical retail market share with the department stores (Debenhams closure, House of Fraser in trouble, and John Lewis cut) will shift, and a shift in sentiment about how consumers relate to their home makes one even more appealing Market to build a business.
This is an example of relative strength within a market, but another consideration is the relative attraction between different markets and different customer groups. Not only has the pandemic affected the health of different populations unevenly, but the economic impact is even more unequal. While we can expect the macro headlines to be grim, there are large numbers of consumers and businesses that have had a “good” pandemic.
Many consumers had little influence on their salaries, but saved enormous amounts. Governments around the world have found many innovative ways to stimulate the economy, but none have managed to ensure that only those really affected and needy get the recipients of unprecedented stimulus. So in some categories we can expect huge increases in consumer spending that will last for some time (years, not just months), for example vacation spending will be diverted – likely to the home and garden.
Habits were broken by repeated bans. Many consumers and businesses question the status quo and are open to new products and services. One example is, of course, the change in work practices. While the majority of jobs in the UK (in the service and manufacturing sectors) have no choice but to change their place of work, the professional classes with the highest paid jobs (and highest expenditures) have a choice. We’re starting to see companies setting their new policies – BP is aiming for 40% / 60% office hours, and Lloyds and HSBC are aiming for 20% and 40% office space reductions, respectively. Businesses that depend on commuters or office populations will suffer. However, there will be more options outside of the major trading hubs and for companies serving remote workers.
Weekly10 is one of our investments and enables managers to understand the engagement, mood and performance of their teams – very useful when they are less likely to sit next to their employees. While Weekly10 got into different sectors with a 2020 marketing plan, they are now prioritizing remote work and, in particular, their technical integration with Microsoft Teams, giving them access to Team’s huge and very rapidly growing user base.
If I were to start a business now, I would think about the following questions:
• What is happening in my market to bring about change (and systemic, permanent changes, not just the headwinds or tailwinds associated with lockdowns)?
• Where and why is there more or less danger – over time and between established or new entrants?
• Where and why are there more or less opportunities?
• What can we do with our product or service, our marketing, and our behavior to take advantage of the opportunity while it is there?
Are you interested in participating?
The start-up series, hosted by smallbusiness.co.uk and Worth Capital, offers companies the opportunity to secure an equity stake of £ 150,000 to £ 250,000 each month. To learn more, click here.