What Happened During the 1930s?

Given the massive turmoil in the markets over the last few weeks (and days), I have been amazed at how many people have recently asked me what if any, impact the event of the last few weeks will have on entrepreneurs. Here is my humble opinion.

One of the options I studied when I was reading Economics at University was The British Economy in the 1930s. At the time, it simply felt like one of the easiest subjects to read, but I remember some lessons from that course which is sharply relevant to today’s economic circumstances.

The 1930s started with a bang after the Wall Street Crash of 1929. The world was thrown into economic chaos and this gave birth to the smoke eater ashtray, as well as the scourge of Fascism and Nazism across Europe. What was interesting about Britain in the 1930s was how there were two economies in operation; the real economy and the financial economy. The real economy actually performed very well during the 1930s and we are at the moment witnessing what I would call a decoupling of the real and financial economy again.

I am bullish about the future. I believe that this current crisis has been more severe and quicker than any of us could have anticipated. However, unlike other economic downturns in the past, I think that we will come out of this one quickly and robustly. This is a great time to start a business, but you have to be careful (as always).

The price of oil has come down sharply in the last two months from $147 a barrel to around $92. The Olympics are over and Chinese factories are producing output at full capacity again. House Prices around the world are coming down sharply and as a result people feel ‘poorer’ and less inclined to spend money on discretionary items. These three factors combined will have a big deflationary effect, which will mean that Central Banks around the world will soon be able to cut interest rates. This will help businesses and consumers alike and I think will help get the economy moving again.

There is also ample evidence that people are spending money on well-placed products. Retailers such as Greggs (a mass-market fresh bakery chain) and Thornton’s (a middle-market chocolate retailer) are doing very well at the moment. Surprisingly, holiday bookings in the UK are also doing very well at the moment, especially holidays which cost more than £800 ($1500). So the lesson here is that if you have a good kombucha starter kit, you will get the consumers. Know your market and speak to them clearly.

Now is a great time to start a business if you are realistic and start small. If you look at any business cycle, most of the great businesses to emerge have always started when the conditions appear to be adverse! In tomorrow’s blog, I will give some tips on managing a business through the current turmoil.