Starting your own business is the dream, but an economic downturn or full-on recession can hold aspiring founders back. Maybe you have the right business idea and know how to win in your industry, but hard economic times can feel like too much of an obstacle.
But that doesn’t mean that there aren’t benefits to starting a business in an economic downturn.
Whether you’re taking advantage of new technology or you see the future of your sector, the sooner you start your business, the longer you’ll stay ahead.
So, let’s look at the best way to get started and weather any economic downturn.
Is it smart to open a business during a downturn?
Opening in less than optimal times might seem counterintuitive. But, taking the unique opportunities an economic downturn offers can be a good strategic move.
Recessions often lead to less competition, allowing startups to carve out a niche more easily. Lower overhead costs, attractive pricing from suppliers, and a buyer’s market for talent can also work in favor of new businesses.
On top of that, small startups are all about pivoting. Until your product has been in customers’ hands for a while, you don’t know what’s working. The early days of a new business are all about iterating until you achieve product-market fit. So if conditions rapidly change, small businesses can pivot quickly while large companies need months to turn the ship around.
While every new business is a risk at the best of times, starting in a recession can be an advantage.
Benefits of starting a business during a recession
With all the above in mind, let’s take a closer look at the benefits of starting a business during a recession.
Competitors might be struggling
Challenging economic climates are tough times to be a big business. If a big business has been growing for a few years, company leaders likely were making strategic investments during those good times that they’re now cutting back on.
This opens doors for smaller competitors. Not only are the incumbents stalling or closing altogether, but many existing small businesses are also holding back on investments.
Depending on your industry and how fast you can get a good product out, this is an ideal time to rush in and win over customers who are underserved.
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Increased support for startups
There is often additional support offered by the government, including funding, courses, and advice.
For example, in the UK, businesses are now required to start adopting new solutions like making tax digital software as the UK moves to a digital-only tax regime. Utilizing the right support and resources and changing to the right software can help you make the most out of these changes and potentially save money as you make your finances more efficient.
In the U.S., on the other hand, there are various programs and resources available for small businesses, including loans and investments. It’s worth checking out what programs or funding are available in your area to see what support you’re entitled to.
Costs are low and open for negotiation
With economic uncertainty comes reduced demand, which means suppliers have to work harder to move their stock. In an attempt to get cash flowing in again, some suppliers will be willing to sell their goods at a lower price than in a healthier economy. In any case, these kinds of businesses will be hesitant to push their costs up if they can avoid it.
This is an opportunity for new businesses to get the supplies they need at a discount. When they can save on equipment, materials, and some commodity goods, this can reduce costs, from inventory, to shipping, to office rent. If you’re forging a good relationship with a supplier who appreciates your business, you might find them willing to negotiate a deal.
Alternative funding may be available
If you think you’ll have a hard time securing investment, you have fallback options: a recession is exactly when some alternative sources of funding open up.
Look into local and state-level grants or development programs that might provide some funding. These grants and loans are often small, but they’re provided by governments that are committed to helping local businesses regardless of the economy.
If you’re starting a tech business, startup accelerators might be more open to hearing your pitch. Programs like Y Combinator are well-capitalized enough to weather an economic crisis, and a tech accelerator is often pursuing long-term goals other than ROI.
One challenge for established businesses in an economic downturn is a combination of rising overheads and shrinking profits. Those overheads include salaries, supplier contracts, and office rent.
While they’re deciding where to cut their budgets, new businesses can come in determined to keep overheads to a minimum from day one. As a new business not held back by expensive legacy systems, you can make processes fast and cost-efficient from day one with up-to-date digital tools and scalable cloud solutions.
Better staff and employee choices
As large businesses let staff go, there’s an influx of talent for new businesses to choose from.
This creates a buyer’s market for new talent, one where large businesses aren’t hiring as much. With more good candidates to choose from, businesses can be more confident they’re getting the right people for the job. For some candidates who felt constrained at a big company, an influential role at a brand-new company might be just the thing they’re looking for.
Businesses become more agile
One of the things that separates new businesses from incumbents is agility. When the company is just a few people, it’s easy to completely change direction in a volatile market. This kind of pivot should become second nature: until they’ve got a growing customer base, startups don’t know if their product is the right one.
If they don’t rapidly react to customer feedback, they’ll miss a chance to grow rapidly. For many startups, it’s worth developing a software implementation plan for tools that will help you to make more informed decisions such as enterprise resource planning (ERP) software. So, you have the right tools that will help you plan your business’ future when you need them.
These will help business owners save money, serve their customers more effectively and enable them to grow after the recession ends. Small businesses have the speed advantage, but that won’t last forever.
If you’ve been putting off starting a business because of the recession, consider that the best time is right now.
How to open your business in a recession
So while starting a business during a recession is risky, there are unique advantages you might be able to bank on. By understanding exactly how the recession is affecting your industry, you can gauge if the market timing is right to turn a challenging economy into an opportunity.