Welcome to the final instalment of our Manager Challenges Series.
For the past weeks, we have been releasing advice on how businesses can weather the storm of a potential recession.
We’ve been looking at how different heads of department can support one another and the company to save money and remain profitable during challenging economic times.
So far, we’ve looked at:
- How HR heads can still attract talent and keep current employees happy
- How CTOs can continue to strategically invest in tech even with budget constraints
- How CFOs can support their colleagues and directors while balancing a push for growth with cutting costs
- How CEOs can keep pursuing profitability and expansion despite rising costs
There are some great tips and strategies in those posts, so we recommend going to check out the previous instalments, if you haven’t already. Feel free to comment and share your own advice and theories.
For our final post in the series, we’re looking at the ways that entrepreneurs can stay innovative during recession.
What Is An Entrepreneur?
An entrepreneur is a special kind of business owner. They found new businesses, frequently based on new ideas, untapped markets, or yet-to-be saturated areas of the market. They grow these businesses quickly in the hopes of large profits.
How Is An Entrepreneur Different From Other CEOs and Business Owners?
In some circles the phrase ‘entrepreneur’ is used almost synonymously with business owner or CEO.
They do have some similarities. Both are usually founders, owners and/or core directors of a business.
However, in the modern business world, an entrepreneur is usually seen as somewhat distinct from just any business owner or CEO.
An entrepreneur has an association with taking extra risks in order to achieve the best financial results.
‘Entrepreneur’ is considered an additional definition, beyond simply being a CEO or business owner.
What sets them apart is that an entrepreneur will usually have founded a start up, which they intend to transform into a rapidly growing scale up or sell after a period of successful rapid growth to make it highly profitable.
Not every business can be classed as a start up or scale up. These are usually highly profitable and fast growing, if successful.
The key association is that they are higher risk, and potentially higher reward than a standard business.
An entrepreneur is someone who brings a higher level of innovation and can spot lucrative opportunities in a market that they actively have the skills to positively exploit with a new business venture to high gains.
Entrepreneurs can better navigate a higher level of risk and reward business management style.
Why Does Innovation Matter More For Entrepreneurs Than Other Company Directors?
Innovation should be a crucial skill for any CEO. Innovation introduces new ideas, inspiration, and better systems into companies to help them grow, stand out from competitors, and become more profitable.
Innovation is especially relevant in challenging times such as a recession. With the right dose of innovation and financial nous, a CEO can steer a business through the woes of recession or any challenging time and into further profits.
However, this skill is especially important for entrepreneurs who are often taking more risk and potentially developing a business idea that has not been done before or fully explored. They are more frequently in uncharted territory with investors to appease and so a high level of innovation and quick thinking is needed.
Many start ups fear recession, precisely because it makes the hard task of accelerating a high-risk venture off the ground even more challenging. Yet, the best entrepreneurs have the right skills to be best placed to come through recession successfully.
How Can You Continue To Cultivate Innovation Next To The Stress Of Recession?
Aspiring to be an entrepreneur is tricky even during healthy economic times.
It is also easier to be innovative when the pressure is reduced, and you have more financial wiggle room.
It takes a multi-skilled entrepreneur to be able to keep their innovation revving through a recession.
It is, however, not impossible and there are some facts and tips to bear in mind to help you brave the looming financial crisis.
Accepting the Reality of Risk
Accepting risk should be the name of the game for entrepreneurs. After all, 90% of new businesses fail and that is not just start ups. Oddly, many aspiring entrepreneurs overlook the truth of risk in the start up world.
You can be a good ‘ideas person’, without necessarily having the psychological skill or the financial backing to properly navigate high risk businesses.
Recessions adds to the amount of risk because investors are more cautious and risk averse. This is also true for your audience because the value of everyone’s money has dropped. Cash doesn’t spread as far. It makes people revert to only buying essentials.
Recession adds uncertainty into the financial aspect of our business and so the level of risk has increased.
This grim reality aside, it is vital that entrepreneurs recall that there are always inescapable risks with start ups even in better economic situations. A good idea is never enough; you must have an airtight financial plan that accounts for a more cynical market.
The best way to stay innovative in the face of recession is to remember how to handle and absorb significant risk. This should always have been a part of your skillset in entrepreneurship. Innovation around maintaining good cashflow and selling to people even when they are poorer can help with risk mitigation.
Don’t forget that despite your business insights, you can never really predict how consumers will behave in the future, what will happen with the economy, wars, what your competitors might do, or what new tech will become available in the future and how all this might affect you.
Invest In Risk Analysis
Accepting risk is important but anticipating risk and planning for it is even better.
Risk analysis and assessment is a cornerstone skill of the entrepreneur.
Hopefully, risk analysis is a natural skill of an entrepreneur but there are also powerful pieces of software available that can help with risk analysis.
This can help reduce some uncertainty. Before launching, research the best financial analysis software, accounting software, customer insight software etc.
Another scenario and risk that you should plan ahead for is the possibility of losing team members. It can be disheartening to lose a talented team member, but you should be building teams so that you are not reliant on one individual. If your start up would be in big trouble tomorrow if one staff member quit, then you need to reassess your structure.
Other common risks to plan ahead for are:
- losing customers and failing to attract new ones
- increased competition
- poor cashflow
- failure to anticipate problems/inability to adapt to a changing market environment
Stay On Top Of Business Cashflow
Inspired ideas are all well and good but they won’t work without decent cashflow.
Financial innovation is one of the best ways to survive a recession.
Maintaining a healthy cashflow will also make your situation more manageable and less stressful. This will free you up to cultivate more innovation in other areas of the business as well.
Ensure that you are hyper aware of the money entering and leaving your business. You should always know how much money your business has in the bank, how much it owes and how much it is owed.
Armed with this knowledge, you can then use financial forecasting software to identify problems on the horizon and plan for them in advance.
Multiple Sources Of Funding
Early innovations that can ensure good cashflow are to look into multiple sources of funding. Many businesses will rely solely on VC investors but there are many ways to generate funds for a start up.
You can use your own money, family money, angel investors, crowd funding, peer to peer lending, bank loans, government grants etc.
If you have multiple avenues for raising funds, then even if one fails or pulls out, the start up will not immediately fail.
Funding innovation can buy a start up time and help it launch on a surer footing.
Take Advantage Of Competitor Caution
A large number of businesses, AKA your competitors, will be behaving more cautiously in a recession. You can take advantage of their caution to strike out.
Before embarking on your entrepreneurial journey, it is a smart idea to receive feedback from friends, family, and other professionals before applying for funding. In a recession, investors are always more cautious, so test the value of your idea on others before pitching.
Always Find A Marketing Niche
Finding an untapped niche is often the key to an entrepreneur’s success. In a recession, it is ideal if there is already significant demand for your concept.
Remember that, while innovation can partly be about having a unique idea, it is also frequently about doing an existing idea differently or better.
Be A Great Communicator
Innovation doesn’t just relate to new ideas, new tech, or new financial planning. You can be innovative in your communication as well.
Even if your business is a market disruptive, ingenious idea, it is useless if you cannot communicate that message effectively to your audience.
In a recession, this message must be more powerful than ever. You must think about what your start up offers that no one else can.
Is it the service itself, how it’s delivered, the price, the support?
Think about why it’s worth them buying from you over anyone else or holding onto their money.
Be A Savvy Negotiator
Excellent communication doesn’t stop at your target audience. Innovative communication extends to your suppliers. In fact, the usefulness of this talent cannot be overstated.
Being a great negotiator with suppliers and fostering positive relationships can make running a start up in a recession much easier. It could even save your business from running afoul of many of the challenges of recession.
Recession pushes up your costs and can affect supply chains, especially with the war in Ukraine taking place.
With excellent negotiation, you can receive better deals from suppliers and an earlier heads up on any supply chain issues.
A clever way to get cheaper supplies is to buy from businesses that are closing or need to reduce inventory.
Your suppliers may be able to help you plan ahead or trouble shoot supply chain mishaps.
Your bank is also a supplier so you can even attempt to minimise your banking costs and make sure you get the cheapest form of credit available by fostering a high level of communication with them.
Build A Talented Team
One of the greatest tools in cultivating innovation for your business is building a talented team.
Remember not all of the innovation should come from you.
Much about being a CEO is about delegating successfully, so that you can concentrate on the big picture. As the company grows, you will then need others to help facilitate the big picture and everyday minutiae,
An entrepreneur must recognise intelligent people for various roles and see innovation in others, even in fields in which you might be less experienced, for example, marketing, finance, tech etc. Hiring a strong CFO can help make your innovative dreams a reality.
Create Innovation Teams
If you really need to put the accelerator down on innovation, then create teams for purely this reason. By creating an Innovation Team, you can facilitate more innovation. Their whole purpose is to work independently from the rest of the company to develop new products, or test new tech, and identify unique opportunities. They are freed from the distractions of other business operations.
Utilise Revolutionary Tech
The right technology can do many things to help entrepreneurs. It can produce new opportunities to innovate by making more possible than was available previously. It can help turn an innovative idea into a reality. It can also make innovation easier by removing other burdens from the internal workings of a business.
Look into how emerging tech like AI and machine learning can help you approach the market in new ways.
Automate As Much As Possible
Another way that investing in tech can help a start up is by maximising automation. The more manual processes you eliminate the more productive a business will become, and less manpower is required. Subsequently less funding is wasted on salaries of unnecessary roles.
While this is dependent on your niche, it is becoming relevant to more and more industries. The reason being is that our lives are not only increasingly digital, but everyone is over bombarded with choice of channel.
Think of how many different platforms there are for both entertainment and communication.
It is no longer just print media, large outdoor advertising boards, transit advertising, television, and phone.
We now still have access to all of these but additionally streaming services, YouTube, Facebook, Instagram, Snap Chat, Twitter, LinkedIn, Twitch, What’s app, Discord etc. Basically, an almost endless list of social media channels, entertainment medias, communication apps and applications that overlap multiple uses.
People can choose how they communicate and where they spend their time scrolling and various companies from which to stream media.
Owing to this over bombardment, consumers won’t jump ship or use a certain channel just because you wish them to or because it’s convenient for you.
There are even more channels and avenues when we look at B2B businesses and particular sectors.
It is up to you as an entrepreneur to ensure your message is heard and reaches the right people. You need to communicate with them in their native apps of choice.
To reach all the relevant people means to employ true omnichannel marketing.
While considering omnichannel marketing, many modern start ups forget about networking. In-person networking should be considered its own channel and part of your omnichannel marketing strategy.
For certain niche B2B industries this will remain the most effective and relevant way to spread the word, acquire clients and suppliers and maintain a good reputation in the industry.
Thank you for joining our Manager Challenges series of posts. We hope you find them all very useful and feel free to share your thoughts on how you plan to innovate despite recession.
Steve has been with HardSoft since 2005, when Steve isn’t leasing the latest Macs, he’s playing for the mighty Epping Upper Clapton Rugby Club.
Steve Specialises in Security software, Sophos and Barracuda and has interests in Rugby and Star wars.