Talk of recession may be gradually morphing into talk of depression, but many business leaders continue to point to the opportunities that a recession brings. Despite constraints on funding for small businesses, a host of experts point out that things will turn around – and when they do, entrepreneurs need to be ready with their next big idea.
The economy may not get so bad this time around, but a historic parallel exists with the view of some business leaders in the Great Depression of the 1930s. Take then-retired industrialist John D Rockefeller, who said in 1929: “These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.” Prosperity did eventually return, but not even Rockefeller, who died a few years later, could have predicted how the Great Depression sparked by the Wall Street crash of that year would lead to nearly a decade of decline and significant political upheaval.
That said, his optimism is mirrored by public figures and business leaders today as they try to encourage businesses – particularly at the smaller end of the economy – to ride out the storm. But are they right to be accentuating the positives? What historical precedent is there for the idea that we’re currently surrounded not just by threats, but by opportunities? And how can businesses keep going until the next tranche of money arrives?
Many of the optimists point to similar crises in the past. Mike Harris, founding CEO of First Direct, Egg, Mercury Communications and now Garlik, points to the last time a massive financial crisis was averted, in 1998. That was when hedge fund Long Term Capital Management was bailed out by a coalition of banks and creditors, including Merrill Lynch – itself recently saved by Bank of America. Harris is optimistic: “If you believe the economists in the US, we are on the verge of a complete financial breakdown. But this is the seventh financial crisis I’ve lived through and none of them have led to a depression. The authorities would have to be inept to turn this into a depression.”
In fact, he sees only opportunities. “What happens when you come out of a recession is that [new opportunities emerge]. The easiest way to describe it is like a forest fire, it clears away all the dead wood and there’s space for new growth. There’s all this pent-up demand - from consumers to buy and investors to invest.”
Speaking at the “Double Everything” evening for entrepreneurs last week, Harris cited the example of the 1970s recession, which saw the emergence of the personal computer market and Bill Gates’ determination to put a PC “in every home and on every desk”. Similarly, the economic problems of the 1980s heralded the arrival of the enterprise software market and the likes of Oracle, SAP and CA. And then there was the dot com collapse, which according to Harris, spawned the digital world and e-mail and web communications.
One of Harris’ fellow speakers was Roger Hamilton, founder of 18 businesses in 15 different countries. Hamilton also harked back to the 1970s, citing the Chinese calendar and the last time we were in this specific cycle, in 1972. In the US, President Nixon was suffering after Watergate, the value of the dollar was plummeting, the oil crisis was in full flow, America was waging a war in Vietnam, terrorism reared its head at the Munich Olympics and the West was looking to the East for inspiration.
Hamilton noted many parallels with the situation in the world today, saying: “There are times when it’s a perfect moment for a big idea.” And sure enough back in 1972, Richard Branson was just starting out with Virgin and Gates with Microsoft. This month, as the money markets struggled, Virgin was busy investing in a Portugese space port for its galactic airline, Google launched its first phone, GM the first fully electric car and there was a new age of giving, with $3bn pledged to end malaria and progress made towards the UN’s 2015 target to halve world poverty.
But Hamilton’s big message is that power in the world’s economy is moving to the East. He maintains Google launched the G1 phone in China because it expects to conduct more business there than in the failing Western economies, and he claims there are already more Internet users in China than in the US and there will soon be more than the entire population of the US. “This is marking the end of the greatest transfer of wealth in the history of man. We see the flow of expertise and human capital to the East in the same way that money has already flown out.”
So how do entrepreneurs take advantage? To Hamilton, it’s all about building an extended network where needs and opportunities are matched across continents. For Harris, the answer is to hang on. “Companies beg, borrow and steal to resource themselves, but you do have to be in the sort of business where you can bootstrap it.” Yet he remains optimistic. “I’m looking forward to seeing what this [recession] is going to create. I think it’s going to be something truly spectacular.”
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