It’s a gloomy time for the UK economy. Inflation rates are at a high, wages are at a low, politicians keep telling us to tighten our belts and household retail names are going into administration on a seemingly daily basis. These may not seem like ideal conditions for investors, especially those seeking to back small businesses, but the truth is that young UK start-up companies have the power to defy the downturn. There are even some experts who suggest that such an environment is ideal for such companies to flourish.
Austerity has had a startling effect on businesses, driving all entrepreneurs to reconsider what their customers want and how best to deliver this. This often requires a business to examine their processes and may even kick-start a period of evolution. In such circumstances, the more established businesses will be held back by departments, formats, processes and endless meetings. By contrast, smaller start-up businesses can respond to shifts in this ever-changing market in a timely and flexible manner.
The impact of austerity forces everyone, businesses and customers, to re-examine their spending and seek value for money. This applies for all businesses, large and established or young and small. A successful down-time business is one that rides the wave of austerity by recognising this period of re-evaluation and adapting accordingly. For businesses selling to other businesses, the challenge is to demonstrate the ways in which their customers can reduce costs, or alternatively, services or methods to increase top line sales. From my own experience at Artesian Solutions, our entire focus has been to provide large businesses with a platform to reduce the time, cost and pain of filtering news and social media sources. And while we may be a small enterprise, we are already helping very large enterprises grow top line revenue growth as a result.
Strong customer relationships are a key element to defeating austerity. By providing flexible, customer-by-customer support, for example, using the internet and internet technologies to engage effectively, businesses will build a loyal customer base. It’s the personal touches that make all the difference. Every customer is unique, and when austerity kicks in, customers will want to be reminded of this fact. Not only is this good for a company’s reputation, but can also boost new business potential, especially if you can encourage existing customers to advocate your product on your behalf. Few techniques have a greater success rate.
It is easy to see the potential an austerity market holds for smaller and more flexible companies. In the current market, however, these businesses cannot simply choose to exist. They need funding, and with banks still holding back on small-business investments, the responsibility falls on entrepreneurial businesses and venture capitalists to help boost these young companies. Alex Macpherson, head of the Ventures team at Octopus says of this phenomenon: “Entrepreneurial businesses like Artesian must embrace these times of economic uncertainty, focusing on the positive opportunity of building their customer base through 2012. Similarly, investors like Octopus must work hard to help talented entrepreneurs seize their opportunity to excel while others falter.”
In the experience of Artesian, the investment appetite is there, if you can prove the ability to produce healthy returns. With well-established revenue streams and good traction with large enterprises, we found the general investment appetite to be strong, but there is almost certainly a hesitance amongst UK investors compared to their US counterparts.
Small businesses are the engine of growth for the UK economy. Not only do such businesses have the potential to make money, they will consequently grow and hire. At Artesian, the backing we received from Octopus will not only help us grow revenues, but as a result we are set to hire 25 people in the next year too.
There are ways in which companies can tackle the times and defy the odds, but this requires an innovative and flexible approach, which may not be suited to larger organisations. Cloud Apps and Concrete Media are two great examples of early stage ventures using their innovation and smaller size to their advantage, gaining great momentum. This is why 2012 is the year the UK needs foresighted and pioneering investors to take a chance on UK start-ups. This cloud of austerity dominating the financial horizon may have a silver lining after all.
Andrew Yates is CEO of Artesian Solutions, which last week announced it had
completed a fundraising of £2m from Octopus Ventures