Recession & Internet Spur Wealth Transfer

Fear of Losing Wealth by Hiking Artist on FlickrPart II. Part I is here.

Are you still driving a delivery van even after consumers have flocked to the internet?

Worse yet, are you blaming the recession for your loss of business?

People “get caught up in the feeling of recession,” Liam McNamara told Entrepreneurs Anonymous, a monthly meeting for entrepreneurs in Dublin.

But look around if your business is impacted, he advised. “Are you dealing with the symptom or real cause?”

“Life in the commercial world is changing dramatically,”McNamara said. Cash-flow problems, for example, might be a sign of more profound changes. “What if it because your market is gone?”

But those shifts also present opportunities, and he gave the example of Superquinn, Ireland’s third-largest grocery chain, sold in 2011 to rival chain Musgraves.

Established around 50 years ago by entrepreneur Fergal Quinn, Superquinn’s market share is just down 1%, and the chain has a strong brand and goodwill among certain shoppers. Musgraves paid what Quinn spent building the brand, McNamara said.

“What did they pay for it?” he asked. “Nada.”

And while many lament the fall in property prices, it saw a hotel manager in Donegal buy the hotel he worked in for €650,000 — less than one-tenth of what it was bought for during the bubble.

IT Disruption

McNamara said similar changes are happening in corporate IT. His company, MCN Associates, has a tiny IT staff and has had small capital outlays for technology, he said. Yet he routinely has custom software developed to manage his business.

McNamara did this by founding a separate IT company that deals with developers and pays them a margin based on usage. This keeps MCN costs down and is also more lucrative for the developer, he said. The arrangement is controlled by monitoring and putting the software in escrow. “If you can think outside the box, there is a market in that,” he said.

Expressing frustration with his web presence, McNamara said he would like to see similar thinking move in to web development and social media. Noting he gets most of his new customers through referrals, he said he wanted an accurate reflection of what the internet was doing for his business.

But the pattern is one of site development, followed by promises of Search Engine Optimization (SEO) improvements over six months or a year. And the work is never reasonably priced, he said. “There is a market need for a cost-effective holistic solution,” he said.

Ireland Tips

Drawing on his financial and tax expertise, McNamara urged entrepreneurs to look in to two Irish government tax breaks for start ups.

Seed Capital Relief: This allows entrepeurs that leave a full-time job to claim back income tax they paid over the last six years against what they put in to the new business. This scheme ends in 2013, and McNamara said he is still surprised at how few people know about it.

Business Expansion Scheme (BES): This allows an investor to put capital in to a start up and get an immediate tax relief of 41% for three years. If the capital is repaid in full — no guarantee of this with start ups! — the investor will have made a 41% return. Even if most of the capital is repaid, the investor is still ahead, McNamara explained. The BES is now know as the Employment & Investment Incentive Scheme (EIIS).

He warned that some companies are managing EIIS funds for high-wealth individuals and trying to act like Venture Capitalists. They take commissions on the way in and out and take a board seat with pay of €20,000 a year on the fledgling firm. “The one thing they will do is mess up your business,” McNamara said.

Illustration “Material Wealth. Fear of Loss” by HikingArtist on Flickr.