Page last updated at 23:40 GMT, Wednesday, 8 April 2009 00:40 UK

Innovate your way out of recession

By Caroline Bayley
Producer, BBC Radio 4: In Business

Faced with the uncertainties of the current global recession, many businesses are hunkering down and waiting for the worst to blow over. But a brave few are pinning hopes of economic recovery on innovation.

Rachel Armitage at the Open Coffee Club
Rachel Armitage (Right) thinks her new travel search service can succeed

It is Thursday morning and Open Coffee Club is holding its weekly London meeting. It might sound like a pensioners' coffee morning, but it certainly is not.

Instead, it is a weekly meeting point for entrepreneurs to network and talk to potential investors. Even in the current recession, it is buzzing.

Venture capitalist and entrepreneur Saul Klein set up OpenCoffee Club two years ago. He believes that there is no better time for an entrepreneur to launch a company.

"Often the best ideas and the best businesses emerge out of recessionary times," he says.

"If you look at when Microsoft was created, if you look at when Google was created, Facebook, Skype, all these household names, the titans of technology were created in recessionary times."

Time to innovate

Rachel Armitage, who was sipping coffee and chatting hard amongst the 100 or so entrepreneurs, is setting up an internet-based travel search service called Zoombu.

Saul Klein at his coffee club
Saul Klein (Right) set up OpenCoffee Club as a forum to swap start-up ideas

She is adamant that now is definitely the time to be doing this. "It's the best time, I would argue, because business models are changing, consumers are now thinking differently about the way in which they spend their money.

"Large-scale incumbents don't really have the cash to innovate in the same way that start-ups do, so it really allows us to get ahead in ways that they can't."

Open Coffee Club now takes place weekly in more than 80 different cities in the UK and Europe. Saul Klein says he set it up to try to bring some of the buzz and enthusiasm you find amongst entrepreneurs in Silicon Valley in the US to Europe.

Another organisation that believes that innovation and new businesses are vital to getting over the recession is Nesta, the National Endowment for Science Technology and the Arts.

It was set up in Britain 11 years ago with a grant from the National Lottery. It's designed to encourage and put money into new ideas and early-stage businesses.

New funding

The chief executive, Jonathan Kestenbaum, says firms either batten down the hatches, fire lots of staff and stick to their core business or they use the downturn as a spring board to "innovate" and come up with brand-new ideas and businesses.

"During times in which you have to think more creatively about future sources of financing and future sources of economic growth, you can make those tough decisions that during quieter times and benign times, you're not necessarily forced to make," he says.

Entrepreneurs at the Open Coffee Club
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Nesta looks at about 300 opportunities a year, primarily in the biotech, creative industries and green technology sectors, because that is where they believe the demand will be over the coming years.

As far as they are concerned, the economic downturn has not slowed the flow of new business ideas.

"I can certainly say that here at Nesta we have never seen a more powerful and promising set of new ideas, as we have done in the last 6 to 9 months," says Mr Kestenbaum.

One of the firms backed by Nesta, Camfridge, felt the full force of the credit crunch when it hit last October. As a "green" technology company based in Cambridge which grew out of academic research there, it is developing an alternative to gases in fridges using magnetic technology.

The company was about to launch a funding round when the financial crisis struck. Since then, it has switched its focus to securing money through grants from, for example, the Carbon Trust and the European Union, rather than from venture capitalists who were less willing to come forward.

The company's co-founder, Alessandro Pastore, is confident that being in the "green technology" sector will help it to survive.

"We are playing in the clean tech industry, which will be the cornerstone of a new industrial era which will come out from this crisis."

Cloud computing

Another entrepreneur launching his new product in the current downturn is 25-year-old Sachin Duggal. He has been starting his own businesses since he was a teenager. When he left school, he went to Deutsche Bank and started thinking of business ideas for them, backed by their money, before he went to university.

Google homepage

Microsoft, Google, Facebook, Skype, all these household names were created in recessionary times"

Saul Klein, OpenCoffee Club founder

Now he has come up with his own idea, based on the concept of "cloud computing".

Instead of storing your own data on your own computer, his company, Nivio, looks after it for you. You access it via the internet, perhaps using the Nivio white box, which sells for about £100 ($147) in the UK and only needs a screen (such as a television screen) and a mouse to operate.

Instead of buying software programmes, Nivio lets you rent them on a monthly basis.

Mr Duggal says it is also aimed at the still vast numbers of people, often in the developing world, who do not have computer access.

"The basic premise behind Nivio is that the world has five billion people that don't have a PC," he says.

Of course, Mr Duggal is not the only one moving into the field of cloud computing, making access cheaper and putting the technical stuff on the internet. He faces big competitors such as Google, who want to do something similar.

As for cash, he needs more, but says it is much harder at the moment.

"There's no dearth of cash. But the guidelines are a lot harder," he says.

"So as opposed to a great idea getting money today, it's got to be a great idea with a business model, some success and some revenue."

This view is backed up by Professor Graham Richards, recently retired head of Chemistry at Oxford University, who set up one of the first British university spin-out companies, Oxford Molecular, in the 1980s.

Sachin Duggal hopes cloud computing has a potential market of billions

He has just published a book, Spinouts: Creating Business from University Intellectual Property, and believes that support is needed to keep start-ups going:

"It is not a shortage of ideas, it is not a shortage of money to start off, but having got a company going, up to 50 people, not yet profitable, requiring a second round of funding, venture capitalists have been the source but even they are not coming forward very quickly."

He believes this is where the focus should be in order to create the businesses which could help the economy pull out of recession.

"This is something we need. It is an opportunity which in times of gloom - and you don't have to look too far to find that at the moment - this is something that could be really good for us."

Listen to the full In Business programme with Peter Day on BBC Radio 4 this Thursday, 9 April at 20.30 BST or catch the repeat on Sunday, 12 April at 21.30 BST.

Subscribe to the podcast or listen via BBC iPlayer .

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