Thorborg's Christmas Calendar, 24 December
As an entrepreneur in the financial crisis, you need to think about what customers can still afford and how your business can survive. I think we have some tough years ahead. But people still need to eat, be entertained and go on holiday. There are opportunities if you adapt and think long-term.
This is the final instalment of Thorborg’s Christmas calendar in December 2008. The assessments of the crisis and expectations for the coming years reflect my thinking at that time.
My Christmas present is Thorborg’s Q&A
I actually have a present for you: a Q&A series. Naturally, I have come up with the very creative name Thorborg’s Q&A.
The idea is that you email me a question and I answer on video. If several questions come in, I will have to choose. I will choose based on whether the question is interesting and whether it is something I am good at answering.
Marketing, sales and developing websites are among the things I am happy to talk about. Finance, VAT, tax and law, on the other hand, are things you should find other people to help you with. They are not my strengths.
I will answer when I feel inspired, which often happens when I am relaxing. That might be in the car or in my jacuzzi. But don’t worry: You won’t be coming to the toilet with me.
I have set up the Q&A on an Amino blog, and I am looking forward to getting started with the first episode. Send some interesting questions and I will do my best to give you some interesting answers.
An entrepreneur in the financial crisis: Find what people can afford
You should also get the year’s final pep talk. The world is going to hell, and I don’t think the crisis will be over any time soon. My guess here in December 2008 is that we could face three, four, five or six years of serious crisis, perhaps longer.
Others are talking about house prices stabilising and everything turning around soon. I don’t believe that. I think we need to prepare for something bigger and longer-lasting.
That may not sound like a pep talk. But people do not stop having needs. They still need food, experiences and entertainment. They still spend money, just on different things and in different ways from what we are used to.
I would be careful with luxury just beyond a middle-class budget
The very richest people will still eat caviar and buy Rolls-Royces. Very expensive products for people with billions are not necessarily affected in the same way. A jewel-encrusted mobile phone caters to an entirely different budget from that of an ordinary family.
The segment I would be particularly careful with is where the middle class has stretched a little further to buy luxury. That is why I think B&O is in trouble.
A very rich man can buy B&O with pocket change. But a television costing 80,000 kroner is also something the middle class can buy to signal that there is money in the bank. It may look nice, but I don’t think it looks 80,000 kroner nice.
The truly wealthy signal their wealth in other ways, for example with a luxury yacht. Similarly, a Porsche Boxster is something an ordinary Danish family can aspire to once it has moved a little higher up Maslow’s hierarchy of needs.
The problem arises when the money for those purchases came from equity in the house and that equity is no longer there. Products just beyond what people can normally afford could take a real beating.
Cheaper entertainment and holidays can still sell
Entertainment matters a lot when society is struggling. I think people will play lots of computer games, go to the cinema and rent videos. It is about experiences that do not cost a fortune.
Here in the US, we are seeing Disney World being hit because it is expensive. In the video, I estimate that a family here in Florida can easily spend around 1,500 kroner per person on admission, food and transport. That is a lot of money.
A trip to the cinema for seven or eight dollars is another matter. An American family can more easily find the money for that.
I would also be careful with an expensive adventure holiday to Africa where people spend 30,000 kroner finding themselves. Cheaper holidays and last-minute trips to Crete, on the other hand, can still give people some of what they want.
The opportunities are where ordinary Danish families can afford to take part and get good value for money. Something fun or exciting that can make everyday life better, even if they can no longer afford the new Mercedes.
Keep costs under control and survive
Your growth may stall and your business may shrink. Of course that is no fun. But if you survive the next three to five years, some of your competitors may have disappeared. Then you will be in a stronger position when society gets going again.
So do not let falling sales figures discourage you. Adapt your business, cut back on extravagance and keep your costs properly under control. If necessary, that may also mean having to lay people off.
At the same time, look at how you can change parts of the business. People still need food, hotels and entertainment. Perhaps your offer just needs to suit a different budget.
Building a business takes time
I meet many entrepreneurs who think they can just set up an online shop and it will be running smoothly after six months or a year. It rarely works that way.
In my experience, it typically takes at least three years before a business really makes a profit. So if, after one year, you feel things are not going particularly well, you should not automatically give up.
Jubii took three or four years before it was running reasonably well financially. So did SPAMfighter. Even with my experience, building a business takes time. You can find my own experiences as an entrepreneur in Iværksætter til jeg dør.
At this point, Amino has been run as a business for around a year to a year and a half. I still put money into it from time to time. Perhaps it can break even next year, but I do not expect it to really start providing a living and making money for about another two years.
A website may therefore have existed longer than the actual business has been operating. Keep the long term in mind.
Merry Christmas, and give your business everything you’ve got
Now go and have a wonderful Christmas Eve. Enjoy being with family and friends, and try to be positive, happy and optimistic.
Remember all the good you do for others. I believe it comes back to you, both in money and as a lovely warm feeling in your heart.
Thank you so much for following Thorborg’s Christmas calendar. Hopefully you have watched all 24 episodes. Otherwise you have a little catching up to do, but that can wait until tomorrow.
Have a fantastic New Year. I believe there will be good opportunities for those who get through the difficult years. Good luck, and give it everything you’ve bloody got.