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Tendencies
Who's afraid of Start-ups? |
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Ionut Maftei
Senior Consultant
Ensight Management Consulting
Six months have passed since the "global crisis" has been announced in Romania. We have already registered the first "victims". Those who make it through are considered winners. But what makes the difference between "victims" and "survivors"? For those who are not ready to face this kind of situations, the chances of remaining on the market are quite slim. Sometimes, taking everything "from scratch" is better than remaining in an unsafe and often unknown area.
What determines "the fall" of some players?
Some companies, despite having a good market positioning, have been somewhat forced by their headquarters to restrict their activity, while others have been affected, either directly or indirectly, by the reality in the market. Others lose on their own by not being ready for this kind of environment.
At first sight, the differences between those who succeeded and those who have problems are not that big. Despite that, just like athletes make consistent efforts to only be better by a split second in order to be the winner, the differences between competitive and losing companies might as well be minor. Yet, behind those results are huge efforts. Sometimes, companies realize that they are activating in a domain they are not familiarized with. This usually happens when when a business is developed on the idea: "I am investing here because I can win a lot". In the upcoming period, the rankings of most attractive industries will change, so we expect investors that currently find themselves in a losing situation to reorient or to change something in the way they act. We recommend that businesses follow the: "this is what I like and this is what i know how to do" philosophy when planning ahead.
There is still room for investment and the opportunities are of very different kinds
For those who think about investing in new activities or reorient, we must first identify the domains that will continue to be active in the foreseen context. Usually, during economic crises, the least affected markets are those that are either very stable or that have "captive" clients. Here are some examples: basic consumer goods, the tobacco industry, utilities (energy, public services). I believe these to be the main markets for investing or creating a start-up.
At the same time, we have to take into consideration the opportunities that surface in this combination of circumstances: after an explosion of crediting, sometimes granted in an uncontrolled manner, we expect to register delays for payments in the next period; thus, companies that are specialized in debt recovery, executors and judges will have a consistent workload. Given a decrease in workload for many companies, even below profitability for some, we foresee a rather large number of mergers and acquisitions.
Nevertheless, the consultancy area will have a good deal to earn, especially those segments that deals with financial analysis and optimization of companies, those that have the know-how to deliver cost cutting and business transformation services. I think that the emphasis in this period will fall on business transformation and reorganization.
On the other hand, Romania still has underdeveloped fields from which growth is expected in the upcoming period. Agriculture is one of them. Infrastructure is also an underdeveloped area, in comparison with the European level, and from here other opportunities may appear.
The "luxury" area is more resistant to change, whatever the industry, so that companies that tackled this segment and are already well positioned will be less affected by the changing economic environment.
These are just a few ideas about "where to invest".
At the basis of the investment decision the governing principle should be "I want to do what I know and like to do".
The investment in a new business must be done in the area most familiar to the entrepreneur, while obeying a few clear rules
It is obvious that during a crisis or recession, the odds for success are not as high as in a period of economic growth. But a lot of products and services are missing in Romania and only wait to be launched.
I think that the effort to surpass your competition is identical whether during a crisis or a period of economic boom. When the economy is growing, the number of entrepreneurs is high and the markets offer visible opportunities for many companies. Although many a time businesses develop on their own, following the market tendency, to hold a distinguished position on a growing market, with many competitors, and to obtain a remarkable market share, is the result of some considerable efforts.
During economic decline, when survival itself is a challenge, the number of competitors is not that high anymore, so obtaining a good market share may sometimes seem easier than survival during a crisis.
In the next period, the difference between successful companies and the rest of them will consist of the focus that these put on the treasury, or differently said, on the cash of the company. The expression "cash is king" is more real than ever, whether we like it or not.
What are the advantages of a start-up today? What about the disadvantages?
The advantage of a start-up in a growing economic environment is that the business is developing as the economy does, without requiring excessive involvement from managers. During a crisis, the first part of the trend holds true: the economy falls and the business follows. As a result, serious implication is needed on the part of managers so that the company can be maintained on afloat.
Nowadays, another disadvantage is represented by financing. Although financing a new business in Romania was not easy in the past either, the general stoppage of crediting makes finding the resources even harder now. The margins are minimal, sometimes insufficient, for a healthy development.
But there are still some advantages for start-ups. For example, financing can come from special nonrefundable funds (once again we turn to the importance of cash). The workforce market can supply cheaper and better resources because of companies that had receded or did not survive. Winning a market share is an easier and faster process.
Related content:
Transforming company in crisis situations, Oana Criscov, Ensight Business Report No.24
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