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  • irishtimes.com - Posted: May 31, 2011 @ 8:00 am

    Would-be entrepreneurs shun the great shake-out

    Laura Slattery

    Enter the dragons... with presenter Richard Curran. Photo: RTE

    So it turns out the Chinese word for crisis is not actually opportunity.* For some employees facing redundancy this has nevertheless happily proved to be the case. In certain sectors, at certain times, mass layoffs have historically swelled the ranks of start-up firms. Once handed their P45s, redundant workers discovered it was the perfect chance to realise long-held desires to be their own boss. They scrambled through contact lists and made now anachronistic appointments with bank managers – ideally armed with a redundancy cheque as collateral.

    It happened after the 1993 closure of the Digital Electronics Corporation in Galway, which led to the formation of a cluster of indigenous tech firms, sucking in new investment. The still-thriving, Oscar-winning creativity of Ireland’s animation sector was born from the ashes of Sullivan Bluth, the multinational animated movie producer that shut its Dublin doors in 1995. And the demise of aircraft leasing company GPA in the early 1990s is survived by a generation of aviation finance firms.

    New figures from Vision-net suggest that this phenomenon isn’t repeating itself – not yet. The number of people choosing to become a company director for the first time has fallen by more than 40 per cent, according to the business information service company. Its study of Companies Office data found that 4,883 people registered as first-time directors in the first quarter this year, down 31 per cent from 7,062 on the same period in 2010. Since then, the sharp decline – described as “telling” by Vision-net managing director Christine Cullen – has accelerated.

    Timing is everything. Redundancy is a bitter blow at the best of times, but it is during the best of times that such bitterness can be channelled into productive outlets. Digital, Sullivan Bluth and GPA all closed at a time when the only thing on Ireland’s economic horizon was a massive boom. These were skilled workers freed from their contracts during a time of rising employment and nicely surging wages. But post-bust, start-up business models that would have seemed like simply marvellous ideas in 2001 now look like naive fantasies. Where once customers would have lined up, eagerly contributing to the top line, there is only a vacuum.

    Critically, this recession has also been accompanied by a dearth of the one thing even the most innovative of entrepreneurs with the most solid of business plans requires – finance. These are the days when securing a slot on Dragon’s Den is seen not only as a valid strategy, but – for consumer-facing businesses at least – vaguely sensible. It’s a television show, an entertainment. But the banks, after all, are out.

    Starting your own business has always been a risk, but in today’s dysfunctional economy it looks suspiciously like a folly. People who do, against the odds, manage to make their debut as a company director face a business climate that is still very obviously in the throes of a vicious shake-out. In May, companies were declared insolvent at a rate of eight per working day and liquidated at a rate of six per working day. Once it was the construction sector that led the implosion, now it is retail and wholesale firms that are hitting the wall with the greatest haste.

    Vision-net’s figures show that more than one in every two companies are showing signs “consistent with business failure”, by which they mean a decline in profits, tighter cashflow and an over-reliance on bank finance. Companies failing to meet their daily trade and finance commitments are, according to Cullen, having a “real domino effect” on the cashflow and debt repayments of other companies, exacerbating the crisis. The bulk of liquidated companies’ creditors are unsecured, meaning they’re unlikely to be paid what they are owed. It’s a form of contagion that’s hardly conducive for a fledgling start-up to thrive or even survive.

    *Sadly for motivational speakers, the Chinese word for crisis isn’t quite a combination of the characters for “danger” and “opportunity” either.

    • Peter Barrins says:

      Starting a business in today’s environment should mean that the business model will be consistent with the present environment. Established businesses are failing because they are not responding to environmental changes, or are not responding quickly enough, and are therefore not competitive. There are also business which were performing reasonably rather than very well at the height of the boom and are simply not viable. Recently, I wanted to purchase gates. I was disappointed at the poor availability in Ireland and the dreadful quality of the few websites which I managed to find. They looked incomplete, were out of date and did not include prices. It’s not goog enough and that is the problem! Businesses need to be excellent or striving for excellence in terms of product/service delivery, customer service and value for money. In Ireland one would be hard pressed to find a great number of sme’s who are actually doing this.

    • Peter Barrins says:

      Finance has always been an issue for new enterprise, although it is presently a complete obstacle. In the past businesses that should not have been financed were while now, some excellent business ideas are being stymied because of no finance. Perhaps the People before Profit and general left should bear this in mind when they refer to a tax on wealth and capital. In the absence of bank finance, it is venture capitalists and angel investors who may be the most likely source of finance/capital for new business start-ups.

    • albert hall says:

      The Chinese seem to be having the same problem in that its policy of unifying its population into a collective has resulted in producing human robots incapable of free thought and speech thereby failing to create the entrepreneurs
      who create new ideas, products and services.

    • John O'Driscoll says:

      I would suggest that wei-ji would more accurately be read by Westerners at least as meaning an inflection point, a moment at which our entire weltenschaung undergoes a profound inversion or other change. In that moment, that space, with apologies to Victor Frankl, we are possessed of the freedom to choose our own reaction to the stimuli, whatever it is. Of course, most of us, panic-stricken, beset by fear uncertainty and doubt don’t realise this and accordingly act in accordance with a more ancient, reptilian programming, which generally, absent extraordinary good luck, leads us ever deeper into beFUDdlement. Just my six sense worth of personal experience there.

    • John O'Driscoll / O Yo Han says:

      But hey don’t take what I say as any sort of gospel. My Putonghua (Mandarin) is hen bu-hao (very crap), absolutely. As a xue-sheng (student0 of Chinese my lao-shir (teacher) used say I was hen mei-yong (useless). And he was a Shanghai taxi-driver and would know. I could only ever remember the rude bits he taught me. Dwee-boo-chee xiao-jie (excuse me little miss).

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