The financial downturn has been just what some small businesses needed to establish themselves in the region.
Finding prosperity in a pinch: launching your business in a recession
Launching a business in the middle of a financial downturn may not be the best move for a budding entrepreneur. But for Dana Jallad, setting up Sugar Daddy's Bakery has been a life-changing endeavour. Following a long and fulfilling career in marketing, Mrs Jallad, 39, decided to venture into new territory. And she potentially picked the worst time to do so, launching her first location at Dubai's Village Mall in December 2008 at the height of the financial crisis.
Despite her poor timing, there was an unprecedented demand for her cupcakes and Mrs Jallad and her team found themselves overwhelmed with orders. "We were swamped," says the Lebanese Jordanian who launched the business with Dh1 million of her own savings and help from her father. "We had five staff, three in the kitchen, a barista and me at front of house and there were people lining up outside the door. We couldn't produce enough cupcakes."
Within a year, Mrs Jallad had increased the line of cupcakes, which sell for Dh12 each and have cute names such as Gold Digger, Fake Blonde and Blind Date, from eight to 24, and started expanding the brand around the Emirates. Just over 18 months later, Sugar Daddy's has 30 staff and has grown from one location to six with outlets on Abu Dhabi's Corniche and in Al Khalidyah Mall, as well as three more prime spots in Dubai. "We grew at such a fast pace," she says. "We had our projections and we exceeded them and quickly became the leader in the cupcake industry. I think food is one of the those industries that hasn't been affected by the crisis and a cupcake is comfort food, something you crave after a long day at work."
As well as seeing the hard work she invested in her fledgling company come to fruition, Mrs Jallad has also enjoyed a boost to her personal fortunes. But she insists she doesn't have time to "splash out". "I splurge every now and then but I don't have the time to shop around for what I want or go for coffee or lunch with friends in the day," she says. "I've been saying I need a new car for a while to replace my Volkswagen Tiguan but I don't have any time to buy one."
Mrs Jallad's story is a classic David and Goliath tale. While surviving the credit crunch has been tough for some of the big corporations in the UAE, many homegrown enterprises have experienced an unexpected rise in their fortunes. With low overheads and often a niche market, small start-ups have flourished amidst the financial turmoil. "For most small businesses, the biggest issue they face is cashflow difficulties," says Declan McCrohan, assistant professor at Zayed University's College of Business Studies and head of the UAE's report team for the Global Entrepreneurship Monitor, a recent study that revealed an increase in small business activity in the UAE in 2009.
"For businesses who are able to manage their cashflow position and have not over leveraged their business operations, a credit crunch can be a blessing in disguise as it can eliminate much of the competition they face in the market which enables them to increase market share." This was definitely the case for Mrs Jallad. "I launched when everything was booming so our start-up costs were ridiculous," she says. "And we've been very fortunate because so many other companies have gone down. But a crisis can be a good time to grow a business. Rents are low and locations you had to fight for before are now available."
It was a similar story for Indian designer Merciana Lopez, who literally cashed in on the crisis. The 33 year old, who has lived in the UAE for 10 years, set up Xpressidea, a creative design agency, in 2009 after noticing that many companies were unwilling to pay the high fees often charged for her line of work. By offering the same work at a lower price and even doing some contracts on a pro-bono basis to begin with to get a foothold in the market, the company quickly grew.
"The recession opened a lot of opportunities for us because clients were looking for more cost-effective solutions and flexibility in getting their jobs done. Being a small, agile business allows you to offer this kind of service," says Mrs Lopez, who now employs two members of staff. "We have grown by a safe average of around 50 to 60 per cent since we started, but I wasn't surprised by our success. Hard work, perseverance and holding your nerves pay big dividends in this financial climate."
Interestingly, Mrs Lopez decided to take the entrepreneurial plunge after experiencing problems with her regular job. "In early 2009, I was unexpectedly laid off by my company," says Mrs Lopez. "At first I was not sure how to move forward. The job market being practically dry and my dream of making it on my own encouraged me to set up Xpressidea from whatever savings I had left." Ventures such as hers are responsible for increasing the amount of start-ups in the Emirates by 38 per cent over the past two years - a sure sign that hard times can often force entrepreneurial-minded people into action.
"There are two main types of entrepreneurship - necessity driven and opportunity driven," adds Mr McCrohan. "I suspect that some of the increase in business start-up activity in the UAE over the past two years is a result of people having lost their full-time jobs due to the global economic crisis and being 'pushed' into finally pursuing their dream of starting their own business." While Mrs Lopez was driven by necessity, a more opportunistic product of the recession is budget website LowCostDubai.com set up by Briton Ainsley Duncombe, who was inspired by the dip in the nation's fortunes.
"When the credit crunch came, my friends and I wanted to make some savings and looked for somewhere that listed all the deals and value-added offers available on expenses such as dining, travel, car rental and holidays. When we couldn't find what we were looking for, we decided to set it up ourselves," says Mr Duncombe, the site's managing director. The 32 year old launched the website 12 months ago with an initial investment of Dh1,700 while he was still working in Abu Dhabi as a magazine sales director. He then quit to focus full time on the project in April, investing a further Dh200,000 into the site's launch with three friends, who act as silent partners.
Today, the site, which earns revenue through advertising, attracts 6,000 hits a month and has 600 advertising partners - a figure Mr Duncombe hopes to take to 4,000 in the next 12 months. "Quitting my job wasn't scary because LowCostDubai.com is a concept that works, is simple to use and people want deals in the current climate," says Mr Duncombe. "But losing a regular salary - from a security point of view - was a worry. As a sales director, I had a basic salary and commission on top, now I only work on commission and have effectively taken a 25 per cent cut in monthly earnings as most of our revenue goes back into the business." In fact, rather than pay themselves vast salaries to splash out on a luxury lifestyle, many successful entrepreneurs are treading very carefully when it comes to personal finance, not only because they are running a new enterprise but because they are doing so in the midst of a downturn. "Ninety per cent of the returns are reinvested back into growing the business and hiring the right people so I'm certainly not basking in wads of cash," says Mrs Jallad, who has two young daughters aged five and three. "My husband has always been the main breadwinner so up until now I've only used my income for little treats like a nice handbag or a pair of shoes. "And I like donating some of my earnings to children's charities. It's great making money but it's also about being part of the community and reaching out - those are things that are really fulfilling." But the family's fortunes will have to undergo a financial makeover now that Mrs Jallad's husband has quit his senior position at the Dubai International Financial Centre to help drive the business to the next level. "We've hired a management team because we needed a different skill set to move in the big league and because it got to the point where my working life was affecting my family," adds Mrs Jallad. "I'm on call all the time and my husband and I would say to each other 'we need to get away and reconnect'. "But now that my husband has joined the business, Sugar Daddy's is going to have to sustain our lifestyle and we hope it means we don't have to downgrade it either. We live in Umm Suqeim in a nice four-bed villa with a garden, two nannies, two cars and we're about to hire a driver. Yes, it's a nice lifestyle, but we are in the middle of a crisis so it's still important to be modest." Mr Duncombe, who lives in a two-bedroom shoreline apartment on Palm Jumeirah, shares this philosophy. He has actually reduced his spending as a reflection of the type of business he is running. "I used to spend Dh600 commuting to Abu Dhabi every day and that has stopped. My grocery bills have come down to Dh600 a month from Dh1,000 because I actually look at what I'm buying now and I save more money now, something I have to do without a fixed income. Plus I make savings of about 25 per cent on going out because I use all the deals on the site," says Mr Dunbombe, who works six days a week on his new enterprise. "Holidays are on hold, too, because I've just launched a new business but when I do get round to it I will pick a deal from the site. Friends call me Mr Lowcost because I've adapted my lifestyle to match my business." And while Mrs Lopez, who is pregnant with her second child, has easily achieved the targets she initially set Xpressidea, she too is cautious about spending. "My spending is the same as it was before. Nothing has changed. I want to focus on sustainability and long-term savings for my family. For me, I have achieved my life-long dream of working on my own terms. This has been my greatest satisfaction." Achieving dreams is often the driving force behind any new enterprise. But all businesses need a winning formula to make them profitable. While cupcake queen Mrs Jallad believes her success is simply due to her colourful, tasty treats that can be used to celebrate any occasion, LowCostDubai.com's Mr Duncombe says it was launching something at the right time. "Had we launched three years ago at the height of the boom, it wouldn't have worked," he says. "People weren't interested in saving money; they just wanted to spend." Mr McCrohan adds: "The credit crunch has caused huge numbers of businesses globally to fail and why one business succeeds over another is the million-dollar question. But a solid business plan, access to finance, a wide-reaching social network, an innovative business idea, and a good slice of luck can play an important role." firstname.lastname@example.org