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Businesses spawned by the GFC are wired differently

One of the most unexpected trends to emerge from the Global Financial Crisis (GFC) and the recession that followed in many nations, was the number of new businesses which started up even though economic conditions were so difficult.

In the USA, for example, the Kaufmann Foundation’s Index of Entrepreneurial Activity found that new businesses sprouted at a rate of 60,000 a month in 2009, compared to 40,000 a month in 2007.

In Australia, recent research shows that the number of business start-ups in Australia has increased, on average, 6.8 percent per annum over the last five years and is increasing faster than most other developed nations. The increase in micro-businesses and the birth of “mumpreneurs” locally has seen a rise in the number local businesses established yet interestingly, the new businesses that are doing best during this period are those that quickly employed staff and achieved scale. Businesses founded and operated by sole practitioners fared less well, showing that those making bigger entrepreneurial bets did better in tough times than those relying on their own skills alone.

Symantec was fascinated by these results, so we commissioned analyst firm Forrester Research to look into businesses that launched during the GFC. The resulting research revealed a very interesting finding: many of those who started businesses during the GFC did so out of necessity. Many lost a job or found their retirement savings inadequate. Rather than settling for less, those who started businesses during or immediately after the GFC decided to do something more about it. But few had previously nurtured a dream to be their own boss. Many lacked the education and skills conventional entrepreneurs would carefully acquire before starting a new venture.

For those reasons and more, Forester labelled the businesses it studied “accidental entrepreneurs” and found they differ from conventional businesses in several ways. Tim Harmon, the principal analyst at Forrester Research who conducted the research, was struck by how much these new businesses differ from their predecessors.

“This new breed of entrepreneurs were characterised by their optimistic growth projections, their bigger investment in and broader utilisation of technology, their marketing prowess, and their relative self-sufficiency,” he wrote. “In many ways, they act more like an enterprise business than a classical small and medium sized business (SMB).”

Another difference between accidental entrepreneurs and other business owners is their focus on profit. At first glance that may seem surprising: surely every business owner wants profit?

The reality is that while almost every business aspires to profit, it is not the prime motivator for many business owners. Financial advisors often bemoan the fact that their business-owning clients “buy themselves a job” in a field they love. That love sometimes sustains them as much as or even more than money, leaving advisors to educate business owners that being in business is a chance to build wealth instead of just bringing home an income.

Accidental entrepreneurs don’t need that nudge. The research revealed that many had senior jobs before they started businesses, wanted to sustain the pre-GFC lifestyles those jobs afforded and were therefore willing to do what it takes to make their business succeed. Most accidental entrepreneurs are also pragmatic and prioritised financial goals ahead of other achievements. One sign of this that emerged in this research was that more businesses which started post-GFC have exit strategies than their older counterparts.

The early decision to develop exit strategies is another big differentiator, as in many countries around the world including Australia a great many entrepreneurs are baby boomers. Small business analysts warn the prevalence of such business owners could soon mean a surplus of businesses for sale, making the strategy of selling up to build a nest egg harder to realise. That accidental entrepreneurs develop such plans early in the life of their enterprises shows their determination and focus.

Most accidental entrepreneurs are also very confident. Almost 75 percent of those surveyed expect their business to grow at 10 percent a year. Only half of businesses founded before 2007 share that belief. Post-GFC businesses also expect to hire more staff, with 46 percent expecting their headcount to increase compared with 12 percent for older business.

Symantec feels accidental entrepreneurs are therefore making a difference to the overall economy, and changing the face of modern business. Small businesses are the driving force of our economic recovery, but unlike other recessionary times it’s not the butcher, the baker and the candlestick maker starting new businesses.

Cloud makes a difference

Another interesting characteristic of accidental entrepreneurs is that they are strong adopters of cloud computing. More than half – 51 percent – have adopted cloud in one form or another. In several categories of security products – endpoint security, firewall management, email filtering, web filtering and data encryption – adoption rates are around 50 percent higher for accidental entrepreneurs, compared to their colleagues in business.

Within Australia, the Symantec State of Cloud Survey found that many organisations are talking about moving to the cloud, with 63 to 74 percent of businesses at least discussing all forms of cloud. Some 66 percent of Australian respondents to the survey have adopted or are adopting some sort of cloud service, with security services leading the way.  The top cloud services companies are adopting include email services (such as management or security); security management; and web and IM security.

By adopting cloud solutions, a great many more businesses therefore feel their security solutions will scale into the future, a comfort for any business but especially important for accidental entrepreneurs’ intent on growth. It’s not hard to see how an investment in the cloud translates into confidence and growth.

Pre-cloud, acquiring the kind of infrastructure that can now be accessed online required plenty of capital expenditure, plus investment in skills to put the technology into operation. Today, new businesses can quickly acquire tools that put them on a solid footing without needing an enormous war chest. Tools like email filtering mean their productivity will be higher from day one. Solid security and backup means new businesses’ assets are protected in their formative years. That’s all possible without the need to hire dedicated IT staff, or pay ongoing fees to consultants. Cloud also makes for easy upgrades: each new staff member means a click of a mouse, not an upgrade to a new device or the pain of entering a new tier of a licensing regime.

Accidental entrepreneurs are reshaping the SMB market. They’re growing significantly faster than the less technically-confident, less agile, less ‘connected’ small business owner and they need simple, easy-to-deploy and easy-to-manage solutions that can keep pace as they quickly scale their company. Symantec is committed to providing this new class of entrepreneurs with information protection solutions built for SMBs from the ground up.

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