Why Businesses Are Starting Up Now
It’s a recession. Entrepreneurs and small business owners can’t get money. Some can’t even make payroll. So why would starting a business in a recession be a great idea? Here’s why:
Time to practice.
Recessions are the pre-season: Do you think Kobe Bryant starts hitting the gym in October? Business, like basketball, takes preparation, training, and practice.
Method Products, a household products company founded during the dot-com boom of the late nineties, found itself in need of financing right around the time the Silicon Valley bubble burst. Founders Adam Lowry and Eric Ryan perfected sales techniques after being turned down by the same stores over and over again. In November 2001 (right after 9/11), with hundreds of thousands of dollars in debt and an economy where no one seemed to be buying anything, their last hope was a dinner meeting to secure venture capital funding. When they tried to pay, both of their credit cards were declined. But the sales pitch was so good- because they had so much practice- that they got the funding anyway.
Gary Erickson also made a household brand during a recession when he developed the Clif Bar in 1990-1991.
Starting your business during a recession forces you to practice sales pitches (because no one is buying anything), venture capital requests (because no one has tons of spare money to give you), and hone your skills in a way that will pay off once the economy picks up.
Cheaper start-up costs.
Starting a business in a booming economy is a little like trying to order a dozen roses on Mother’s Day, where a rising demand tends to raise all prices. In a recession, businesses cut prices, offer specials, and craft deals to lure new customers. Services that might have been out of your price range a few years ago, like professional web design or online marketing services, can now be had at a cost more in line with a start-up’s lean budget.
In the early 1920’s, two young artists in Kansas City produced short cartoon movies using borrowed equipment, and talked the owner of a successful local theater into showing them. During better economictimes, Walt Disney might not have been able to secure time at such a popular venue. GE got its start in 1873 which was a six-year recession and is now considered the world’s tenth largest company. Microsoft, and Hewlett Packard also got their big breaks during recessions. Taking advantage of cheap services and promotional opportunities is a good way to curb spending from the very beginning and start your business on a solid financial foundation.
Getting by on meager rations forces a business to be lean, evaluate strategies better, and squeeze the most use out of every dollar. One way to work smarter is to recruit knowledgeable partners and employees. Economic downturns often produce an oversupply of talent, many of whom go on to work for start-up small businesses. Within the eight months after 9/11, 11.4% of jobless managers and executives had started their own companies, according to the outplacement firm Challenger, Gray & Christmas.
Research has also shown that people who work for start-ups, whether as a co-owner, partner, or employee, are motivated more by company mission and passion for the work than by a dollar amount or a big payout later.
Working smarter doesn’t just mean collaborating with the best- it can also mean budgeting better, evaluating expenses more carefully, and cutting extraneous costs. A recession forces you to streamline your business from the very beginning, a trait that will help it survive in slow times and thrive in the future.
Whether you were laid off or your company folded, you’ve probably been harboring that dream of starting your own business for some time now. An economic downturn provides that nudge (or push, or even kick) you’ve been waiting for to strike out on your own. Six million small businesses were launched in 2006. Recent available statistics indicate that of the 2.6 million Americans who lost their jobs in 2008, only a small fraction of those plans to start their own company.
If you’re out of work, maybe you’re dreading the possibility of resume writing, interviews, and training only to go back to doing the same boring thing you did before- and making money for someone else to boot. If you’ve always wanted to open a website for new dads or an online bakery - do it now. Seriously, what are you waiting for?