Page last updated at 07:24 GMT, Thursday, 1 May 2008 08:24 UK

Entrepreneurs cheer economic storm

Evan Davies
By Evan Davis
Presenter, BBC Dragons' Den

The economic cycle has turned in the last year, and business life has changed. For entrepreneurs above all, the environment seems harsher.

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Harsher, because of the credit crunch (yes, even those words have now become commonplace in pub conversations). It makes banks less willing to lend money and certainly less willing to take risks.

Harsher, because house prices are falling and so the option of financing a business by mortgaging a home is far less available.

And harsher too, because consumers are facing a bit if a crunch of their own. It will probably become harder to sell to them as people start to retrench on their spending, having saved rather too little for the last few years, borrowed too much and having relied too much on housing as a source of wealth.

Key question

Given all this, one might well expect that fewer new businesses will be created in the next three years than in the last three.

For evidence, go back to the last boom-bust cycle in the late 80s and early 90s.

A crude indicator of the amount of new business activity occurring is the number of new VAT registrations that are made within a period.

And that fell sharply from the peak of the last boom. From 259,000 registrations in 1989, the number had fallen by more than a quarter to 187,000 by 1992.

Are we about to see a similar decline in entrepreneurial activity?

This is an important question for Dragons' Den.

Fresh challenges

The venture capital TV programme has been a huge success since its first series in 2005. But the years since 2005 have been rather favourable for new businesses.

What changes is that the external environment is less forgiving of any mistakes investors make

For Series 6 of Dragons Den, now entering production, the question is whether Britain's entrepreneurs have the resilience to weather difficult economic times?

I suspect the answer to the question is "yes".

If there are two things that generally characterise successful entrepreneurs, one is the ability to think positively, and the other is the ability to see an opportunity where others see a problem.

This is clearly a time for those attributes to shin.

For example, I heard somebody on the radio the other day say that the good thing about current conditions is that the banks and other lenders will be more discriminating.

The good news is that you can be sure that any companies that are formed, succeed or grow are ones that have real strengths.

Cautious investors

What does that mean for the investors and entrepreneurs in Dragons Den and in the traditional world of business start-ups?

In principle, those investments are not usually about short term profit opportunities that will only survive benign conditions.

Investors usually want to spot businesses with long term prospects, ideally those that can be scaled up into something large and valuable for a sale down the line.

So the tougher environment does not change the job of the Dragons or other professional venture capital investors; it should not change the kinds of decisions they make.

What changes is that the external environment is less forgiving of any mistakes investors make. The Dragons will find out more quickly in a harsh market, what they should not have backed.

That might make investors a little more cautious.

Robust ideas

If it does, it will have a consequence for entrepreneurs.

They will have to go further than before to impress, to iron out any wrinkles in their business plans and to ensure they have preparations for all contingencies.

Some entrepreneurs will be deterred by the challenge; some will try and fail, but quite a few will still succeed in jumping over the bar even it has been raised a little.

Whatever housing market storms erupt, however crisis-ridden the banks, whatever the gloominess of consumers, I suspect there will be new ideas and innovations; there will be plenty of ambitious entrepreneurs and there will be some good new businesses.

What the next few years will remind us is that while flimsy ideas can fly in the upswing of a boom, they will pretty quickly flop when the economic going gets tough.

Robust ideas though, are those that can fly come what may.


Have you got what it takes to convince the Dragons that your idea is simply the best?

BBC2 is looking for entrepreneurs to take part in the next series of Dragons' Den. All you have to do is apply:

Email: dragonsden@bbc.co.uk Call: 0871 200 3003 (calls cost 10p from a BT landline, other mobiles and operators may vary) website: www.bbc.co.uk/dragonsden




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