Starting a Business in a Recession

2009 looks set to be one of the most challenging years in recent history for small business owners.

When large, established, household names struggle to survive in the tough economic climate, we ask is it harder or easier for the small businesses.

Recessions frequently result in a burst of new small businesses, as those with redudancy settlements take the step to start up their own business, something that they’ve maybe wanted to do for years, but been too cautious to do, preferring the security of the monthly pay check to the uncertainty of the new business start up.

Over the next few weeks we will be running a serious of posts about the issues that face small businesses, and in particular those trying to start and trade through a recession.

A business that can survive and grow in a recession can cope with anything, and some of the UK’s small business are best placed, with their flexibility, and “can do, will do” attitudes.  We look forward to bringing you some of the top tips, advice and stories.

The Oil Price Rollercoaster

This year has without a doubt, seen the most volitile oil prices for several decades.  After reaching new record high prices earlier this spring, we close the year with one of the lowest oil prices for many years.

The question that springs to mind is why the price went so high in the first place.

Traditional Economics states that the markets set a price at the point where supply equals demand, if supply falls or demand increases then the price rises, and vice versa.

So what really happened in the early summer of this year, what were the real true physical factors driving the price increases, or was it purely an example of investor speculation.

It we get back in out time machines and travel back a year, then what the forecasters saw for oil consumption was a continued growing demand, both nothing particularly out of the ordinary.

What really happened in 2008? 

There were no invasions of oil producing countries, China continued at the begining of the year to increase it’s demand, but again, nothing that wasn’t particularly unforseeable, the US dollar was strong, but again, it had been for most of the year before.  There was continued political and military uncertainty in Nigeria, but again, nothing drastically different from that of previous years, or what was anticipated.

 All in all, in was expected that global oil production would increase by 2% to cope with 2008’s anticipated demand.

So, if we take the hard and fast, true physical reasons for oil price volatility, with hindsight, there doesn’t seem to be a great deal there.  Which leaves us with the intangilbe reasons, the suspicions & worries of the analysts, and the financial market traders, the doom & gloom dramatic predictions of the world’s media, desperate to find something to grab headlines and viewers, and then speculators, the forward traders & the short traders who place their bets and see where the dice fall.

Hindsight is a wonderfull thing, but sitting here at the end of a turbulent year, I really wonder just how much of the whole “oil crisis” was down to speculators making money, and how long the rest of the world will be paying for it.

DHL Ceo says Retail Companies are in de-stocking panic

John Mullen, the CEO of DHL, in an interview with the Times, likened the High Street Retail Stores panic destocking as the equivalent to a run on the banks.

A quick walk around the High Street will tell you that they have all given way.  And that even the hardest nosed of the retailers, those that target the upper end of the market and resist the urge to cut prices before Christmas, are now brandishing “20% off everything” signs all over their stores.

Even the ultimate January Sale – Harrods,  are going early this this year.  Harrolds, who have never in their history started their January Sales until the first working day after the new year, start their Sale on December 27th, as well has having 30% off various departments and seasonal reductions already.

The retailers seem to be dumping stocks as quickly as possible, in fear that there will simply be no future demand by shoppers, (even those companies who are generating profits and whose books are sound) and this creates the risk that this has become a self fullfilling prophesy. 

We saw in the last weeks of November and the First week of December a standoff between the retailers and the shoppers.  Retailers were holding off cutting prices in the hope that the shoppers would start buying, and the shoppers were holding off waiting for the retailers to drop the prices.  The shoppers won, and now all retailers are dropping prices further and further desperate to grab a bit of that Christmas spend.

The problem with such a large reduction in inventory levels is that it is likely to hinder the recovery, which will eventually come.  When companies have low invetory levels it prevents them from reacting quickly and flexibly to any upswing in demand.

EA Profits fall as Wii sales Climb

EA has issued a second profits warning, and is planning further jobs (in addition to those announced in October), on the back of disappointing sales of their console & computer games.

Rumours are also around that EA is considering closing it’s Canada Black Box site, which produces the racing games. Need for Speed is one of the titles which has shown disappointing sales levels, along with Mirrors Edge and Rock Band.

The biggest factor in all of this seems to be the Wii, the newspapers are reporting daily record number of Wii sales, and the popularity of the newer platform with the family market, taking gaming out of the teenagers bedroom and into the family sitting room.

Nintendo publish most of their own games, and have 4 titles in November 2008 top ten games, as opposed to EA’s single title in position 4; Left 4 Dead.

All in all, EA seems to be the weaker player, struggling for market share in a market which is growing, with an estimated 22% increase in console and game sales than 2007. Making the video games industry one of the few retails sectors to see year on year growth. But one thing that these figures are telling us is that the traditional video game market, of shot & slash is diminishing, and that the larger untapped family market is where the growth of the future appears to be.

Business Education Needs to be More Inspiring

An Offsted report published this month describes “too much” of secondary school business education as “uninspiring”

Offsted based their report on the inspection of 118 secondary schools between 2004 and 2007.    The report shows that there are widely different methods used for teaching economics and business studies, and that these achieved widely differing results.

Characteristics of the weaker lessons included too much talk by teachers, closed questions and the overdependence on worksheets.  An recurring theme throughout the report was that there was too much emphasis on the descriptive work, and not enough on evaluation and analysis.

The report also raises the issue that students are sometimes disappointed by the lack of pratical aspects to the courses, and specifically mention not enough, if any, time spent with local employers and businesses.

We, at Fantasy Couriers,  believe that Economics and Business studies has the potential to be one of the most engaging and interesting methods of teaching students.  Business studies courses and activities give students the opportunity to take skills that they have learnt from other subjects and to apply them in a practical environment.

For example, algebra and equations make for some pretty dry maths lessons. Students are frequently unable to properly grap the principles behind algebra because its a concept.

But if you take that concept, and drop into an environment that the student can understand and internalise, then suddenly principles stop being concepts and start becoming tools.

For example get students to apply the concepts of algebra to work out a cost price for a product, or a break even sales level.  How many units do you need to sell at what price….., is a much better springboard for discussion, involvement and understanding than “if a+b=c and d+e=f , then….”

 

Finance and Business is the most common post school application of maths and numeracy for most people, with the exception obviously of those who develop the skills further into higher education, and the sciences.    So why wait until children leave school for them to discover this, lets teach them to apply their knowledge, and how to use it everyday in a practical way.

Discussions here centre on the use of Maths, but this could be equally applied to many other cirriculumn areas.  For example Art & Design, there are a small percentage of people that are able to use their Art & Design skills to build careers in Art, Architecture, Fashion and the literay world.  But a far larger percentage will use their Art & Design skills in a busines environment.  Designing websites, advertising & marketing materials, business documentation, manuals etc.

We at Fantasy Couriers believe that we should not think of Business Studies as a subject on the curriculum, it is instead a vehicle which can take the theoretical learnings of other subjects and show how these subjects have a real practical and modern relevance to everyday society, and our economy and world as a whole.

Business is the thing that keeps the world turning, and the current economic crisis has demonstrated clearly to everyone that business in America affects household happiness in the UK, and it is vital that we teach our young people to understand this.

A full version of the Offsted report can be found here.