Why starting your business during an economic downturn could be a smart move
By Steve Whitehill
As I like to say in good times business fail and in bad times business succeed. Granted not always the same ones. Another way to put it: It can be a good time to start or buy a business during an economic downturn, but it depends on various factors.
On one hand, an economic downturn may create opportunities for new businesses to emerge as market gaps and needs arise. Established businesses may also be struggling during a downturn, which could create opportunities to buy them at a lower price.
On the other hand, starting or buying a business during an economic downturn also comes with risks. Economic uncertainties can make it difficult to secure funding, customers may be more conservative with their spending, and there may be more competition as others also seek to capitalize on emerging opportunities.
Ultimately, whether an economic downturn is a good time to start or buy a business depends on many factors, including the specific industry, market conditions, personal financial situation, and the entrepreneur’s risk tolerance and ability to navigate challenging times.
I believe that a recession can actually be a great time to build your own business. Many successful companies, such as Uber, Airbnb, Square, Microsoft, Trader Joe’s, General Motors, Hewlett-Packard, and Burger King, were all born out of economic downturns.
To succeed during a tough economic climate, you’ll need to adopt a different mindset than during a boom time. Here are some tips:
1. A lack of resources provides clarity. When resources are scarce, you can focus more on what will move the needle for your business in the short term. You’ll also have a clearer path forward and fewer distractions.
2. The businesses that succeed during a downturn will be the most opportunistic. You should be on the lookout for challenges and opportunities. As a small business, you’ll be able to respond to opportunities faster than bigger competitors and bureaucratic incumbents. You’ll also have advantages like cheaper rents, highly skilled talent suddenly available due to layoffs, and an easing supply chain. Keep in mind that even during hard times various funding sources are available (e.g. SBA loans), however they may be more difficult to obtain.
3. Your previous work experience is both your foundation and your parachute. Working for established companies is a great way to learn from the best and build up a personal pedigree that will give you options to fall back on during your future entrepreneurial journey.
4. Failure is a part of the system that rewards confidence and risk-taking. Don’t be afraid to fail. Work hard, you will need to risk at least some of your own money, do what you promise, and don’t break the law. As long as you follow these principles, you can try again another day.
5. Pursue the intersection of what you care deeply about, what you’re good at doing, and what the world actually needs. This is a more honest version of “follow your passion.”
6. Be the same person you are in bad times as you are in good. Push through difficulties with resilience and integrity and keep the big picture in mind when things succeed.
7. Narrowed focus doesn’t mean less impact. You can still impact your community by choosing to focus on the things that align with your company’s mission and capabilities. Make sure your employees have the time and support to do the things they believe will help society and the people in their community.
In the end, economic hardship can lead to the creation of strong and successful business. You will need confidence and be willing to take risks and adopting a different mindset during a downturn. If you do you can be better equipped for your business to not only survive but thrive.
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Steve Whitehill, Anchor Business Advisors
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