Count your blessings if you’re small

Nov 27 2008 by Sarat Pediredla, The Journal

NOT a day goes by without someone asking me how my business is going – obviously referring to that fact that we are a small start-up in a tough economic climate.

The media is doing a great job of covering the financial doom and gloom and the state of the economy, so I am afraid there isn’t much more I can report on that.

However, my response to them is always: “Hell, better than ever before.”

Sure, we are all affected by the economic crisis, and there is no denying that.

Venture capital has dried up and credit is nowhere to be found, hence, now is the best time to be a boot- strapped technology start-up.

Lack of lavish venture capital and easy credit is a boon. Businesses now have to become cashflow-positive rather than building their strategy on borrowed money.

A cashflow-positive start-up in this economic climate will have a sound financial infrastructure for the future.

Meanwhile, if you have been laid off recently, now is a perfect time to pursue that idea or business you always wanted to.

You have faced the worst that could happen and your risk profile is probably lowest at this time.

You have nothing to lose and the opportunity cost is low.

In the service industry larger clients are more likely to view working with smaller companies as being more cost-effective.

This doesn’t mean you have to be cheap, but as a small company your overheads will be so low that you can effectively compete with larger businesses.

At my company, service-based activity has increased five-fold in the last two months, with even FTSE 100 businesses considering working with more flexible, smaller businesses.

With your larger competitors cutting costs and trying to reduce their exposure to financial risk, you will have decreased competition and a great opportunity to offer value in both products and services.

As a small company, you don’t need that much revenue or profit to stay afloat, while larger competitors needs hundreds of thousands for pay.

If you are in the product business and build business software that makes companies more efficient, saves them time, and saves them money, then you are likely to have more interest from customers.

This is especially true if your product is priced affordably for the mid-market.

Sarat Pediredla is partner and co-founder of Gateshead software firm Hedgehog Labs.