Should you start a business during a recession?

Business has resumed, albeit with face masks. Some states and businesses, unfortunately, find themselves in a resurgence of Covid-19. Small businesses are suffering, especially if their main source of revenue is, or was in some cases, derived from a physical location.

The landscape is different now. The shift to online retail has been dramatic.

With physical stores having to close their doors, online sales have been on a sharp increase. Leading the pack, Amazon saw 40% year over year growth. Some businesses are flourishing if they are positioned correctly, but many others have an idea for a business and are considering the start of a business during a recession.

Starting a business during a recession can, at first glance, seem counterintuitive. Since World War II, the United States has survived 12 recessions, meaning the country staved off two or more quarters of contraction in economic growth as measured by gross domestic product. Despite this, some of the most recognized brands in the country were founded during recessions like CNN, General Motors, Uber, and Airbnb. It is possible, and many times opportunistic to start a business during a recession.

1. Starting a business during a recession can provide discount opportunities

Companies that exist to serve the business community start and grow their businesses are currently offering discounts and free trials as the economic impact of the shutdown becomes more clear by the day. For example, Quip, which combines documents, spreadsheets, and chat, so distributed teams can work together effectively is currently offering their services for free. Similarly, Slack is currently offering three months of its standard or plus paid plans to nonprofits and other organizations carrying out COVID-19 relief efforts for free.

An impressive listing of organizations currently offering discounts can be found here.

2.  Increased talent pool

An unfortunate consequence of economic slowdowns is the loss or reduction of work and the resulting unemployment. A larger pool of job-seekers can also put downward pressure on wages. For new businesses, there could be a unique opportunity to attract qualified people to join their businesses. People looking for a fresh start, a career change, or might be looking to replace a lost job may look to new companies as a fresh opportunity.

Starting a business during a recession may be the perfect time to build your team. As you envision the structure of your business, consider the needs of the business and how you, the entrepreneur, will need help in setting up and running the business.

3. Changing wants and needs

The landscape is much different than January 2020. For example, the changing dynamics have pushed our society to live in an ever-increasing world in which the landscape is digital, and goods are delivered. Social norms have also changed. Below are some questions that might be helpful to answer before considering whether or not it’s a good time to start a business during a recession.

Where do people look for entertainment? How do people meet each other? Where do they go for information? For inspiration? What are people willing to pay for? What do people need in their lives? What makes their day to day easier, more comfortable, or more enjoyable? What do businesses need right now?

These are all questions to which the answers may have changed, or may change in the near future. As an entrepreneur, answers to these questions provide opportunities for businesses to serve their customers. Starting a business during a recession can allow you to hone in on exactly what customers want and need.

4. Necessity is the mother of invention

As humans, when things get tough and we need to solve problems we get creative. Many find themselves with their backs against the wall in an economic downturn. If there’s already a risk, why not bet on yourself? If you start a business during a recession, it could be the beginning of a whole new future. Necessity can be a powerful motivator.

5. Lower interest rates for entrepreneurs

The Federal Reserve has pushed interest rates to the floor in an attempt to stimulate the economy. While starting a business during a recession, qualifying may be the biggest challenge when looking to start or extend a line of credit. The good news is that if you do, interest rates will be low. If you are able to take advantage of low-interest rates it might be a great time to start.

6. Real estate available for new businesses

Businesses shaken during downturns may need to downsize, relocate, or close their businesses. This means there are more options for entrepreneurs looking to get their start. In addition, as the supply of real estate available to purchase or rent increases, prices come down making it more accessible to new businesses looking to start a business during a recession.

7. Less competition

As businesses struggle through the impacts of a recession, you may find that competitors need to change their business models or move out of the market entirely. With less competition, it can provide fertile ground for entrepreneurs to start a business. If businesses have left the marketplace, it may be a result of their position, and not necessarily a reflection of a decrease in demand for their products or services.

8. You’ll learn to run efficiently

When things are tight we find ways to run more efficiently. For entrepreneurs looking to start a business during a recession, business owners can find low-cost vendors, discover new and unique channels, and implement savings that can be passed on to customers. Adverse conditions will have entrepreneurs leverage creativity rather than capital. Operating in a challenging environment can act as a kind of “stress test” for businesses, and on the other side, will provide a competitive advantage.

Starting with a plan, even ahead of a full business plan can provide clarity and help you to build confidence. If you are looking for a tool to help you get started, check out the Business LAUNCH Workbook.