Starting a business during changing times: danger and opportunity

Matthew Cushen, co-founder at Worth Capital, explores the opportunities and dangers of starting a business now, during a pandemic

The Chinese word for ‘crisis’ is ‘wēijī’ in the latin alphabet. It’s become (after JFK used it in a speech) a cliché that it’s made up of two Chinese characters signifying ‘danger’ (wēi) and ‘opportunity’ (jī).

The second character is part of the Chinese word for ‘opportunity’ (jīhuì), but that has multiple meanings, in isolation it means something more like ‘change point’.

Another cliché is that recessions are great time to start businesses. The poster children are Uber and Airbnb, both set up during the global financial crisis around 2007. Further back General Motors launched in 1908, after another financial crisis and McDonald’s was founded during the second world war and grew into the efficient franchise model just after (whilst being joined by arch competitor Burger King). I could go on.

But, more to the point, you could name any year and any context and there would be examples of the birth of great businesses.

Whilst the generalisation is unhelpful, thinking about whether you are stronger or weaker over time or more relative than your competition is always helpful and especially so when we are at a change point (‘ji’).

Nature gives us a couple of examples. Think about stumbling across a bear in the woods. The danger is not being able to run faster than the bear, but the danger disappears if you can run faster than your companion. Staying in the forest, it helps when dead wood dies and gives younger shoots room to grow. Whilst large businesses have many advantages in stable times, a start-up should always be more responsive and adaptive when times are changing.

Worth Capital have an investment in a direct-to-consumer bedding business called Bedfolk. It was already growing fast but really accelerated during 2020, as shops closed and a home, nesting, wellness proposition was hugely relevant. The team responded nimbly to demand and maintained customer satisfaction, fulfilment speed and availability all through the year.

But, more critical is the longer-term systemic changes in the market. The growth of e-commerce and the physical retail market share with the department stores (Debenhams closing, House of Fraser in trouble and John Lewis retrenching) will shift, and a change in sentiment regarding consumers’ relationship with their home makes an even more attractive market to grow a business.

That is an example of relative strength within a market, but another consideration is relative attraction between different markets and different customer groups. The pandemic has not only ravaged the health of different populations inequitably, but the economic fall-out is even more disparate. Whilst we can expect the macro-economic headlines to be bleak, there are huge populations of consumers and businesses that have had a ‘good’ pandemic.

Many consumers have had little impact on their salaries but have saved hugely. Governments the world over have found plenty of innovative ways to stimulate the economy, but none have managed to ensure that only the truly impacted and needy are the recipients of unprecedented stimulus. So we can expect a huge increase in consumer spending in some categories that will last for some time (years not just months), for example holiday spending will be redirected — probably to the home and garden.

Habits have been broken by the repeated lockdowns. With many consumers and enterprises questioning the status quo and open to new products and services. An example, of course, is the change in working practices. Whilst the majority of jobs in the UK (in services and manufacturing) will not have a choice about changing their working location, the professional, white collar classes with the most highly paid jobs (and highest levels of spend) will have a choice. We are starting to see businesses state their new policies — BP going for a 40%/60% split remote to office time, and Lloyds and HSBC targeting cutting 20% and 40% of office space respectively. Businesses dependent upon commuters or office populations will suffer. But there will be more opportunity outside of the big commercial centres and for businesses serving remote workers.

One of our investments, Weekly10 allows managers to understand engagement, sentiment and performance of their teams — very useful when they are sitting next to their people less. Whilst Weekly10 entered 2020 with a marketing plan prioritising different sectors, they are now prioritising remote working and particularly their technical integration with Microsoft Teams which gives them access to Team’s huge and very fast-growing user base.

So, if I was starting a business now, I’d think about these questions:

• What is happening in my market to create change (and systemic long-lasting change not just the headwinds or tailwinds associate with lockdowns)?
• Where and why is there more or less danger — over time and between incumbents or new entrants?
• Where and why is there more or less opportunity?
• What can we do — with our product or service, our marketing, and the way we behave – to seize the opportunity whilst it is there?

M Cushen

Matthew Cushen

Matthew is Managing Partner at Worth Capital a venture capital company that invests in start-ups with the potential to build loved consumer or B2B brands.