Recessions separate the winners from the losers

Recessions separate the winners from the losers

The conference was a sellout. Surprisingly, in a recession year, paid registrations were up by at least 60%. Hundreds of people paid Rs8,000 each to attend a two-day schmooze fest on entrepreneurship. Clearly, interest in entrepreneurship is thriving, never mind the state of the economy.

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It is commonly said that some of the best companies in the world have been started or have grown during times of recession. This has been repeated so often that it has now almost become an adage. Examples that are often quoted are those of Google Inc. and Federal Express Corp.

Logically, any sane and rational person would prefer the security of a salaried job during a downturn, rather than the uncertain world of entrepreneurship. During a downturn, competition has excess capacity; so there is fierce price competition, customers buy less so there is soft demand, funding is hard to come by and then if you do get it, you get poor valuations, cash collection from clients becomes harder and so on. It should be a bad idea to become an entrepreneur in a recession. The smart thing to do would be to hang on to your safe job.

The real world is, however, counter-intuitive.

Why is it that great success stories come out of hard times? Why is it that interest in entrepreneurship is up despite a recession?

The reason is that while recession causes pain, it also creates opportunities for small companies to prosper and grow.

Take our example. Naukri grew 65 times in sales during the last recession. It should not have happened; companies don’t hire during a recession. We should have been killed. How did that happen?

The point is that a recession causes companies to change the way they do things—it is a time of churn. In our case, from 2000 to 2004, there was gloom everywhere and companies were downsizing. However, many companies that were firing were also doing some small hiring. IT services companies, for instance, were retooling their skill sets depending on the projects they had.

A company that was letting go of 2,000 people because there was no project in hand for those skills was also hiring 200 because it had landed a project for which it needed those people.

And because the project was already in hand, it needed to hire quickly; it could not afford to maintain a bench. In the years before the meltdown, there had been no firing. It had been an era of large benches and excess staff. Now, downsizing made news headlines, but the smaller hiring that was taking place did not.

Added to this was the fact that during a recession, companies are careful about all costs, including the cost of hiring. It was this opportunity that Naukri exploited.

We went to customers and said: “Reduce your time and cost of hiring". This pitch worked with prospective clients in a recession. We supplemented this with some smart new product development and rolled out a network of sales offices. These factors really helped us grow.

But if the opportunity had not existed, we could not have grown.

Meanwhile, our competitors downsized. They could not raise their next round of funding, some exited India. There was a lot of pain.

We were able consolidate our leadership and became a dominant player in the last meltdown.

While the recession crippled some in our industry, it actually helped us.

The message is that if you read the tea leaves correctly and are able to spot the right opportunity during a recession and then execute well, you can actually win big precisely because there is a recession. If, however, you are unable to do this, you can get hit by a truck.

During recessions, industries see a shakeout and consolidation. Recessions show no tolerance for mediocrity and redundancy. Companies go back to their core and stick to the basics. All businesses that are “nice to do" and not “need to do" are dumped.

It is a time of cleaning up.

Recessions separate the winners from the losers.

The author is co-founder and chief executive officer, InfoEdge (India) Ltd, which runs the Web portal He writes a monthly column on careers and enterprise.

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