Recessions are frequently associated with bankruptcy, layoffs and business failures. For seemingly the entire duration, we are fed a steady diet of recession-related negativity by politicians and journalists. Unemployment soars, despair builds, and it seems like the worst is always yet to come. It might sound counter-intuitive, then, to suggest that a recession might be the perfect time to start a new business. But the idea makes more sense than many give it credit for.
For all the pain and hardships recessions cause, they also create unique opportunities for savvy entrepreneurs in general and certain types of businesses in particular. Today, Grasshopper explores why recessions can be an ideal time to get a business off the ground.
Lower Pressure & Expectations
A common barrier to starting a business is fear of failure. Entrepreneurs are often chastised by friends or family to pursue something more realistic (like a 'guaranteed' job or career) than the company they dream of starting. Those who ignore the criticism and start one anyway expose themselves to great scrutiny. And this is why, in one respect, a recession is a perfect time to strike out on your own.
When the economy is booming (think back to the mid-late 1990's or much of the 1980's), success is the norm. If you announce intentions of shunning a traditional career for the entrepreneurial lifestyle in such a climate, there will be even more wrath from doubters if you falter. Recessions, on the other hand, are by definition barren of very many 'sure thing' career opportunities. It's tough to fault someone for starting a business when there is no easy job to fall back on.
Furthermore, it is less surprising if you fail because after all, 'the economy' is down anyway. Put another way, recessions can actually deflate the intense bubble of pressure and expectations entrepreneurs find themselves in during prosperous times.
'The Economy' is Not Down
Marketing instructor Ken McCarthy once sent an e-mail to his subscribers called 'the economy doesn't exist.' His main point was, as he explains:
'There is no such thing as 'the economy.' There's only your market and your customers, and the whole game of entrepreneurship - the whole game - is adapting successfully to circumstances whatever they may be.'
While it is somewhat oversimplified to say that there is no such thing as the economy, entrepreneurs can learn an extremely valuable lesson from this. The economy is not a a single entity that marches in one direction and drags everyone with it at equal speed. Rather, 'the economy' is simply a broad, catch-all term describing the interactions between innumerable people, businesses, industries, markets, products and services. People in different sectors of the economy, consequently, face entirely different circumstances, threats and opportunities. Recessions do not affect all of these people in equal proportion, and in some cases, it barely affects them in any noticeable way at all.
And just like there is no single entity called 'the economy', there is also no single activity called 'business.' BusinessPundit.com, for example, refutes the popular statistic of there being a given percentage of 'small businesses' that fail. As it turns out, 'small business' is another vague phrase which includes 'such wholly different and unrelated fields as restaurant operation, self-publishing, plumbing and web design.' Because of the unique market forces and success-determining factors involved in different types of businesses, BusinessPundit concludes, 'it means practically nothing to proclaim that “small businesses”, categorically, have a set failure rate that you specifically should be swayed by.'
Thus far, our discussion has been limited to how businesses can persevere in spite of the recession. But it may surprise you to know that there are entire industries (called counter-cyclical industries) that prosper because of the recession. Which industries these are largely depend on why the recession is happening and what its fallout has produced. The current recession offers several examples. We know that the fallout of the housing bust has been disastrous for over-leveraged home owners, much of the financial sector and certain U.S. automakers.
Remember, though, that there are always two sides to every transaction. While the above parties have struggled, others have feasted, including bank foreclosure departments, foreclosure lawyers, auctioneers, and asset managers of foreclosed properties. Another example of a counter-cyclical industry is personal storage, because layoffs often induce people to move to less expensive areas of the country. In fact, certain segments of the financial sector such as retirement planning often see a leap in business during recessions when people place a higher priority on securing their future livelihoods. For these and other counter-cyclical businesses, recessions are anything but disastrous. Investigate whether the business you are starting does or could have a counter-cyclical aspect that enables you to profit from a downtrodden economy.
It's Been Done
Perhaps the most convincing case for starting a business during a recession are the many household-name companies that did it before you. Microsoft is the biggest example, but it is hardly the only example. A cursory Google search returns dozens of successful businesses that were founded during tough economic times. CNN explains that Proctor & Gamble, for instance, was founded during The Panic of 1837. Amidst devastating bank failures and what CNN calls 'the greatest economic decline since the birth of the country', P&G adapted to its circumstances and prospered by supplying the Union Army during the American Civil War. Today, Proctor & Gamble sells some of the most recognized products in the world, including brands like Duracell and Pringles. Burger King, IHOP, FedEx, CNN, MTV, Trader Joes, Sports Illustrated, General Electric, and even Wikipedia were all started during various recessions over the last thirty years.
You can be sure that each of these founders were doubted, ridiculed and scorned to one extent or another. But many years later, there they are: not only still around, but in most cases, doing better than anyone could have imagined in their wildest dreams at the time of their founding. The point is not necessarily that you will succeed to the extent these businesses did, but that recessions did not stop those businesses from succeeding and need not stop yours.
In short, recessions are often the ideal time to get your company into motion. The key is to mostly ignore what politicians, journalists and non-businesspeople say about you or your goals. Train yourself to stop thinking in vague, sweeping phrases like 'the economy' and 'business.' Instead, resolve to focus on the fundamentals of succeeding in your particular kind of business.