Published March 27, 2009

Start-ups feeling impact of economic downturn

They are moving to protect their businesses, reassessing priorities

By MICHELLE YEO

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START-UP companies are feeling the full force of the economic downturn, with 90 per cent reporting slower sales and 10 per cent suffering order cancellations, a study has found.

But the third annual DP Information-ACE Start-up Enterprise Survey also found that start-ups are taking steps to protect their businesses and reassessing their priorities to reflect economic reality.

For instance, 21 per cent have frozen recruitment. And to reverse declining sales, start-ups are focusing on customer acquisition, competitive pricing and branding as their top priorities over the next 12 months.

DP Information Group's managing director Chen Yew Nah said: 'A high 54 per cent of start-ups are profitable now, compared with 39 per cent in the last survey. And close to half of start-ups turned a profit within 12 months of starting the business. This shows start-ups have the potential to do well if they can ride out the storm.'

The survey showed that raising capital (46 per cent of respondents) and manpower issues (27 per cent) are the most common challenges facing start-ups, though the prominence of these two challenges has declined. Manpower issues should ease this year, with experienced staff becoming more readily available as bigger companies lay people off.

As for capital availability, the government has introduced new and enhanced funding schemes. Spring Singapore and IE Singapore have schemes for start-ups such as the new Young Entrepreneur Scheme and the SEEDS programme to inject equity into innovative start-ups. And the total loan amount under SEEDS has been increased to $1 million, from $300,000.

Government agencies will help 'match start-ups and the loans they need from banks', said Spring's group director for enterprise promotion Chew Mok Lee.

Spring focuses mainly on providing funds for infrastructure, and research and development, since start-up companies do not have the money for costly research, Ms Chew said.

Loan approvals for such companies have increased, from an average of 250 a month last year to 875 this month. And among these loans, micro loans have quadrupled since the fourth quarter of last year.

However, the DP-ACE survey results show that three-quarters of start-ups have no intention to spend on IT in the next 12 months, up from 66 per cent last year. Also, these companies are not aware of government programmes available to start-ups.

Recommendations from the survey include stepping up efforts to promote the adoption of IT and infocomm solutions by start-ups, and increasing their awareness of business assistance through various means.

The Start-up Enterprise Conference 2009 will be held on April 15. Existing and aspiring entrepreneurs are encouraged to attend.