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Friday, January 2, 2009

Are Small Businesses The Answer To The Financial Crisis?

In Small Businesses the "Thinkers" (strategy and innovation) are often also the "Doers"; so the ability to take immediate action on a new idea or direction is there.

So, are Small Businesses the key to economic recovery?

Statistics and data clearly show that Fortune 500 companies have collectively shed 7 million jobs in the last 20 years ..... while the overall economy added 35 million jobs in that period. So what do you think created these extra jobs and where did they come from? It's all the entrepreneurs who started small and some of them subsequently gathered momentum and scale.

Given the above numbers and statitics, I would tend to agree that small businesses could solve some of this. However this financial crisis is somewhat different from the recession in 1993/94 or 2001/02 .... and even the two cycles before.

In solo businesses thinkers and doers are the same people. But as they start to grow and employ more people and gather scale, the role of the founder changes a bit and evolves with the business. They may become more "them" than "us" down the road.

In times of economic turmoil and consequently higher unemployment, it is common that some of the professionals that were laid off may take the initiative of beginning a new career path ..... as independent consultants or as entrepreneurs by beginning a small business.

Although it is probable that most entrepreneurs will fail 2 years after of having begun ..... and angel investors with the willingness of contributing capital will be scarce ..... past history taught us that many of the innovations that generated new and revolutionary products were initiated in times of economic uncertainty, market instability, and financial restrictions. And were consolidated once the economic landscape began to experience a healthy and sustained recovery.

That being so, the adagio that says that "Necessity is the Mother of the Invention" appears to be true.

In my humble opinion, this wave of innovation happens when talented professionals .... after being laid off from companies where they worked unhappily in the past and without a promising professional future ..... feel compelled to be creative, to develop an innovative mindset and explore beyond their comfort zones to survive, grow and succeed.

So with that in mind ... yes. In the long term, small businesses are key for the financial recovery.

1 comment:

Mark said...

We are hoping that our small business is one of the ones that thrives! Although the circumstances are different (none of the founders were laid off), the timing of the finiancial crises has been viewed as good and bad by us.
Our site, http://www.expertmagnet.com/ is an online marketplace for consulting and professional services. Organisations looking for expertise can post their requirements once, and have the expertise come to them, rather than spending potentially hours searching for the right firm that has the expertise they need.
The financial crisis could result in a drop in this type of work, as budgets get tighter, or it could increase it as organisations outsource the work instead of employ the expertise need.
Hopefully for us it's the later, and we can thrive in the near future.