Over the past week I have been in contact with Jacob Webb from http://everydayentrepreneurship.com . As you would expect, we naturally touched the subject of crisis and how it changes the entrepreneurship. Here is what Jacob says on the subject:
A debate is emerging around the question, “What should entrepreneurs do in an economic recession?”. Some are bent on reminding entrepreneurs to conserve, cut and trim down the bottom line in an effort to survive until prosperity returns. Others, such as myself, are more optimistic and see how an economic recession has positive by-products that can help position small businesses as stronger competitors once the economy rebounds. Bhaskar Chakravorti, for example, just published an article in the Wall Street Journal about “How to Innovate in a Downturn”. Peter Drucker even discussed in Innovation and Entrepreneurship (1985) how changes in industries and market structures is one of seven systematic sources of innovation for entrepreneurs.
The knee-jerk reaction to managing economic changes may not be the right strategy. Managers are happy to freeze capital commitments, attempt to lower operating expense, conserve cash, manage working capital or reduce exposure to risk. Many entrepreneurs even revert to an earlier strategy of focusing on their core. But when their core is innovation, well, that’s a bitter pill some find hard to swallow.
This issue appears paradoxical in nature. After all, how can you budget for new product development if the economy obliges a hefty slash to the budget? Or to quote Chakravorti, “When the focus is on near-term profitability and moving toward leaner organizations, it is difficult to simultaneously invest in entrepreneurial activity with longer-term and risky payoffs.” But that’s just the problem–entrepreneurs who have difficulty seeing the forest through the trees let the immediate crisis distract them from pursuing long-term priorities. Experienced entrepreneurs accept that they and their organizations are not immune to challenges and that a downturn–like increased competition, unavailable funding, breach of partnership contracts, or the reverse engineering of intellectual property–can be overcome through the use of proper principles of management. Fortunately, Chakrvorti lists three fundamental principles for managing the downturn:
1. Entrepreneurs must target downturn needs such as superior value relative to existing players or provide good substitutes for the necessities that consumers have to forego.
2. A common outcome of downturns is an abundance of underutilized resources that may be available at a relatively low cost.
3. This conventional response to tough times creates an opening for entrepreneurs who can meet the profitability challenge by re-examining the whole business model—a process that might involve customer acquisition or retention, or pricing innovations without adversely affecting costs or profitability.
Jacob Webb
Everyday Entrepreneurship
http://everydayentrepreneurship.com
Jacob Webb is a co-founder of NewLook International, Inc., a Salt Lake-based manufacturer and international distributor of decorative concrete products and other surface-enhancing solutions. He was Vice President prior to beginning his MBA program and was responsible for fund raising, distribution development, organizational management, brand management, strategic development, and executing various corporate initiatives.
