Tuesday, 18 November 2008

A great time for new businesses?

(By Richard Holway) One of the points I made during my panel discussion at the “Growth & Exits Strategies for IT Companies” conference yesterday was that every previous downturn/recession had accelerated the rate of technological change. It wasn’t that new technology was ‘invented’. It was just that technology that was already ‘up and coming’ just seemed to be accepted faster. For example Google post 2000.

One of the reasons for this is that in recessions established players have their heads down, starring at their navels. More interested in job and cost cuts than new activities. More interested in protecting existing revenue streams than developing, possibly damaging, new streams.

I was therefore greatly interested in Brian Groom’s article - A great time for new businesses? - in today’s FT on exactly this subject. I hope the FT doesn’t mind me reproducing it in full below for all you Blackberry readers.

In my humble view, the “new tech business” that will thrive in the current downturn is Cloud Computing. Afterall it’s a massive threat to the revenue streams of the existing players like SAP. But there are new upstarts on the block ready and able to ‘eat their lunch’ as well as some established players like Google who would love to do battle with packaged players like Microsoft. Although Microsoft is starting to venture into this area too – with Azure and Office 7 – their existing cashcow will be greatly threatened by these new offerings.

Downturns can have very good consequences too!

A great time for new businesses?
By Brian Groom
FT: November 18 2008

One curiosity of this downturn is how some illustrious businesses that succeeded against the odds in the Great Depression are now buffeted by today's cold winds. Walter Chrysler found a way out of the 1930s slump by devising the Plymouth, a low-cost but high-technology car that promised a "floating ride". Within two years Chrysler's sales were back to pre-Depression levels, well ahead of its rivals. Today its survival is threatened unless it gets a bail-out by the US government.

The British branch of Woolworths - founded by Byron Miller, an American - was a roaring success back then. Its format of affordable variety meant that everyone could find something to take home. Now the company has been struggling for years and its wholesale arm has been forced to demand cash upfront from customers as Christmas approaches.

The 1930s saw the rapid growth of chain stores, led by Jack Cohen's Tesco, Marks and Spencer and J Sainsbury. Tesco in particular is still hugely successful but this autumn it has lost market share to discount supermarkets as cash-strapped consumers try to cut their bills.

While the UK authorities tried vainly to revive coal, cotton and shipbuilding in the Depression, newer industries such as cars, electrical goods, chemicals and man-made fibres expanded. Like Chrysler, Britain's William Morris defied the slump with his stubby but popular Morris Eight (Morris's modern heir, MG Rover, sadly went under in 2005).

A recession can be a smart time to launch a business or innovate, if you can find the money to invest. Competitors are struggling to cut costs and you can look forward to the upturn. Lord Bilimoria founded Cobra Beer, a less gassy lager for drinking with curry, in the 1990s recession.

What will the successes of this recession be? Gordon Brown, the prime minister, wants to encourage green technologies - possibly right, although governments have rarely been good at predicting business success. If I knew the answer, I would not be writing this column.

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