What do Entrepreneurs and U.S. President Barack Obama have in common?

They all believe that time of crisis can be “great opportunity”.

Of course, it’s not an easy task to discover opportunities in the midst of one of the greatest crises in human history. But that ability is what separates entrepreneurs from the crowd. They were able to find ways to make it through again and again:

Andrew Carnegie launched his first steel mill during the Panic of 1873, the start of a long depression. He took advantage of low costs to build an industrial giant that made him the world’s richest man.

Bill Hewlett and Dave Packard launched HP from a garage toward the end of the Great Depression.

Frederick Smith launched FedEx in 1973 when the jet fuel prices were rocketing.

Bill Gates and Paul Allen started Microsoft in the recession of 1975.

So why entrepreneurs and startups can thrive in tough times and others not?

Paul Graham, the famous venture capitalist, says, “If we’ve learned one thing from funding so many startups, it’s that they succeed or fail based on the qualities of the founders. Which means that what matters is who you are, not when you do it.” Moreover, “If you’re the right sort of person, you’ll win even in a bad economy. And if you’re not, a good economy won’t save you.”

Based on what Paul said, it seems that the state of the economy is not a major factor in startups survival. Not only that, bad times actually give entrepreneurs some advantages over big institutions.

Others are Fearful

Fear makes people shortsighted. A lot of businesses have been thinking a lot about cost saving and survival strategies which will weaken and damage their long term prospects.

In contrast, P&G increased their marketing budgets and tried new advertising media (Radio) during the Great Depression. A strategy that successfully turned the company into one of the industry leaders and largest corporations in the world.

“As a rock climber, the one thing you learn is that those who panic, die on the mountain.” One of my favorite authors, Jim Collins, believes that, in order to succeed, companies cannot stay in the status quo. They have to ask themselves what they are going to do to turn this into a defining moment in their history. Their goal is not to survive; it is to prevail.

Moreover, entrepreneurs will face less competition. Competitors may go out of business. It’s the best time to increase market share. Using your creativity and imagination, you can also “make it big” during economic crisis.

Advantages of being Small

Chaos always brings opportunity. Don Dodge thinks that “startups have the advantage of being small and nimble. [They] can make changes quickly, find new ways to save customers money, and fill needs faster than big companies”.

While people are worried in bad economy, they are willing to try new things, including startups, to save money. Which company doesn’t want to save a few bucks in times like these? Because small startups often make products and services cheaper, they should be better positioned to prosper in a recession than big companies.

Another key is to stay in the game as long as possible because the economy will get better eventually. In order to that, entrepreneurs have to operate their companies as cheaply as possible. According to Paul Graham, “The immediate cause of death in a startup is always running out of money“. Startups need to spend less or sell more so that they have enough cash to carry them through the winter.

At the same time, it is important to let your customers know that you will work with them to create value, not only to give them a lower price.

Lower Cost

Economic meltdown is bad for most big corporations but small startups can actually take advantage of the situation. After massive layoffs, many workers will become freelancers. They have to lower their prices in this tight competition. Entrepreneurs can then use their services at a lower cost.

Besides, many resources, like office space, equipments, ad spaces, that a new startup needs will be available at lower prices. In addition to the low cost of open source software and SEM, entrepreneurs should be able to jump start their businesses in a less expensive way.

More Talents

If we look at the history, some companies used difficult times to acquire their troops of talent.

After World War II, all the [US] government labs were shutting down, and engineers were streaming out. Hewlett-Packard was actually going through a layoff. But at the same time, Bill Hewlett and Dave Packard said the greatest opportunity they ever got wasn’t technology; it was the opportunity to hire those engineers.

Experienced engineers may get layoff. Talented fresh graduates may not able to get a job. Like a good investor, you should invest when times are bad. Your partners and workers are your hedge against the difficult time ahead.

Like Robert Schuller said, “Tough times never last, but tough people do.”

Conclusion

Many great companies were born at a time when everyone thought the world was falling apart. Recession is the best time for startups. It could be an opportunity for a paradigm shift in our future.

After all, opportunity does favor the prepared mind. Invest in the best assets of yours: your abilities.

We have to remember that recessions always end. In the book, “Built to Last“, 15 of the 18 featured companies had went through the Depression, and all of the 18 are still standalone companies today.

If you have a good idea, act now!

Resources:

Jim Collins: How great companies turn crisis into opportunity

Why to Start a Startup in a Bad Economy

Tough Times Never Last, Tough People Do

Start a company in a recession? Absolutely!

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I always have a question in my mind: “Why do so few Chinese companies reach the top of the global business world?” In my definition, a great global corporation should be able to do more than just making profits. “Profit is like oxygen, food, water, and blood for the body; they are not the POINT of life” (Jim Collins). A great global corporation should have a purpose beyond profit, for example, 3M (innovation), GE (improving the quality of life), Sony (to elevate the Japanese culture and national status), P&G (product excellence), IKEA (good design and function at low prices), Disney (to bring happiness)…etc.

I bet most Chinese big companies have their own ideology and core values in their business culture; however, they don’t have the ability to show them to the people around the world. In the list of “The 100 Top Brands 2006“, there are only 10 Asian companies on the list, 7 from Japan and 3 from Korea.

I never had any doubt that Chinese know how to earn money. If we take a look of “The World’s Billionaires list“, you can easily find many Chineses on the list. For instance, there are 17 Hong Kong billionaires but none of their businesses are really famous in the world. Although Li Ka Shing is the No.10 richest people, I wonder how many Americans have ever heard of his companies “Cheung Kong Holdings” and “Hutchison Whampoa”, which is on the Fortune Global 500 list. I understand the industries of his companies are not so common but still, if you said you are a global corporation, at least I should see them in the Fortune magazine from time to time, right? Some people, if they are lucky, may hear of “Li & Fung” and “Esprit” but you can’t compare them with companies like Toyota, Canon, Samsung, Sony…etc. Does that mean Chinese don’t have the ability to succeed in the global economy? This is probably not the reason as I have seen so many Chinese playing important roles in many US huge corporations. Then why?

Cultural Difference

One of the reasons for this phenomenon is that those companies place their main emphasis on profits. The primary objective of those Chinese companies is to help the owner and shareholders earn more money. That’s the instinct of Chinese: working hard and making more profits. Therefore, it’s very hard to find out the ideology of a Chinese company. Without that, we don’t know why that company exists in the first place. Some of the Chinese real estate companies said that their goal is to build a comfortable home for their customers. However, when you look at their brands or their promotional materials, you can never have that feeling. On the other hand, you can easily find out the objective and vision of a US company on magazines, newspapers or internet. For example, when you look at Disney, I am sure everyone will feel that the company wants to bring us happiness. Since many Chinese companies didn’t put much effort into preserving their core ideology, they usually can’t build up a good global brand. In other words, they cannot build up a motivating factor in the company besides money.

Hong Kong people always feel a great sense of pride for their entrepreneurial spirit because of their past success in 80’s and 90’s. Nonetheless, if you look at the age of those Hong Kong billionaires, you know that there are no new bloods following their successful path. Moreover, most of the Hong Kong big corporations are family-run businesses. Once the founder retires or past away, the successor usually cannot maintain the same good performance. In my opinion, only a brand with a great business culture can help a global company last forever.

After I read a Guy Kawasaki’s article “How to Kick Silicon Valley’s Butt“. I find out more reasons why Chinese companies didn’t succeed.

Education

I totally agree with Guy that engineers are very important to a country or a city success. They are the one who will really build new products and think about new ideas. Similar to Jack Welch, Guy Kawasaki also thinks that MBA is not very important as most of MBAs only “care about how to get interviews at multi-nationals and consulting firms”. In Hong Kong, the education system is really bad. It overemphasizes the result of exams and doesn’t care whether the students really learn the materials or not. I have never heard about anything related to innovation or creativity while I was studying in Hong Kong. But in the US, most teachers really care whether you understand the materials and they encourage innovative solutions. One of the professors of Jim Collins once said, “The best students are those who never quite believe their professors.” I bet many of the Chinese teachers won’t agree with that.

Immigration

Many Chinese are afraid of competition. When Hong Kong first introduced to import experts and skilled workers from Mainland China few years ago, many people are so afraid and worry that they will lose their jobs but not many people will think about how to improve so as to be more competitive in the new environment. In the US, when you apply for a job, you always compete against people from 50 states AND countries around the world. That’s really TRUE competition. The United States is so successful mostly because of immigration. In the past, people in the US are all immigrates. They brought in different points of view and new ideas to improve the whole society. The situation is the same in American businesses. Most US big corporations put great emphasis on diversity. It’s impossible for you to find a big corporation that only hires white employees. US corporations always want to hire the best and brightest, disregarding nationality. Competition and diversity constantly help you to improve. Why do you avoid them?

Heroes

Youngsters need role models. Like Guy said: Kids need heroes, so that they can say, “When I grow up, I am going to be the next Steve Jobs.” However, if you want to start your business in Hong Kong, the only role model is Li Ka Shing. It has been the same person in the past 20 or 30 years. Something is WRONG here. Do you agree? But in the US, you have all kinds of different role model, Bill Gates (richest), Steve Jobs (innovation), Warren Buffett (intelligent & thrifty), Larry Page & Sergey Brin (make money without doing evil)…etc. When you ask HK youngsters that why they want to be the next Li Ka Shing, they will just answer you, “em…because he is the richest guy in the country”…is it a good and healthy answer for the next generation?

A Different Look at Mistakes

Many famous people always said schools discourage you to make mistakes. But in Asia, the situation is even worse. Everyone dislikes mistakes, no matter they are parents, relatives, teachers, friends, schoolmates or bosses. Failure can create massive successes in the future but it seems not many Chineses have learned that lesson.

I just read the following in Fortune magazine:

A vice president recently committed an error that cost Google several million dollars. When she walked a cross the street to inform Larry Page, Google’s co-founder and unofficial thought leader, Page accepted her apology. And he said, “I am so glad you made this mistake. Because I want to run a company where we are moving too quickly and doing too much, not being too cautious and doing too little. If we don’t have any of these mistakes, we’re just not taking enough risk.”

If this happens in a Chinese company, I can say 90% you will be fired.

Dream and Vision

Many Chinese youngsters are afraid of dreaming. If you tell people you want to start a business, many people will just advise you to find a stable job. Or even if people already built up a business, many Chinese entrepreneurs will be satisfied to be a local small company. Why? I couldn’t find an absolute answer but I can say Chineses are good at finding excuses. They will find a million reasons to convice themselves not to do something but won’t spend any time to find out how they can achieve the goal. They will say that the local market size is so small or the China economy is just starting to grow, what do you expect? It is so sad that their vision is so narrow. They never look at the successful stories in other countries. I believe a lot of people never heard of any Finnish companies before Nokia thrives. So why none of the Chinese company can represent China, Taiwan or even Hong Kong? Also, many people don’t understand the power of a dream. They think that dream only appears in novels, comics and movies. This is probably due to lack of successful Heros in the local economy. Most of the Chinese companies on the Fortune Global 500 list are still government operating corporations. It’s almost impossible to find a business hero from all of them. Even you can find one. That hero can never say something like “I build this company because of my dream”…

Conclusion
If we look at the list of visionary companies in the book “Built to Last”, you will find that most of the visionary companies are on the list of the Global Top 100 Brands 2006. If Chinese wants to build a long lasting global company, branding is a must. We should not only learn the technical skills from other countries. We also have to learn their entrepreneurial spirit and managerial skills. I really think that Chinese don’t always have to be hard-working employees or managers. They can be a hard-working entrepreneur, too. Anyway, all the things I have talked about here are reasons for the past failure. We should look forward and not use them as excuses. The future of Chinese companies is still on our hands. The sky’s the limit!

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This news surprises me a lot. I am not surprised by the move but surprise that it happens so suddenly. But according to analysts at Citigroup, the Chinese government has always said that they would do this when no one was expecting it.

I believe Americans will love this “first baby step” because they always think that the Chinese undervalued currency makes Chinese goods look cheaper. Right now, even though the changed rate is not large, people are pleased that the Chinese government is finally willing to “change”. As a Chinese, I really think this is a huge step for this conservative country.

But how would this affect the world economy?

Good side

It makes the U.S. goods look better because they are cheaper now. Thus the U.S. manufacturers will be happy about this, as they always believe China is doing business unfairly. It will also stop the relationship between China and the US growing worse after the issue of import quotas on textile shipments this year.

Bad side

According to Andy Xie, the head of the Asia/Pacific economics team in Morgan Stanley, China’s export sector will suffer because of this move. Since most factories in China are working for other global companies, which have their own brands and distribution channels, the export sector has a very low profit margin. After China’s currency to become a strong currency, the profit of this industry will decrease.

Market Reaction

For Hong Kong citizen, this news didn’t cause a sensation. However, people feel more optimistic about Chinese companies now causing their stock prices raise.

Conclusion

At this moment, we still don’t know the effect of the appreciation of Yuan. It depends on how the market reacts and how the china government responses. Most experts don’t believe any big movement would happen within a short period under the control of the Chinese government. But, anyway, this move will be a very important step for China itself and a very good political gift before the China’s President visits the US in September.

References:

• China: Increasing Currency Flexibility (Andy Xie, Morgan Stanley)
• China revalues yuan, pleases Washington (Reuters)
• Move Strengthens White House Hand; Congress Vows Pressure (WSJ.com)
• FAQ: China’s Yuan Revaluation (WSJ.com)

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