Why Building Companies in an Economic Downturn is Worth It
What do you feel when you hear the word “recession?” If your answer is panic, you’re not alone – especially as an entrepreneur. I get it: your investments are all worth less, the news is full of doom and gloom and everyone else is pulling back, so you should do – right? Maybe, maybe not. While it might feel counterintuitive, starting a new business during an economic downturn presents a unique opportunity to embrace uncertainty and use it as an asset.
Yes, the status quo may be disrupted, but entrepreneurs aren’t concerned with the status quo. We’re looking for innovative, new solutions, not trying to maintain demand for goods or services that already exist.
As we face a new kind of economic challenge, fueled by the pandemic, there are gaping holes in the market begging to be filled by fresh new startups. Here’s why building one in an economic downturn is worth it:
Finding Startup Success in an Economic Downturn
Companies can find incredible success getting started in recessions or bear markets. I’ve seen it done time and time again. Just look at household names like General Electric, IBM, Airbnb, Microsoft, General Motors, CNN, and Burger King. All of these businesses started in downturns, including the aftermath of the 1907 economic crisis (GM), the US recession of 1953 (Burger King), and the most recent recession of 2008 (Airbnb).
These companies leveraged the new problems created by these challenging circumstances and created novel companies to solve them. In our current situation, for example, there were extraordinary new opportunities in the health space, particularly in PPE and telemedicine. Startups that have honed in on that need have already found success.
Many of the biggest, best, and most enduring companies are created during downturns because it breeds innovation out of necessity. And, since they got started while the going was tough, they’re tougher and more resilient as they grow and scale.
6 Reasons to Start a Business During a Recession
If you have an idea that you believe in but are hesitating because of recession fears, here are six reasons why I’d encourage you to push through and start your business now.
The World Needs Innovation
In times like these, the world needs innovation. Tough times introduce new problems, and most of the time, there’s not a readily available solution on the market yet. When we need solutions to our new problems, we usually need a new company to do it. It’s the perfect opportunity to be the first and best on the scene and capture a new market that may not have existed previously.
Better Labor Available
In recessions, layoffs are usually inevitable. Fortunately for new founders, this increases the availability of high-skilled labor and reduces the cost of hiring workers. It’s an opportunity to find top talent for your team that may not have been available in an economic boom. Take advantage of that.
Cheaper Business Costs
Everyone is looking to cut costs in an economic downturn, including vendors and other businesses. Believe it or not, this presents a few benefits to you, as an entrepreneur, including finding more affordable office space and equipment, but since working remotely has become part of the norm, those costs may be even less. It also gives you room to negotiate with vendors or other partners who also need business.
Smart Investors Are on the Lookout
Credit markets can be tight, making it harder to find traditional bank financing, but experienced angel investors, like me, know that some of the best and brightest companies are bred from the challenges of a recession. We’re also looking for promising opportunities that could allow us to move money out of the stock market and into a more profitable venture. Though investing in early-stage startups can be risky, investing in the right one when the economy is unstable can provide us with more security than standard investments.
Competition Is Struggling, Too
Recessions aren’t just hard on new businesses; incumbents are struggling, too, vulnerable to drops in demand and shifting values. Continuing as usual isn’t always an option for existing companies, and it creates the right set of circumstances for a new, leaner business to come in and undercut the competition.
Trial by Fire Is a Blessing in Disguise
The early trials of starting a company in a downturn create resilience in the very foundation of a business. These challenges make you and your early team work harder from the get-go, and you’ll be prepared for challenges for years to come. You will already be familiar with lean planning methods and regular strategy adjustments, which will serve you well as the market naturally ebbs and flows.
Lean Times Can Force a Reckoning
We all start our businesses with a lofty, world-changing mission and a passion for what we do (or we should). Somewhere along the way, as we become more successful, companies can get bloated and become more focused on feeding the machine and sustaining their growth and profitability than on achieving what they got into business to do. A recession can force you to reexamine what you’re doing and, more importantly, why you’re doing it.
Starting Low, Aiming High
When you start your business in an economic downturn, you’ll face challenges, but companies often turn out all the better because of the forced innovation and initial lessons learned as a result.
Armed with a strong belief in your idea, build your startup thoughtfully and with the right team by your side to weather the storm. Finding the right angel investor will equip your startup with the capital it needs when money is tight and the experience and insight from our own past entrepreneurial ventures to guide you through all the ups and downs.
If you have a great idea, perfect for the unprecedented times we find ourselves in, I want to hear about it. We’ll need innovative businesses to carry us through the dark moments and find new solutions as problems arise, so let’s get to work.
Enjoy the ride.
