With the U.S. Commerce Department reporting that GDP growth slowed to 2.6% in the fourth quarter of 2018, and economists predicting less than 2% growth in the first quarter of 2019, I reached out to a half-dozen entrepreneurs to get their frontline read on what these trends mean for them and the major issues they’re confronting this year.
Some of the entrepreneurs I spoke with are seasoned leaders and others graduated from college just a few years ago. For several, their businesses sprung from personal issues they confronted that led them to search for better solutions. Here are the “top five” headlines that emerged from our conversations.
1. There are real concerns about an economic slowdown and its potential impact on availability of investment capital. The complaint among many PE professionals is that there’s too much capital available for too few quality deals. But some entrepreneurs I interviewed are sensing a shift.
“Everyone from VCs to consumers are concerned about a potential economic slowdown,” says Ashley Moy, CEO of Cast21. “When you read analyst reports about consumers growing timid, this can affect potential investment and the pattern for sales.”
To contend, Ms. Moy, whose company is innovating the orthopedic cast industry, urges other consumer-focused entrepreneurs to, “Keep bringing in the cash and being resourceful.”
Two other entrepreneurs I spoke with say that a strong business model is key to weathering a tighter investment climate. “The challenge is to be flexible enough to roll with the punches and not change your model,” says Danielle Drabkin, founder and CEO of Pear Chef, provider of high-touch room-service for luxury buildings. “Be asset-light enough to pivot when you need to.”
That sentiment is echoed by Kendall Reynolds, CEO and design director of Kendall Miles Designs, a luxury women’s footwear company. Ms. Reynolds, who started her company in 2015 as a senior at the University of Southern California, says avoiding distractions while under pressure is critical: “More and more there’s a glamorizing of entrepreneurship, but the truth is starting a business and making it successful can be hell. Capital could be tighter this year, but if you have a great model, there’ll be funding.”
2. Technology is making it harder—not easier—for new companies to break through. Technology has radically changed how people seek and get information, and several of the entrepreneurs I talked with see this shift as a major issue in getting their brands noticed. “The challenge is to stay relevant amidst all the noise,” says Courtney Mohr, CEO of GrowthPlay, a sales-performance consulting firm. “You and your executive team need to invest in your own education about the digital transformation of marketing and understand what it means for your marketing and sales talent.”
Dolly Lowery founded Kinuu to develop new neurological training tools for children with learning disabilities. She had spent 10 years “doing different types of therapy with my son,” and saw “a lot of exhaustion, lack of effective results and real data to show improvements,” among other parents and caregivers she met. Ms. Lowery set about to identify more affordable and effective ways to provide in-home brain training options—and succeeded.
The emotive Kinuu founding story would seem to be a natural for the digital media forums where brands can connect more personally with consumers, but Ms. Lowery acknowledges the difficulties inherent in competing with the “millions of messages” available every day. “The landscape of marketing changes every six to eight months,” she says. “How we market ourselves changes because of how quickly things change. Everybody’s got a podcast and there aren’t enough hours in the day to consume all that’s available.”
3. Isolationism and trade wars can have an outsized impact on entrepreneurial companies. Lisa Curtis was a Peace Corps volunteer in Niger whose vegetarian diet left her feeling sluggish. The local community health center suggested she try moringa as a nutritional supplement. Ten years later, her company KuliKuli Foods, is providing an array of moringa products at Whole Foods stores nationwide.
KuliKuli relies on global markets to source, supply and sell its products, but Ms. Curtis says the global economy isn’t as accessible as it used to be. “Every entrepreneur should be concerned about the current geo-political situation and the movement within our country and countries in Europe to become isolationist,” she warns. She urges all entrepreneurs to communicate with elected officials about the real impact of broader policy decisions.
4. Growing your company requires evolving your story. Most entrepreneurs know first-hand how difficult it can be to raise investment capital while also having to run a new company that, by definition, is in a constant state of change. The entrepreneurs I interviewed say fundraising is easier if you identify the right investors, scale those relationships and tailor your investment message to match the different stages of the company’s growth.
“When you have an angel investor, they can introduce you to VC funds and other sources of capital that they’ve vetted,” says Ms. Drabkin.
To attract investors, Ms. Lowery says entrepreneurs need to identify and address what’s most important to investors—priorities that will change depending on the company’s growth stage. “The initial investors are buying into the mission, the solution and the team. We had a lot of investors who felt good about what we were doing,” she says. “Growth investors are looking at scalability and numbers. Those two type of investors are very different animals.”
5. Passion still rules, but…The resounding theme from all the entrepreneurs I interviewed: Having passion is essential to achieving success—but that drive must be grounded in a realistic assessment of your own abilities.
“Decipher what your passion is, your mission in life. Prayer is part of my entrepreneur journey,” says Ms. Reynolds.
Ms. Drabkin paid an immediate price for pursuing her entrepreneurial vision in the form of a 90% pay cut. “Entrepreneurship is all-consuming, and there’s no delineation about being on and off. You really have to know yourself to succeed. Where you have weaknesses, ask for help,” she says.
As for when to get started, Ms. Moy says somewhat matter-of-factly, “If you’re 100% sure what to do, then you’ve waited too long.”
NOTE: GrowthPlay is a Driehaus Private Equity portfolio company and Eli Boufis has a private investment in Pear Chef.