The economy has undoubtedly experienced a significant downturn and is having a very difficult time recovering from the current recession. With the financial crunch that accompanies hard economic times comes doubt about decisions regarding money – including doubts about whether or not to start a company. I will admit a recession is not an ideal time to start a company that requires a lot of start-up capital to get off the ground. But small home-based companies that utilize the leveraging power of the Internet and technology are another story. A recession is actually a great time to begin to build a small company. Here are five reasons why:
1) Start-ups get a head start. Let's say you have a great idea and you know that you're going to start a company, but you have a question about timing. The answer is: Start today! This will give you a lead over the competition, and will be well worth any extra struggle. When the economy comes out of recession, your business will be that much further along, and that much closer to being ready to raise capital. Venture Capital firms and angel investors will be much more eager to invest after sitting on their cash during the down years. You can get a great head start by starting now.
2) Recessions force start up business owners to take a closer look at their ideas. Attempting to grow a business that is based on a faulty concept won't work. A great team or a lot of capital can lend the look of accomplishment, but in the long run, a business built on a weak plan will end up standing on wobbly legs. During a harsh recession, business owners will be sure to look carefully at their business ideas before jumping in. A economic slump will force questions like:
- Will the product or service benefit users in both good and bad financial times?
- Do I have the capital and support to get this off the ground without raising any money?
- Will there be a market for this product or service if customers are cutting back?
These types of questions will force business owners to rethink their strategies -- and will leave them with more solid thoughts and tactics.
3) Recessions lead to dedicated start-up teams. A common perception about recessions is that jobs are put at risk. This may or may not be true, but if people feel nervous about their job security, they probably will not want to leave a comfortable situation -- especially for a company that’s just starting. The flip side of this, however, is the fact that anyone who does work for a start-up will be incredibly dedicated. A founder will have employees who more readily believe in his or her vision and products, and/or who love the excited feelings that come with the start-up environment so much that they're willing to live with the added risk and bare conditions. Those are the types of people entrepreneurs crave to be their team members.
4) A recession forces founders to be frugal. Starting a company without a lot of money has been known to produce better financial discipline for entrepreneurs and for every early-stage company then having big capital. While it may feel painful to keep track of every red cent, the training that thriftiness teaches is invaluable. Having limited capital leads to innovative thoughts, vigorous forethought about expenditures, and the need for owners to pay very close attention to cash flow, budgets and balance sheets.
5) Recessions strengthen companies. An economic downturn truly is a great time to start a business, but it isn't by any stretch of the imagination the easiest time. That doesn't mean entrepreneurs should shy away from the challenge, however. Difficulty brings out qualities that every entrepreneur needs to succeed – guts, problem-solving, strength and determination. Starting a company in the lean times helps develop those qualities more quickly, which will help any business but particularly your start-up in the long-run.
Darien Lewis is a consultant and coach for The Start Up Store, LLC a business and non-profit start-up consultancy in Tulsa , Oklahoma
You contact him by email: thestartupstore@yahoo.com or darien.lewis@ymail.com
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