Weathering the storm

Gross domestic product decreased by 0.4 per cent in the third quarter of 2009, making this the longest recession in 50 years. Marc Barber and Nick Britton speak to entrepreneurs, venture capitalists and financial experts to find out how confident they are of seeing a recovery in the UK next year.

Wol Kolade – Managing Partner ISIS Private Equity

Yes, we are coming out of this recession – we’ve spent so much money, of course we are. The trouble is that as the economy recovers, banks feel more comfortable about putting businesses into receivership, whereas companies, rather than hiring a lot of new people, will continue to run as lean as possible.

Another big uncertainty is how savage cuts in public spending will be, and how far taxes will rise. Those two things will put a damper on any recovery, but they’ll be necessary to repay the ludicrous amount of public debt we now have.

I don’t think private equity firms will go back to 2007 levels of investment for some time. That said, a low-growth environment can be interesting. We last saw one in the early 1990s, and you find there are fewer people coming along to undercut you, whereas in a boom it seems everyone can do what you’re doing. For business owners, if you are still standing, the chances are you will come out of this ok.

You’ve made all the hard decisions about debt, about your workforce – now the question is, how do you profit from that? That’s about continuing the tight, aggressive approach to the marketplace, but with ambition and confidence as well, so that you come out of the last two or three years in a stronger position.

Confidence for 2010: 7/10

Charlie Mullins – Founder Pimlico Plumbers

I’m not confident about next year at all. We’re busy and slightly up on the first quarter, but I feel that the economy is not going to change for the better, and worse is to come. The recession has caused so much damage and people remain unsure about reinvesting.

At Pimlico, I think we’ve weathered the storm very well, but I can see us making more changes to ensure we make profits. If you don’t come up with new ideas, then you’ll be left behind by the competition. I’ve spoken to companies that haven’t made changes and they are really struggling. I genuinely believe that many more companies are going to go bust next year, and I can’t help but think that 2010 is going to be a long haul. I don’t agree with what’s in the press at the moment about recovery – it’s window dressing. The damage hasn’t fully hit home.

Yes, we will get through this. Yes, we need to be confident. But we also have to be true to ourselves and stop pretending we’re not in the depths of a recession.

Confidence for 2010: 2/10

Lord Digby Jones – Former Director General Confederation of British Industry

There are businesses that are doing extremely well, which is important to remember as the media did exacerbate the situation with its excessively bleak reporting of the economic crash.

However, more businesses go bust as they come out of a recession than when they go in. So it’s probable that next year will be a very difficult year for a lot of companies, as many will be without the necessary working capital to fund growth. The situation is not helped by the two banks that we [as a nation] now own not lending – they need to.

Confidence for 2010: 6/10

Philip Rodrigs – Fund Manager Investec UK Smaller Companies

If you look back in history, you only get “double-dip” recessions if the government makes a policy misstep, for example by withdrawing its stimulus too soon. Politicians seem to be leaning towards the idea that the stimulus is a negative, but it’s not a negative unless it’s withdrawn too soon and the beneficial effects wiped out.

Assuming politicians don’t do something silly, then there will be enough time for a psychological recovery to take hold – I think it’s human nature for people to find a way out. Then there is the genuine demand from emerging markets, which make up an increasingly meaningful part of the global economy.

Admittedly, the public finances are in a poor state, but people tend to forget that Germany, all high and mighty, is actually in a worse debt position than the UK. Yes, there needs to be a slimming down of government to reduce debt, but by far the best way to get rid of the deficit is for the economy to grow rather than to try and save a few billion towards the end of the stimulus phase.

I still think the small-cap market is undervalued. Earnings growth is seen as being negative, but I think good companies will grow profits because they have taken the opportunity to make their businesses more efficient and are strongly placed even for a mild recovery.

Confidence for 2010: 7/10

Gareth Weir – Co-founder Urban Mole

We started the business in January. At that point, the UK’s business community was at something of a standstill. Nevertheless, my co-founder and I felt it was right to put our own money into launching the company.

We had done our research and identified a gap in the market and thought we should just go for it. The online community is growing, both in terms of users as a whole and advertising. Of course, on average, things will probably get worse for a lot of businesses next year, but growth is sure to happen in some sectors.

In some ways, the downturn has been good for us. For instance, people are looking for free services on social networking sites, such as finding ‘tried and trusted’ tradespeople or renting out rooms.

The situation is clearly difficult, but if you’re a true entrepreneur then you’ll find plenty of opportunities out there.

Confidence for 2010: 8/10

Jonathan Davis – MD Armstrong Davis

We know unemployment’s rising, tax is rising and public spending is falling. The government stimulus will cease at some point. Long term, interest rates will rise because global lenders will require greater premiums to cover the risk of non-payment, and our currency will plummet against the cost of things like food and fuel. Add all that together and you’ll see that things can only get worse in both the short and the long term.

With the amount of stimulus we’ve had, we will undoubtedly come out of technical recession, but we’re going to go straight back into it again because of the public spending cuts that are guaranteed in the next parliament. About 30 per cent of the economy is the government, so if you cut public spending by 10 per cent, that’s 3 per cent out of the economy. Growth in the private sector will never make up for that.

Businesses need to prepare for things to get worse by focusing on costs, not the top line. If you can get through the next two to three years, which are likely to be as painful as 2008, there will be fewer companies around and you will be able to take a larger market share.

Confidence for 2010: 1/10

Julie Meyer – CEO Ariadne Capital

With the unfavourable economic climate, entrepreneurs are taking matters into their own hands. I haven’t seen any slowdown in entrepreneurship or in deal flow; quite the contrary – we had 125 opportunities presented to us last month. The days of the company man or woman are long gone – people in their twenties and thirties are thinking about creating wealth, paying for their retirement themselves, because they’re being confronted with the fact that everything they were promised by the government isn’t going to happen.

Confidence for 2010: 9/10

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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