The next 18 months should present many entrepreneurial opportunities. Photo: Thinkstock
Smart entrepreneurs know that every problem is an opportunity and that seeds of new fortunes are often sown when other enterprises are chopped down. For all the gloom and doom, the next 18 months to two years could present some the best entrepreneurial opportunities in a decade.
No one can be sure when business cycles end and new ones start, but it’s a good chance we will know within two years. Entrepreneurs who wait for the answer will be left behind.
Some powerful trends will collide during that time. Early-warning signs, such as trade payments data, suggest a bigger spike in insolvencies as more companies are crippled by poor cash flow and customers take too long to pay their bills. That could mean more asset “fire sales” and opportunities for cashed-up entrepreneurs to invest at lower prices. I was struck how by many retailers were boarded up for renovation – or closing down - at a recent trip to a big shopping centre.
At the same time, more baby boomers who leave the workforce will struggle to sell their business in the next few years, such will be the glut of enterprises on the market. Some will be forced to walk away with nothing. That could be one of the great opportunities for eagle-eyed entrepreneurs who snap up a business, or its assets, from forced sellers at a fraction of the true value. I’m surprised there are not more investment funds being set up to target this opportunity.
Yes, I know the thrust of this blog sounds harsh. No one likes seeing hard-working small business owners struggle, go bust, or unable to sell their venture. But the best time to buy assets is when more people are selling. That’s business. Yet with so many negative headlines (unduly negative right now in my view), it is easy to overlook the opportunities that problems in the small business sector will present, as one business cycle ends and another starts.
This is the time for entrepreneurs to search for badly under-priced assets, and be ready to pounce when opportunities appear. This is the time for contrarians to search for value that could emerge in some industries.
What’s your view?
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Will the next 18 months to two years be a good time to start a business?
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How much could trading conditions for small business deteriorate during that time?
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Will there be more opportunity to buy assets at much cheaper prices?
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Is the real economy in a worse state than economic statistics and commentators suggest?
Other factors will also favour nimble entrepreneurs who capitalise on powerful shifts in consumer behaviour, such as more online shopping. Incumbent companies in struggling industries will be under more pressure to cut costs, in turn further damaging product quality and eroding staff morale. Smaller insurgent companies might find it easier to get a foothold in markets if that happens.
Those who start a venture, and have enough cash to withstand potentially flat or weaker demand over the next year, might get better rental deals and find it easier to get staff if unemployment edges higher. They might get more “cut-through” in the market as consumers crave new products or services to try, as larger competitors cut back on product launches or reduce marketing.
Perhaps I’m wrong about this, and the mining investment boom reignites the local economy next year, the global economy heals, and a bull market in shares returns. I am still optimistic about our economy’s medium-term prospects and recent figures showing stronger-than-expected gross domestic product reinforced this view.
But my sense is that all the problems overseas, and in some Australian industry not exposed to mining, will come to head in the next 18 months or so, and that overly bearish sentiment will weigh on what are still solid economic fundamentals. If that happens, there will be assets at cheaper prices, for cashed-up buyers willing to take risks.
This gloom will not last forever. An increasingly likely change in the federal government at the next election will reduce regulatory uncertainty and buoy battered business confidence. There’s a still chance interest rates could be cut late this year or next, if global economic ills infect our economy. A sharemarket recovery, when it finally comes, will lift the spirits of millions of people exposed to the market through superannuation.
Perhaps 2013 will turn out to be a lucky year. And let’s not forget the emergence of China and India, and other emerging countries has years to run, benefit Australia and transform its economy, which is undermined by a mining investment boom.
The best is still ahead in my view, once this period of “creative destruction” runs its course, and capital is reallocated to those who make better use of it. Buying assets at the bottom of cycles, before the next upswing, has been the making of many entrepreneurs, and will be again. As is being able to view problems as opportunities and excessive gloom as a ripe condition for contrarians.
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