For entrepreneurs, a time of opportunity
While many firms must focus on survival, entrepreneurial companies are using the downturn to grow through innovation, organic expansion or acquisitions. They are fine-tuning business models, developing new products, expanding globally and moving into adjacent areas. Those are the findings of a poll earlier this year of 3,100 winners and finalists for the Ernst & Young Entrepreneur of the Year awards. That contest brought together leaders of firms growing $600 million or more in revenue at 19% or more per year to compare notes and celebrate excellence.
Contrast. The theme from these participants, representing 50 countries, was that the economic slump has created opportunity to rapidly innovate and expand. Roughly 90% of those polled said they are retaining or increasing their focus on broadening the customer base, entering new markets, recruiting and rewarding key people, and cutting costs to boost cash.
That contrasts sharply with a recent survey by Ernst & Young and the Economist Intelligence Unit of 500 executives from global companies with more than $1 billion in revenue. The bulk (82%) of those respondents said protecting their current assets is a top priority.
Other key findings from the survey of private and public entrepreneurial companies included a relentless focus on high-margin products or services rather than year-on-year growth; a keen interest in pursuing acquisitions, partnerships and strategic alliances; plans to expand workforces and upgrade talent; and a pipeline of new products and services for existing customers.
Echoing the priority of their larger peers, cash for this group remains king. But many entrepre¬neurs said they had sufficient capital to finance expansion. Leaders at companies operating in strategic growth markets ranging from technol¬ogy to alternative energy to health care and food delivery said excellence in operations and finance helped them unleash liquidity.
Innovation wins. What can larger firms in more mature markets learn from upstarts on a rapid growth trajectory?
First, it’s never too late to innovate. Think high-demand, high-margin products like Apple’s iPhone, Wal-Mart’s point-of-sale inventory management or DuPont’s nylon, which was developed in-house by star scientists over a recession, with the company’s blessing.
Even in trying times, customers will pay a premium for original, high-performance products. High barriers to entry will stave off imitation, stagnation and price competition and foster a culture of excellence and innovation. An eye for something uniquely different also keeps companies poised to capitalize on growth over an uptick with state-of-the-art products and services. Irrespective of size, successful companies create and encourage an infrastructure of innovation.
Second, alliances and outsourcing may be the fastest and most effective way to fine-tune business models, cut costs and produce superior goods and services. Alliances can also help improve operational efficiencies.
Third, operational excellence helps free up resources to innovate. Like their larger peers, entrepreneurs are cleaning up their balance sheets and divesting non-core businesses. But they are doing so with a sharp focus on new growth plans. Successful entrepreneurs know that they cannot cost-cut their way to greatness.
Finally, markets and emerging opportunities demand flexibility, particularly in the area of acquisitions, alliances and market expansion. Innovators understand that waiting for the perfect selling or pricing opportunity may impede future growth. Increasingly, buyers and sellers are reaching agreements on a sale, with more than 70% of those polled maintaining or growing their focus on mergers, acquisitions and divestitures. Conversely, 92% of respondents have increased their focus on early distress warning systems.
Focus areas. New laws and shifting tastes are paving the way for excellence and innovation in entirely new areas. The recent US cap-and¬trade bill, for example, is opening opportunities for technologies that will help shrink carbon footprints. Private equity and venture capital firms are freeing resources to finance that growth. One entrepreneurial firm, anticipating such a move, developed high-precision meteorology gear.
Also ripe for innovation are health care and electronic and transport infrastructure. One participant polled has developed an anti-anthrax drug. Open source software, for new geographical markets, is another example of a new niche. In a frozen IPO market, companies like these are making plans to enter the public markets. They are carefully preparing for that window to open.
Although the economy may be on ice at home, some overseas markets promise buoyant growth. Brazil, for example, is going gangbusters in financial and energy services, following the discovery of vast new offshore oil reserves. Technology and alternative energy companies are also looking to China, with its huge growth potential.
Some closing pearls of wisdom from the poll: entrepreneurs underscored the need to be “creative and unconventional” and “brave and joyful” in the face of challenges. They pointed to opportunities in neglected and overlooked markets, necessities (as opposed to luxury goods) and tools for leaner times. “Clean up your operational messes,” advised one respondent.
In sum, dynamic enterprises see the downturn as an opportunity to innovate and expand. Larger companies can draw inspiration from their bold vision. Embracing an entrepreneurial spirit amid turmoil may pave the way to future success.
Maria Pinelli •Ernst & Young LLP (US) •New York
Strategic Growth Markets
