Financial Crisis and Entrepreneurs

Most of the world is experiencing a financial crisis of historic proportions. Without question, the crisis will not be over in the short time and the international consequences will be deep and lasting. We all have been stressed by that economic downturn. And via communication channels, we easily realize that the credit crisis has hit small business owners particularly hard.

How can smal business owners cope with the crisis? They should not panic, and try to focus on the solutions to help their companies get out of the difficult time. Howard Anderson, management professor at Massachusetts Institute of Technology's Sloan School of Management, says the first and only rule is to make sure the company doesn't run out of money (Klein, 2008). Some suggestions from Scott Shane (2008), Professor of Entrepreneurial Studies at Case Western Reserve University are:
1. Extend less credit to your customers: provide less trade credit to customers and reduce accounts receivable.
2. Borrow from different sources (Community banks which did not get involved in the toxic mortgage mess, peer-to-peer borrowing)
3. Bootstrap, or raise equity
4. Cut your costs: leasing instead of buying; look at consultant who has not added enough value but costs much or employee who has not shaped up despite warnings…

Although it is considered as one of the biggest threats to most of the world, the situation could change depending on how we react to this. During such a crisis, actually, opportunity often arises.

“This is a time of great opportunity,” Bill Warner - founder of Avid Technology and Wildfire, one of the most successful entrepreneurs in America - said. “This is not a pep talk. This is reality.” Warner started his best-known company, digital media hotshot Avid Technologies, in September 1987, a month before the stock market crash of that year (Kirsner, 2008).

There is no better time to start a company for a number of reasons. Because highly paying jobs have disappeared and employment opportunities in general have decreased, previously unaffordable talented people are now available to. Operation cost for a business (rent, equipment…) is reduced. New business opportunities may be created and can be captured by startup companies. Therefore, entrepreneurs should stay motivated and not give up dreams. Do not delay starting company until the economy is stronger because someone may beat you in the market (Finn, 2008)

Economic crisis is a part of life and business. Those who react to a crisis passively wilt after the crisis passes, but those who react proactively and assertively to it ultimately succeed.

I’d like to end my post with a quote from Horace, a Roman lyric poet & satirist:
“Adversity has the effect of eliciting talents, which in prosperous circumstances would have lain dormant.”


References:

Finn, M. (2008, October 1). There is opportunity in crisis. Retrieved November 3, 2008 from http://the4eblog.com/home/2008/10/2/there-is-opportunity-in-crisis.html

Kirsner, S. (2008, October 2). My Notes from Today's Innovation Unconference. MassTLC Innovation2008 unConference. Retrieved October 30, 2008 from
http://www.innoeco.com/2008/10/my-notes-from-todays-innovation.html

Klein, K. (2008, October 8). How Small Business Owners Can Cope with the Crisis. BusinessWeek. Retrieved November 1, 2008 from http://www.businessweek.com/smallbiz/content/oct2008/sb20081010_904259.htm

Shane, S. (2008, October 6). What can Entrepreneurs do to Deal with the Credit Crisis? Retrieved October 30, 2008 from http://www.smallbiztrends.com/2008/10/what-can-entrepreneurs-do-to-deal-with-the-credit-crisis.html