In the last year or so millions of people have been laid off from their jobs. Additional millions are worried or concerned that they may be next.  It has crossed the minds of many if not most of these people that perhaps they should start their own business to gain control of their destinies and obtain a measure of financial freedom.  Most of these people shrug the idea off rationalizing that it would not be wise to start something in a bad economy.

 

The truth of the matter is that the foregoing rationalization is just plain wrong: provided you have the financial wherewithal, one of the best times to start a business is when things look the bleakest.  The reasons are numerous:

 

  1. New businesses tend to take a significant amount of time and planning to get off the ground, but economic recessions according to historic data tend to last two years or less. To put it simply: if you start your business now, by the time you open for business, the recession could very well be over or nearly over giving you the ability to capitalize on the rush to consume as people emerge from their financial cocoons.

 

  1. Very few other people are starting businesses.  In contrast in good times, many people start businesses. Would you rather compete against dozens or hundreds of new entrants in a particular market segment or just a few?  If the need your new business looks to solve is a real one, the need is probably still there even in the height of a recession.  So even if demand is reduced 20-30% of what it would be in non-recessionary times, your business might actually do very well if there are no other or very few other businesses competing with you for the remaining 70-80%.

 

  1. In recessions: office space is cheaper; people will work for lower levels of compensation; and suppliers desperate for sales will often make deals.  To sum it up, you can offer your service or product for less, making you more competitive. Consider that your competition is saddled with higher rents on leases signed before the recession began; more highly compensated employees; and higher priced supplier and service contracts.  A new company will almost always be at disadvantage concerning brand recognition compared to established companies but the foregoing cost advantages may help mitigate this difference and even give the new guy a leg up.

 

  1. Opening a business in a recession teaches you control and restraint.  People who start businesses in good times are often less frugal with their money largely because they didn’t need to be frugal.  Now that challenging times are upon them, they are often unable to react and as such fail.  In contrast, money is hard to come by in a recession, and as such, new businesses must exercise greater because additional funding is often not available. 

 

Of course, the big problem or issue facing those starting a business in bad times is obtaining startup funding.  Simply put, don’t expect to borrow money from your neighborhood bank unless you can back it up with the equity in your home.  And angel investors and venture capital firms are going to be pickier then ever.  Truth be told, you will probably have to fund your venture yourself or through the support of friends and family.  Nevertheless, if you have an urge to start a business that solves a marketplace need, the time to act is NOW.