In this article, discover why a recession might be the best time to start your new business.
Given that, “By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments,” according to the OECD, now is as good a time as any.
A publication by the OECD said the UK is likely to face the most severe economic damage from the Covid-19 crisis of any country in the developed world.
Businesses want to save money
Startups do very well during a recession. Because everyone is reducing outgoings, prices are lower, and startups can benefit from this situation to get a start with exceptionally low prices on the things they need for their company.
It’s the opposite of struggling to raise the money for the sky-high prices that happen during economic booms. Big-budget businesses can afford to pay these. Economic downturns work towards levelling the playing field and give you, as a newcomer, an opportunity to get going.
While big business cuts costs and demand drops, prices for products and services that startups require to get going become far more affordable. Marketing your new venture is one such place where you can find a great deal, as advertising space faces lower demands as budgets are slashed.
Often the cost to market can be the stumbling block that puts the intrepid entrepreneur off taking that initial leap, but when you get an opportunity to breakthrough at a bargain price, it may make sense to start now. You can allow yourself to build up a customer-base during the recession that lasts you well into better economic times.
As well as making prices cheaper for the things that you need to get started, companies are also looking to save money on the products and services on which they already spend. Your new business will be more agile and have smaller overheads than your larger competitors, and will be able to take advantage of business looking for cheaper alternatives to their current suppliers. If you offer them an excellent service, then you will be able to keep them after the economy starts to improve.
Recessions create problems
Companies will have to deal with issues that don’t come up in a booming economy. Maybe they need to manage the HR of redundancies or need to automate processes to become more efficient, for example. Startups are in a brilliant position to innovate to solve these problems and businesses that can address pain get customers.
Easier to get great staff
When the economy is doing well, and there is low unemployment, you will be competing with the often very attractive job offers from large companies. Regularly the lure of working at a big business (with all the perks) overcomes the advantages of the offer of employment at your new startup.
Once the perks face the axe due to cutbacks, and unemployment rises, you may find your offer of a job is suddenly very competitive, and you will be able to employ some great talent to get your business flying. You may also be able to offer budget-friendly salaries to get people that wouldn’t look twice at you in the boom times.
Borrowing is cheaper
Often in a recession, central banks will look at slashing interest rates to keep people borrowing and spending. If you need startup capital from a loan, or just a credit card to smooth cash flow, then now would be the time to get a great deal. When times are good, interest rates go up to keep inflation in check and may keep you out of the market, so, seize the moment.
Fortune favours the brave
When times are good, everyone thinks they can cash-in by starting a business. Often this will mean entrepreneurs seeking early investment to outspend their lean rivals into the ground. However, in a recession, there is not loads of money floating around, and lean startups can benefit from fewer competitors and fewer venture-backed behemoths to railroad you out of town.
Not all investment dries up
When the stock market is performing poorly, many investors will put their faith in the safe long-term bets (remember Woolworths?), but others will look to take their money out. Some of these investors (think Dragon’s Den) will be looking to invest in exciting startups just like yours and will fund your initial costs if the project seems like a winner.
If you start in a recession (and survive), then you can endure anything, as long as you keep the same habits when things improve. Maintaining control of the bottom line is essential in the boom times as well as the bad times, so, it is a good discipline to learn.
Apple, Disney, Microsoft, Pizza Hut, and 3M, all now Fortune 500 businesses, started in a recession, so, you would be in good company.
So, why are you waiting?
If you have an excellent idea for a business, you don’t want to face a return to the daily commute and fancy a go working for yourself, why not launch your startup? If you are waiting for a better time to come up, you are unlikely to see a better time than now. The business community is always happy to see new players enter the market, with exciting ideas, and you will find a lot of support from people who have been on the same journey as you.