Why Experts Recommend Starting A Business In A Recession
Starting a business in a recession seems stupid. The economy is shrinking, demand is falling, and other firms are going out of business.
But there are actually some very good reasons why it works. After all, many of the big names we know and love today are the children of incredibly challenging economic circumstances.
Feeling perplexed? Don’t worry. We explain it all below.
What happens during a real recession? Companies lay off workers. And when they do, there is often a large pool of people desperate for any job that comes their way.
COPYRIGHT_WI: Published on https://washingtonindependent.com/ebv/why-experts-recommend-starting-a-business-in-a-recession/ by Luqman Jackson on 2022-10-11T12:50:39.934Z
Startups find it hard to attract the people they need when times are good. Everyone is so busy with the 9 to 5 that they simply don’t have time to explore all job opportunities in their niche.
But when unemployment starts ticking towards the 10 percent mark, things begin to change. Everyone starts looking for roles that could serve as backup. And they tend to be considerably more receptive to opportunities. Firms that start in depression can typically vacuum up all the best people and produce incredible value during the bad times when everyone else is laying people off.
In October 2022, it very much looks like we’re going into recession. And just like in practically every single one that came before, asset prices are falling. Lower liquidity and economic activity mean that people are having to sell their commercial property and other capital at a discount.
For entrepreneurs, this is great news. It means that you can negotiate and lock in lower rents, grab cheap equipment being auctioned off in company fire sales, and even take over other businesses that are struggling.
When recessions hit, overall demand falls. Discretionary spending plummets and people stop buying things like take-out meals, vacations, and jacuzzis.
At the same time, though, essential spending tends to rise. As people stop putting money into things they don’t need, they start spending more on the things they do.
Economists call this the substitution effect. A reduction in vacations means more disposable income for things like food.
As a business owner setting up an essential business, this could work in your favor, You could actually be on the receiving end of higher demand, even as other firms are going out of business.
When the economy is going through a crisis, the rules change. Governments relax laws and people become more receptive to emergency measures.
Take COVID-19, for instance. For nearly a decade, employers had the technology to allow staff to work from home. But it was only really the crisis that forced their hand and accelerated the transition. If it hadn’t been for the pandemic, we would still have millions of people traveling to big, expensive offices every day.
A crisis is also a time when people tend to think outside of the box. As the old adage goes, “necessity is the mother of invention.” Launching now, therefore, could help you put in place the type of thinking that will help your enterprise thrive once the economy gets back on track.
When the economy is charging ahead at full steam, the media doesn’t have time to pay you much attention. Sure, they might offer a press release if you pay them enough money, but the likelihood of people reading it is low.
Companies that start up during the height of a recession, though, are rare. While everyone else is shutting down, putting projects on hold, and generally being cautious, they’re building up and taking on new staff.
During recessions, the media likes to report on these stories. It’s interesting for their readers and it provides a ray of hope in an otherwise difficult time. New startups are few and far between, so you’ll likely get noticed no matter what you do.
Once the recession is in full-swing next year, the fed will have to lower interest rates. And when they do, credit will become cheap again.
The same thing happened during the great financial crisis of 2009. In the run-up to the recession, businesses were paying up to 8 percent on their loans. Afterward, it went down to as little as 3 percent for some firms. During a recession, you may be able to refinance at a lower rate. Lenders may also cut borrowing costs automatically if the interbank lending rate goes down.
While firms like StickerYou can help brands stand out, an absence of products competing for consumers’ attention also helps. When nothing much is going on, firms that are still bringing new products out tend to make more of an impression.
During a recession, it’s hard for venture capitalists to find anywhere to put their money. Opportunities are few and far between.
Therefore, if they see an opportunity to make reasonable returns with your firm, they may take it. A sound business model getting started during a recession is highly likely to attract funds.
While it might seem intelligent to wait to start your business, getting going right now could be the best decision you ever make. Recessions are like a stress test for your enterprise. If you can survive them from the start, your business is much more likely to weather the storm.
People tend to wait to start their companies until after a recession because they are scared. They worry that demand will fail to materialize.
But this is based on an incorrect perception of recessions. Even during the most severe downturns, there is still demand out there. There are countless people with vast wealth just waiting to spend it on products and services they want and need.
Your job, therefore, is to position your brand so that you can take advantage of these trends. Even in a catastrophic 20 percent economic downturn, 80 percent of demand remains. Ignore people who tell you to wait until the right time. There is never a right time for anything, particularly in the business world.