How start-ups are beating the ongoing economic turmoil
2016 will be remembered by most SME owners and entrepreneurs for its instability and economic turmoil from the Brexit announcement affecting currency value, to the uncertainty provided by the US election. Despite all of this, the number of new businesses starting up has reached record breaking levels, with 80 new companies being registered an hour throughout 2016. In total, more than 300,000 people set up shop in the UK in 2016 and there have been an array of techniques implemented by start-ups in order to defy the odds and succeed.
The Brexit effect
The immediate impact of the UK’s decision to leave the EU in its June referendum was reflected in the downward turn the pound took following the result. Many expected this reduced buying power to cut back on the number of start-ups appearing across the UK, whereas in some cases the opposite was true as the previously mentioned statistics demonstrate.
The flip-side of a devalued currency is that it has made UK start-ups far more affordable. Lower costs mean it is easier to raise capital abroad and sell the start-up should things either be successful and you can sell for a big profit, or take a turn for the worst.
Market gaps and essential services
To avoid the many risks and pitfalls that the tumultuous economic market throws up, a considerable number of start-ups have begun choosing to either enter new industries where there are clear gaps in the market or those which offer the most profitable options. With less projected investment in the UK and many businesses threatening to move their operations abroad following the Brexit result for some this simply means there are more opportunities for British start-ups.
In terms of the most profitable options, service industries are popular because they have low start-up and overhead costs. Accounting and tax services are the most profitable with an average 18.4% net profit margin, followed by real estate and law firms with 15.2% and 14.5% respectively according to findings that analysed over 16,000 small businesses.
Alternative financing models
One of the main challenges presented by an unstable market has been issues with cash flow and raising enough capital to launch a new business. The rise of alternative finance solutions has been a major factor in helping start-ups and small businesses to overcome this obstacle. There used to be a stigma and lack of trust attached to invoice financing and other alternative lenders but the sector has seen a 60% rise in 2016 compared to the year before.
There is arguably an overall more positive attitude towards these new financing options, meaning more SMEs are seeking out financial help from places other than traditional sources such as banks. Using such services has helped manystart-ups to raiseworking capital to begin their business venture but also ensure they can find enough funding to grow.
Failure rates
It is a widely used statistic that as many as 90% of startups fail within the first five years, but recent figures show that start-up failure rates decreasing and new businesses have a much greater chance of surviving beyond five years now than they did a decade ago. This is positive news for various sectors and countries as they attempt to stabilise areas of the economy and markets.
The Future
Brexit negotiations are expected to go on for at least another two years, continued instability in the Eurozone looks set to continue, and the shift in US policy from a Obama to a Trump administration will likely have a major impact on global trade. However, startups are notoriously resilient and as investors start to look for hardened cockroaches rather than flamboyant unicorns, bootstrapped businesses look increasingly attractive whatever the global outlook.