A recession may not feel like the smartest time to start a business. Plenty of people are out of work, consumer spending is down and companies are closing every day. It certainly feels like opening a new company is a bad idea.
While on the surface launching a new venture looks unreasonable, there are plenty of reasons why starting a business during an economic slowdown is actually a good idea. Here are five reasons why a recession may be the perfect time to open your doors.
1. Fortune Favors the Bold
Economic downturns make people nervous. Most people will feel that starting a business is too risky and will choose to wait until things turn around. This means you will face less competition in your market, giving you a real advantage as you start out. Additionally, when your competitors decide it is safe to enter the market you will already be established, and hopefully successful. They will have to compete with you.
2. Established Business May Be Struggling
Competing with businesses that are already established and successful is one of the hardest obstacles for a new business to overcome (see #1 above). However, a recession can cause established businesses to struggle under the weight of overhead costs that they can no longer meet.
Your new business can be more nimble, keeping overhead costs low until the economic climate is better. This may also allow you to undercut the others on price, giving you a leg up.
3. Borrowing Money is Cheap
The government will often reduce interest rates to stimulate the economy during a recession and will choose to keep rates low even as the economy picks back up. This creates the perfect opportunity to borrow money when it is as cheap as possible and to keep those low rates for years to come.
4. Investors Are Looking For You
Financial downturns do not stop investors that are looking for new businesses to invest in. In fact, a recession often causes angel investors and venture capitalists to want to move money out of traditional markets and into alternate ventures.
The lack of competition, since other entrepreneurs are too risk-averse to take on the challenge of opening a business in a downturn, positions you to get the funding you need.
5. Cheap Goods and Supplies
During a recession, many of the necessities for your business will be available at reduced costs. Rents are often lower, raw materials are not as expensive and general supplies are affordable as well. You may find cheap goods at auctions or liquidations; while no one likes to benefit from another’s misfortune, taking advantage of these opportunities will position your company for success.
6. Suppliers Will Negotiate
Suppliers struggling with their own economics will be more willing to negotiate with small businesses. This gives you the chance to get lower minimum order quantities or better credit terms. As other businesses slow down or close, suppliers that are looking for new clients will be happy to work with you.
7. Labor is Available
Recession markets might favor employers. With people of all abilities and skill levels losing their jobs, the labor market becomes rich with talent looking for work. This in turn lowers labor costs, creating an opportunity to hire great people at lower salaries than you anticipate.
New companies with big opportunities are particularly attractive to talented people who want to get in on the ground floor. Starting your business during an economic downturn can become a win-win for you and your employees, where you are able to snatch up talent and experience at good rates, while ambitious employees roll up their sleeves on a start-up rich with possibilities.
8. Customers are Looking for Alternative Providers
During recessions, customers are looking for cheaper alternatives for their regular goods and services. Your ability to undercut the pricing of your competitors can help you leverage this market and build a loyal clientele right away.
There will also be customers who may be happy with their current providers, but who find their favorite businesses slowing down or closing altogether. This is a potential market that would not normally exist for a new business but is one that you can take advantage of to help your business become successful quickly.
9. Customers Need New Solutions
A change in the economy causes new problems for customers. Some recent business solutions focused on delivery services, reliable internet solutions, and ridesharing.
Each economic climate produces its own new set of challenges. Positioning your company as the answer to whatever your customer needs to be solved is a great way to leverage the situation to help you find success, even when the economy is solid, but even more so when times are tough.
Starting a business is always risky. Starting a business during a recession may feel foolhardy, but doing it could actually help you avoid some of the difficulties that new businesses typically face and help you build a company that will last.
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