Battle scars of a new generation of entrepreneurs

Many business leaders believe that hard times are a great teacher. Running a business in a boom economic period is one thing, but leading through a downturn takes a set of skills that can only be developed through experience.

I was reminded of this philosophy at a recent Masters Of Business dinner held by PwC a few weeks ago in Melbourne.

On the panel of speakers discussing whether or not it is the right time to invest was Ian Robinson, CEO and founder of retail chain Beacon Lighting.

Robinson is a fascinating speaker and someone who has clearly been shaped by hard times.

He referred to the 1989 recession a number of times during his presentation and explained that it was after emerging from this downturn with only a few dollars to his name that he realised he had to make his business a more professional outfit.

He travelled the world examining retail models and knew he had to lift his game. He returned to Australia determined to simplify his store format, redesign his business model to make the process of rolling out new stores easier and raise the level of his marketing.

The period also left him with some clear battle scars. Perhaps the biggest was a mantra that growth should not hurt the profitability of a business, even if that meant delaying the implementation of a growth strategy.

This lesson has served him well and ensured, for example, that Beacon always has the cash to maintain its marketing spend throughout the economic cycle. Many of his major direct competitors have failed because they simply couldn’t challenge Beacon’s “share of voice” in terms of advertising in the sector.

Listening to Ian, I started wondering how the current tough economic conditions might have affected the current crop of fast-growth entrepreneurs.

In SmartCompany’s annual Smart50 awards (the results of which were announced a day after the last edition of LeadingCompany) a staggering 42 new companies joined the list, suggesting the emergence of a new group of slightly smaller, slightly younger businesses.

Given the post-GFC hangover has some way to run, it is difficult to say what “scars” the experience will leave on these business owners and managers.

But studying the group and reading the profiles of their businesses does suggest there are a few hard-earned lessons that will stick with these entrepreneurs for some time.

Scar 1: Flexibility

Having a flexible business model that can be scaled up and down according to conditions or the success of a particular strategy is now seen as a huge competitive advantage that many of the Smart50 want to maintain. This will get tough as they get bigger, but for now it is a crucial part of their operations.

Scar 2: Funding

Three or four years of restricted bank funding means the Smart50 have focused on funding their growth out of cashflow or taking in investors in some form. As a result, debt levels remain low and many entrepreneurs appear determined to keep them as such.

Scar 3: Systems

Because most of the Smart50 are cautiously keeping costs down, their operations are lean and managers recognise processes and systems are needed to cope with growth. When asked what their biggest focus was for 2012, a surprising number of entrepreneurs nominated the further fine-tuning of these systems.

Scar 4: Planning

Careful research and planning are key parts of most Smart50 firms, although there is a clear understanding that planning is no longer a once-a-year activity. Flexible business models mean flexible planning, so plans might be reworked each quarter, depending on conditions.

Scar 5: Stress

When asked what tips they would pass on to aspiring entrepreneurs, a large number of Smart50 members mentioned an ability to handle stress. While stress is something all business owners live with, it does stand to reason that it would be higher in more difficult economic conditions.

At first glance, these seem like good entrepreneurial scars to emerge from the GFC and post-GFC period with.

Just as the 1989 recession drove home to Ian Robertson the need to professionalise and focus on sustainable growth, these entrepreneurs seem certain to be shaped by the need to remain flexible and put in place strong systems and processes to support growth.

But there is a little question about how deep these scars might go. When the economy does gain pace and bank finance picks up, will the entrepreneurs of the Smart50 be able to switch to more aggressive growth strategies?

It’s a fascinating question and one the Smart50 will need to consider carefully in the coming years.

This article first appeared on LeadingCompany, Australia’s new publication for leaders and managers. It’s totally free and you can sign up here.