Can Recession Be A Good Time To Start A Business?

The market has been buzzing with murmurs of an impending recession for months. While the optimists say that we might have skirted it, the latest report by the Federal Reserve indicates otherwise. An article by Fortune lists six reasons why the recession is inevitable. But all is not doom and gloom; USA Today states that the chances of a nationwide recession are unlikely, with a few exceptions.  

While the views on recession vary, we undoubtedly are in the middle of an economic downturn. With such conflicting reports, it can get confusing for someone looking to start a business.

During a recession, most businesses face an uphill battle when it comes to navigating financial security. The pandemic exemplified this struggle, with more than 30% of companies in the United States experiencing revenue decline and nearly 22% closing down shop. 

But while the reasons behind these struggles are multifaceted, many businesses have proven that innovation and resilience can help them weather the storm and come out strong. 

Even when the market faced a decline, entrepreneurs adapted to the changing landscape, and over 4.4 million business applications for new enterprises were filed in 2020, at the peak of the pandemic. This demonstration of the adaptability of small business owners is testimony that entrepreneurs can thrive in the face of adversity. So, the question remains: should you start a business during an economic downturn? 

With the news of layoffs and a tougher market overall, especially since the pandemic, it can sometimes seem best to take control of your economic fortunes. 

What’s the solution, then? Should you wait for the financial clouds to disappear, or is this turbulent weather perfect for bootstrapping your business rocket? 

Get your dancing shoes on because we’ll master the economic cha-cha and learn how to maneuver downturns and uncertainties while building a successful business. Let’s weigh the pros and cons.

The downturn wave: What is it?

First, let’s address the elephant in the room — the downturn wave.Economic downturns occur due to several issues: recessions, global crises, and shocks in supply or demand, to name a few. They can be incredibly overwhelming when uncertainty looms.  

Spotting an economic downturn is much like forecasting the weather. 

• The first sign of trouble is layoffs. The job market can immediately dip when the downturn hits. 
• The next red flag to look out for is when consumers start tightening their purse strings. This is usually a sign of choppy waters ahead. 
• Next, if the stock market resembles a rollercoaster that goes downwards rather than upwards, you must prepare yourself. 
• A falling real estate market is the final warning sign that you need to have your storm kit by your side.

When these economic storms gather, huddling up and waiting for clear skies is the most practical solution. But every cloud has a silver lining.

​​The upside of the downside

1. Cost savings

During downturns, everything is a bargain. Rent costs are down, materials can be available cheaper, and your suppliers can be willing to cut you a sweet deal. This could become your golden ticket to starting a business on a budget.

2. Top talent for less

When big companies trim their workforce, top talent can find themselves lining up for jobs. This is the perfect time to pick them from the lineup at a fraction of the cost. Your startup could be the opportunity they need. 

3. Innovation leaps

Downturns tend to churn innovation where entrepreneurs try to get creative with scarce resources. A business idea from thinking out of the box will be unique enough to give you an edge.

4. Less competition

During a recession, most business owners take cover to save on what they already have. It means less competition for your new business, and your brand can grab more attention in a roomy marketplace.

5. Agility thrives

Smaller boats stuck in a storm must think fast on their feet; small businesses are no different. You can change course and adapt to newer strategies. Rough seas call for an agile approach.

6. Tech is your friend 

In the digital age, you can start an online business with a laptop and an internet connection. Reach your customers online from anywhere; the response will be just as mighty.

The flipside of the downside

There’s a flip side to every coin. Starting a business is no easy feat; doing so during an economic downturn can bring challenges and risks you must prepare for. 

1. Financing headaches

Acquiring startup funding might be trickier during a downturn as banks and investors hesitate to lend. Your strategy must contain a solid business plan and a compelling elevator pitch.

2. Consumer blues

One of the most prominent signs of a downturn is how sparingly consumers use their wallets. So, you’ll have your work cut out for you. A marketing and sales strategy that builds trust and value will have them put faith in your business and give their precious pennies to you.

3. The long haul mentality

Starting during a downturn means you’re in for the long haul. It might take your business longer to get its feet under the ground compared to if you were starting during an economic boom.

Lessons from history

Still not convinced? Let’s dive into business history archives documenting some of the most prominent companies that thrived during the downturn. 

Take Apple, for example; they launched the iPod during the early 2000s recession and took the music industry by storm. The iPod continues to hold an iconic spot even though it was eventually discontinued. Another success story is Netflix, which, born out of the dot-com bubble burst, got its big break during the 2008 financial crisis. 

Even Walt Disney began his legendary studio during the Great Depression. These companies are testimony that innovation and agility can turn gloomy weather into rainbow-filled skies. The key is to see opportunity in adversity.

Riding the storm: Tips for success

Yes, starting a business during an economic downturn does not guarantee success. Conquer the tricky waters with these tips for success.

1. Solid business plan 

Before you set sail, ensure your business plan is mapped out and ready to be executed. Gain deep knowledge of the market, your target audience, and your competition inside out.

2. Lean and mean 

Keep a tight leash on the purse strings. Embrace remote work and cut costs wherever possible. Refrain from spending on unnecessary luxuries, and make every cent worth the money. Frugality is your best friend during a downturn. 

3. Customer-centric approach 

The key to a successful business is focusing on solving a problem or fulfilling your customers’ needs. In tough times, people need to see the value your business adds to their lives. 

4. Build a safety net 

Always save for a rainy day, especially when you’re starting during a storm. Build a financial cushion that braces for any monetary instability. This is no time for ill-thought-out spending; it’s a time for reasonable budget planning.

5. Seek professional advice 

Surround yourself with mentors and business owners with experience in starting a business during an economic downturn. They can give you the necessary tricks and advice to dodge common pitfalls.

6. Embrace resilience 

Above all, you need to weather the storm with resilience. Adopt a growth mindset, learn to adapt when things get rough, and you’ll reap the benefits of taking such bold risks.

Is the dance worth it?

Starting a business during an economic downturn can feel like stepping onto an unsteady dancefloor. But once you get into the groove, you’ll be able to ace the financial cha-cha. History has proven that some of the most enduring businesses have risen from economic ashes. If you have a strong business plan, a healthy dose of resilience, and a courageous heart, you have what it takes to set sail during turbulent times. Bon voyage, future entrepreneur!

Want to know more about startups and what it takes to get started? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.