Now or never businesses born in the recession

 

Irish entrepreneurs discuss the benefits of starting up in the current recession, writes OLIVE KEOGH

DESPITE THE deepening recession there was no shortage of people willing to start new businesses in 2009. Some did so because they always wanted to. Others because they had to. According to Irish results from the Global Entrepreneurship Monitor (GEM), one in five people now starting new businesses in Ireland is a “necessity entrepreneur”.

Setting up a business at any time involves risk but those established when times are tough stand a good chance of prospering when the market improves. The advantages of setting up in a recession include more availability of skilled labour, lower rents, keener prices on goods and services and realistic salary expectations.

Unexpected redundancy spurred Anne and Graham Ferguson to bring forward their plans to base a tourism business around their shared passion for diving. The couple knew Graham’s job was going but in April last year Anne got news of her own redundancy.

“We were both out on our ear and as we’re only in our 40s we had to do something about it,” she says. “We had talked about doing something for ourselves at some point but the turn of events brought that forward. Our starting point was a feasibility study and we also took a stand at a diving show which allowed us to ask people about their interest in diving holidays in Ireland. The feedback was very encouraging so we continued researching the market while putting a business plan together.”

The couple have put all of their savings and redundancy money into Oceanaddicts, which is costing in the region of €300,000 to get going. The project has also received grant assistance from the West Cork Development Partnership. The biggest cost is buying the boat on which the holidays will be based. The couple have sourced a former UK navy tender which is undergoing inspection. It will then be converted to accommodate 12 passengers and four crew.

Persistence and tenacity are two attributes entrepreneurs need to succeed – and the Fergusons required both to secure a licence to operate their business. “It was a new idea so it took an awful lot of knocking on doors over a long period of time to get what we needed. Yes, it was frustrating at times but we persevered and it eventually paid off,” Anne says.

Staying power got fisherman Michael O’Neill of Tower Aqua Products the licence he needed to farm abalone (edible sea snails) in Castletownbere. “The form filling was a nightmare. There was a lot of paperwork involved and the way the system works means you can’t apply for licences in parallel, you have to do them individually. This took about 18 months but you have to stick with it and not take no for an answer.”

O’Neill, who participated in West Cork’s Genesis Enterprise Programme for would-be entrepreneurs, says the timing of the recession has made his start-up more difficult. “Two years ago it was way easier to sell a high-end niche product,” he says. “Now that spending power has been reduced people are more cautious about buying luxury foods.” O’Neill’s product is aimed primarily at the European export market and at Asian customers in particular who buy abalone as a delicacy.

The cost of setting up the abalone farm is in the region of €2.5 million and O’Neill has been funded by bank borrowings, his own resources and a grant from Bord Iascaigh Mhara. Abalone take over two years to grow but O’Neill bought some mature stock and had his first consignment ready for market just before Christmas last year. Abalone farming is in its infancy in Ireland and the combined output of the five farms currently producing the product is less than 100 tonnes per annum. O’Neill estimates there is a market for up to 500 tonnes a year.

The lack of lending to credit for small business has become an issue during this recession but O’Neill says he experienced no difficulty in getting the required funding last year. “I deal with AIB in Skibbereen and have been treated very well throughout the time I have been putting this project together,” he says. “On my side I did everything they asked me to and everything I said I would so they could see that I was serious about what I was doing.”

Ireland has a strong entrepreneurial culture. Some 9 per cent of the adult population are established entrepreneurs (including self-employed). This compares with 8.3 per cent in the US, 6 per cent in the UK and just 2.8 per cent in France.

A key difference between Ireland and the US is the attitude to failure. Irish culture is less tolerant if a business goes belly up. In the US a failure is seen as evidence of effort and applauded. In the Global Entrepreneurship Survey, 38 per cent of Irish people cited fear of failure as a key reason for not starting a business. This compares with 28 per cent in the US.

“Irish people definitely seem to have an obsession with not failing,” says Ian Lucey, who set up Lucey Technology with Joe Healy in February 2009. The company now employs 17 people and is based in the IFSC. “I think being afraid of failing paralyses people; they get scared and don’t have a go. I think too much is made of starting a business. People should be encouraged to go for it, not to over-analyse.

Lucey says the recession helped cut the cost of setting up his business significantly. “If we had started this business two or three years ago, it would have cost us an extra half a million to get up and running,” he says. “Costs such as wages and rents have come down and technology has moved on, allowing a small company like ours to thrive.”

Lucey Technology has found a niche helping businesses to harness the power of the web to work smarter. “By bringing more customer interaction online and utilising the power of enterprise cloud computing, we can help companies revolutionise how they do business on the web in a simple cost-effective way,” he says.

The investment costs in Lucey Technology were around €2 million and the company has been supported by Enterprise Ireland and by the Dublin Institute of Technology’s Innovation and Technology Transfer Centre, Hothouse. “Hothouse gave us good advice and saved us a lot of time, “ Lucey says. “In particular, we got good practical support in the form of sales, finance and marketing mentors for free.”

The recession has dented business confidence and, according to GEM, Irish people’s perception of business opportunity changed rapidly between 2007 and 2009. In 2007 some 46 per cent saw opportunity in the marketplace. Last year this fell to 27 per cent. The collapse in consumer spending has been a factor, as has the tendency by women entrepreneurs to be more risk-adverse than men. As a consequence, a gap has opened up between the number of men and women starting businesses in this recession.

John Dennehy of online HR solutions company Assembly Point saw opportunity in the economic downturn. “Companies are acutely cost conscious at the moment and many of the systems currently available to track HR data are very expensive. My idea was to come up with a software product that was cheaper and would also do a better job,” he says.

Dennehy already has a successful business start-up under his belt. In 2002 he co-founded a company that built computer games and subsequently sold it in 2007. He launched Assembly Point in October 2009 and the company now employs five people.

“Sure there’s a recession on but you can succumb to the gloom and doom or look for the positives and see opportunities in it. In our case we are getting better value from our suppliers and in turn providing our customers with a quality product that saves them money.”