A Start-Up's Onward March

The survey body, DP INFORMATION GROUP, writes this article with salient points highlighted in the 2009 Start-Up Enterprise Survey. This survey examines the changing needs, challenges and strategies adopted by Singapore start-ups in 2008, as well as their expectations of business prospects in 2009.

More than half (53%) of the start-ups surveyed are confident of turning / remaining profitable in 2009. In fact, the survey findings show that only slightly more than half (57%) of the Start-ups are pessimistic about their outlook for 2009.

Into its 3rd year, the annual 2009 DP Information-ACE Start-up Enterprise Survey conducted in the last 2 months of 2008 took the opportunity to capture the business sentiments of the Start-up community as global recession sets in.

Being a trade oriented country, Singapore is bearing the brunt of the impact of the global recession. By the end of 2008, 77% of the Start-ups surveyed were already experiencing sales-related issues. Of these, 9 in 10 respondents saw a slowdown in their sales, while another 10% had customers cancelling their orders. An alarming 53% of Start-ups facing slower sales were hit by more than 20% drop in their sales order. To counter declining sales, Start-ups have customer acquisition (49%), competitive pricing (23%) and branding (22%) as their top 3 priorities.

Key Challenges

In their quest to acquire new customers, Start-ups can tap on technology to give them the competitive edge. The use of technology can help to reduce costs and create value in the process of customer acquisition. Customer Relationship Management (CRM), for example, is developed through the combination of basic relationship concept and modern technology. Businesses practicing CRM usually acquire new customers through referrals, instead of using the traditional approach such as the mass media and advertising. Additionally, CRM programme can be further enhanced through the adoption of other IT tools such as data warehousing and data mining to allow for greater understanding of customer requirements and needs. However, only 4% of Start-ups surveyed are using the CRM System.

Price competitiveness is more often a challenge for Start-ups as compared to the more-established enterprises. Unlike the more established business who are able to enjoy economies of scale, Start-ups are likely to incur high start-up costs in the initial years of operation. Hence, to remain price competitive, Start-ups may need to constantly review its suppliers and source for alternatives to minimize their costs.

However, if pricing is the only differentiation, it will be harder to build a successful brand. To remain competitive, our Start-ups are seeking alternative strategies, such as - Branding. Branding often takes a backseat for most Start-ups, who often fail to see that a successful brand generates consumer loyalty and long-term financial return. As such, it is heartening to note that 22% of the respondents have branding as their third priority for 2009.

Besides declining sales, Start-ups are also challenged by rising costs. This is not surprising considering inflation rose by 6.5% for the whole of 2008, up from 2.1% in 2007. 7 in 10 Start-up's surveyed saw an increase in their operating expenses in their last 12 months. Of these, 79% reported more than 10% increase in their expenses. Rental costs, material costs and manpower costs, which constitute a substantial portion of Start-ups' operating costs have been cited as the 3 key cost components likely to impact their profitability in the next 1 to 2 years.

Options and Strategies

The economic downturn has placed enormous pressure on businesses to keep their operating expenses down. Whilst the recession is a good time for businesses to review their cost structure, businesses should consider carefully before cutting on expenditure in 'soft' areas such as marketing and technology. To counter rising costs, most are looking at freezing new hire (21%), sourcing for cheaper alternatives (16%) and reducing expenses (12%) in 2009. 6% of the Start-ups already have plans to reduce their expenses on technology so as to cut costs. This is of great concern as Start-ups should see technology as a form of investment that yield good returns, in areas like improved efficiency, greater productivity, enhanced customer servicing capability etc and not just as sunk costs incurred.

The management of cash flow is critical to all businesses, this is even more so in difficult times. Yet, 73% of Start-ups with financing issues are plagued by insufficient cash flow. In managing cash flow, it is vital that businesses re-evaluate their expenses periodically to improve cash flow management. Alternatively, businesses may want to give special consideration to customers who pay early and in full to encourage early and prompt payment to generate more cash.

Besides cash flow problem, 22% of the Start-ups with financing issues are having difficulties obtaining new bank loans. As the future becomes more uncertain, it is becoming increasingly difficult to predict sales, turnover and even cash flows. As such, banks are now taking a cautious approach in approving new loans. This applies even for SMEs with good track records. Hence, there is a need for Start-ups to explore non-debt funding options such as government financing schemes, venture capital, business angels and other forms of equity financing.

Given the constraints presented by a small domestic market, Start-ups should consider venture overseas to seek more opportunities. The survey findings revealed that 57% of Start-ups with overseas operation are hit by slower sales; this is in contrast with the higher 72% with no overseas operation. In terms of financial performance, respondents who have ventured overseas are also more likely to register higher revenue and net profit. As a validation of the potentials offered by overseas markets, 3 in 5 of the respondents with overseas revenue have turned profitable within the first year of operation, in contrast with the 45% who have yet to venture abroad.

The global financial mess has hit all sectors, dampening business sentiments within the business community. More than half of the Start-up respondents (57%) have expressed their pessimism towards the economy for 2009. However, all is not lost. Entrepreneurs should see the downturn as an opportunity to review the structure of their business and introduce changes that were previously considered too difficult or painful to adopt. Besides concentrating on the immediate challenges, Start-ups should also take the opportunity to re-visit their growth plans and strategies for the next few years.

Singapore's Minister Mentor, Mr Lee Kuan Yew, shared that he feels the optimistic scenario of Singapore being out of this crisis will surface in 2 or 3 years. If we look at the worse case scenario, it may even take 4, 5 or 6 years. A crisis call for changes and these changes will allow our Start-ups to emerge leaner and fitter at the end of the recession.

---

Article Contributed By DP Information Group

www.dpgroup.sg