Cool in a Crisis - The Entrepreneurial Upside of the Downturn

Living on the Edge

It should be no surprise that in general, entrepreneurs are undaunted by the current financial crisis. Crisis, or more specifically, the management of crisis, is their day-to-day business; not only a job description but a source of new opportunities. So while pensioners watch their retirement account values plummet, entrepreneurs have an eye for where that money is going. Here are some of the things they see:

Flight to Value

An obvious implication of the financial crisis is that people have less money to spend. Which explains why hard discounters like Wal*Mart are reporting increased sales in the face of the crisis. Products ranging from Hormel's SPAM, which have seen sales increasing by the double digits, to used cars, which have experienced strong demand since the start of the crisis, illustrate the opportunity to serve the cost-conscious consumer.

Flight to Quality

A less obvious implication of the financial crisis is what is happening at the top of the market. The start of the crisis was market by Damien Hirst's record-breaking auction through Sotheby's totalling more than $198 million. Gold prices are soaring, as are sales at ultra-premium goods provider LVMH, offering luxuries from Louis Vuitton bags to Moí‚t champagne. Whether the rich are still rich, or those hurt in the crisis still want a taste of the good life, the entrepreneur can see possibilities.

The Need for Hope

A Rockefeller Institute of Government study released findings that lotteries sales are strongest in weak economic times. The lotto's highest recorded rate of growth was during the recession of 2001-2002. Finding ways to offer cash-strapped consumers with some combination of inexpensive entertainment and a chance to invert their financial misfortune can translate into new product offerings and new business models.

The Need to Connect

Before September, 2008, the social networking site LinkedIn added about 1 million new users about every 20 days. Since the start of the crisis, the growth rate has increased to 1 million new users every two weeks. In a time of crisis, people need jobs. People need support. People need to connect. This phenomenon is as true at home as it is professionally. Sales of sex toys and pregnancy tests are also increasing in the wake of the financial downturn.

The Ultimate Resource

Creation of new value and transformation of hope into reality are both the result of putting the ultimate resource ? human ingenuity ? to work in tackling tough problems. Thanks to the financial crisis, a lot of good people are out of work and entrepreneurs need not scrounge around for talent the way they have to during boom times. They need to create pathways for the more proactive to find them and then inspire the folks who show up to believe in their own ingenuity. Entrepreneurs know that the future comes from what people do, irrespective of large external forces that may for the moment appear out of their control.

Making The Future

If seeing all this opportunity out there combined with your own efficacy to reshape your environment still doesn't make you want to go out and start a company, consider this. In 1975, a year of recession, inflation and 9% unemployment, Microsoft was founded. In July of that year, Time ran a cover story entitled, "Can Capitalism Survive?" What we know about entrepreneurship suggests a different question: So long as people are willing to embrace the entrepreneur within, "Can economic crises survive?"ù The answer, even in 1975, was "No!"ù And what made it happen was not billions of dollars poured into big banks, but entrepreneurs who constructed new opportunities, new ventures and new markets that generated unprecedented economic growth in spite of, or perhaps because of a crisis.

Written by Stuart Read, professor of marketing at IMD and Saras Sarasvathy, associate professor of business administration at the University of Virgina's Darden School.  Art is credited to mocbog, through stock.exchng.

Publication: British Airways Business Life
Author(s):
Stuart Read
Saras D. Sarasvathy
Relevant Principles:
Pilot-in-the-Plane (Control vs. Predict)

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