Who will be Jamaica's next Butch Stewart?

Well-managed entrepreneurial firms often become innovators in a recession. Although still caught up in the Great Recession that started in 2008, we recall that many large businesses were born out of other deep recessions.

One of the most celebrated local examples, often recited bySandals founder Gordon 'Butch' Stewart, is howt heSandals Group started.

It was the 1970s, and many of the multinational ho-teliers were closing shop and leaving Jamaica in droves, some driven by ideo-logical differences with the then Michael Manley philosophy of democratic socialism.

But the world was also in the throes of another recession. And the government of the day had no option but to take over a significant portion of the hotel stock at the time.

It was on a chance encounter, as Stewart recounts, that he heard that Bay Roc hotel in Montego Bay was up for sale at a good price, and he consummated that deal literally on the run. That deal would signal the birth of the Sandals Group.

It was also during that time the John Issa family founded the SuperClubs brand, buying into government-owned hotels.

Both have now become two of the most iconic global all-inclusive brands, and both were born out of the depression of the 1970s in Jamaica.

Lessons to be learned

Entrepreneurs can learn from the lessons offered by bigger businesses. Speaking at a workshop on turnaround at the Mona School of Business earlier this year, GraceKennedy chairman, Douglas Orane, spoke to the power of building up cash reserves to leverage GraceKennedy, as well as any successful company, through this recession.

The growing list of smaller companies listing on the junior market of the Jamaica Stock Exchange speaks to this strategy.

The JSE Junior Exchange offers Jamaican start-up com-panies cash in the form of equity. Investors into these companies know that they are taking a risk investing in these fledgling Jamaican start-ups, but also know that with fixed-income investments now offering less than 8.0 per cent return on their investments, investment into a start-up led by persons with proven expertise and experience represents the best deal in town.

The principals of the ben-eficiary organisations also know that this is a kind of investment that offers significant cash resources on far friendlier terms than offered by the financial institutions, and presents easily the best alternative for them.

One of the surprising facts unearthed in the empirical literature is that smaller start-ups actually do fare better in recessionary environments than do larger businesses. You would hardly guess the reason for this.

While the bigger companies move to trim the fat by laying off persons, and cutting costs as a first response, smaller businesses generally respond by aggressively seeking out new and existing market niches.

And so recessions create new market niches. A very popular up-town fresh-produce retailer recently announced that it was phasing out that aspect of its operations due to the horrendous cost of electricity.

There can be no gainsaying that high electricity costs have been a bugbear on the backs of many of us over the past many months, but surely, this popular up-town establishment would also have been impacted by the decision of some patrons to return to the newly refurbished Coronation Market, all in an effort to save money in these difficult recessionary times, representing new opportunities elsewhere.

The closing of one set of opportunities creates the genesis of new ones. The growing Chinese presence in Jamaica is not just driven by the fact that China Harbour Engineering Company, which manages US$9.5 billion in projects globally, has set up one of its 31 overseas offices in Jamaica to manage projects in the Caribbean and parts of the Americas.

That company is also accom-panied informally by hundreds of new Chinese migrants who are doing here what they have done for generations in Jamaica. They are setting up shops and whole-sale establishments in deep rural and urban Jamaica. They have identified the opportunities being created in the height of this recession.

One of the limiting factors that sometimes prevent larger commercial institutions from engaging in growth and inno-vations is that leaders in larger organisations have to weigh the comparative costs of short-term gains versus long-term losses, and vice versa.

These represent very real risks to larger institutions.

On the other hand, entre-preneurial institutions are often managed on the edge, and so the strategic tension between short and long-term decisions carries far less financial risk.

While the wrong decision could wipe out an established company, the right decision here becomes the tipping point for the entre-preneurial concern. And so we find that well-managed entre-preneurial activities become innovators in a recession.

Hopeton Morrison is general manager of St Thomas Cooperative Credit Union Limited. hmorrison@stccu.com