It may be hard to believe, but periods of recession may be one of the best times to start a small business. Some of the reason for that may be out of necessity. If you've been laid off, you may have no choice but to strike out on your own. You may have had an idea for a small business for a long time, but now that you are out of a job, you actually have time to work on that idea.
Many people are not only unemployed but underemployed during a recession. Both conditions may stimulate the entrepreneurial spirit and lead to the creation of new small businesses. Interestingly, the creation of new small businesses is often what leads us out of recession as small business drives the economy to a large extent.
Businesses Started During a Recession
Here are some interesting facts as taken from a recent USA Today article:
- 16 out of the 30 corporations that make up the current Dow Jones Industrial Average started during a recession
- Walt Disney Corporation began during the recession in 1923-24.
- Hewlett-Packard Corporation began in 1938 during the Great Depression.
- Microsoft Corporation began during the 1975 recession.
This USA Today also notes that in the recession of the early 90s, 25% of downsized executives over 40 started their own companies. It makes you think that, perhaps, recession is a natural way to clean house and restart the economy anew, even though it is very painful.
Why Recession is a Good Time to Start a Small Business
Many people spend years tinkering with a product in their garage. Others spend time drawing out ideas for a special service in their home office. However, they hold down full-time jobs and never have time to go ahead with their inventions. During a recession, if their job status changes, it may be just the time to go forward with their inventions and ideas.
Here are some reasons that a recession may be a good time to start a small business.
- Your competitors are weakened. Because of the recession, your competitors are not only weakened but perhaps even closing up and selling out. Maybe some owners are retiring. All are tightening their belts. There may be a niche for you to slip into if a hole is developing in the marketplace.
- Is your product or service viable in a good or bad economy? Just because there may be a market niche for your product or service doesn't mean you can just stick any product in it. A flawed idea never works in the long-term. You need to do extensive market research to find out if your product or service is needed in both good and bad economies because the economy will eventually recover.
- Most things are cheaper. Prices often drop during a recession. This is called deflation. Office space is cheaper because it is plentiful, although starting your small business in a recession out of a home office may be the best idea. You may be able to find good sales on everything from office furniture to office supplies. If you need to hire personnel, you may find you can hire talented people for lower wages.
- Buy what you need at auction.If you want to try to get what you need to start your business really cheap, try buying it at auction. There are usually lots of auctions during recessions. You might even be able to get fleets of vehicles, large machinery or restaurant equipment, or other usually expensive large items at rock bottom prices if you try going to auctions.
- Be frugal.If you are starting a business during a recession, you are starting with a very limited budget. Chances are, you don't have access to angel investors or venture capitalists. You may have access to funds from your family or friends since, in a recession, they may not be investing in the stock market or other financial instruments. Be frugal with the funds you have or obtain. Cut your budget, then cut it again. You will have to track your expenditures carefully. You should pay close attention to your cash flow and budgets. Be prepared to operate under Spartan conditions.
- Negotiate better terms with your suppliers.During a recession, credit is tight or virtually non-existent. Suppliers are likely to give a company good terms under these conditions.
Ahead of the Pack
If you start your small business during a recession and handle it well, you will be ahead of the pack as the recession ends. You will have seized an opportunity and found a market niche that will become more and more profitable as the economy recovers. This is what makes a successful entrepreneur and a profitable business.