Why Recessions Are A Great Time to Start a Business

by Thursday Bram · 21 comments

coronavirus recession

Recessions are the perfect time to start a business: FedEx, Microsoft, Burger King and even GE were started during the recessions the U.S. has experienced over the last century and a half.

If you’ve been thinking about starting a new business, the fact that the economy is down should not stop you. In fact, there are many reasons why the national economic situation should encourage you to start a new business now.

recessions coronavirusYou Have Motivation

If the recession is affecting you directly, you’ve got something that can make all the difference in how successful your business will be: motivation.

When we’re comfortable, it’s often difficult to ramp up a business to something that will actually pay a living wage. After all, there are fall back plans like landing a job.

When we don’t have as many options, though, we have an incentive to push harder. If letting a business fail simply isn’t an option anymore, we’re more likely to dig deep and find solutions that will help our businesses succeed.

It is possible to create some mental motivation without a recession, of course — but the mindsets of entrepreneurs during economic downturns are the reasons that companies like FedEx and Burger King grew quickly. They served a niche and provided products and services that customers wanted, but, especially at first, the company founders needed to get the company going in order to make a living.

Motivation can be what carries you through from the initial enthusiasm for your new business, past the hard work necessary to get any new venture going, to the point where that business is successful. It won’t be easy, but it can be done.

You Can Get Better Deals

One of the big concerns for starting a new business is whether you can find the money to launch the project you want to work on. While the costs to start many types of small businesses have dropped dramatically over the past three decades, a recession makes it even less expensive to start one.

The vendors you may be hoping to work with are likely to be willing to negotiate more on their rates than if you went to them in a boom time. Everyone, from manufacturers to marketers, is willing to discuss special recession pricing, if only to make sure that income is coming in. Make sure you are taking advantage.

There is a downside, of course: you probably won’t be able to increase your profit margin despite getting lower prices. But, depending on the contracts you’re willing to sign, you may be able to ensure that these lower rates continue for quite a while.

You can also negotiate other considerations, such as when you actually pay for the services or products you need. Cash flow is often a concern for a new business: a loan is often necessary to cover your early costs. If you can delay even some of those costs until you’ve got money coming in (something more vendors are willing to discuss now), you can reduce the amount of money you need to borrow.

Lower initial costs for starting up your business means that you don’t have to make as much money to both support the business and yourself. That benefit can make the difference in not only how soon your business can be profitable, but also in whether you need a job or another source of income to support you in the short-term.

Right now, a job is not always as easy to come by, making it especially important that a new business be profitable as fast as possible.

You’ll Be In Shape for the Long Run

Right now, many companies are looking for ways to trim their budgets and reduce costs. If you’re starting a business now, you’ll have to be aware of costs and keep them down — but you’ve got the opportunity to start from scratch and build a solid base.

Companies that are launched during good economic times may have difficulty determining which of their expenses are truly necessary: if you’ve never done business without an expense account, it may seem impossible to keep doing business after you’ve lost it.

But a business that starts out lean will have a clearer view for the future. Your company may grow and allow you to add on perks in the future, but you’ll always know what’s really necessary for you to run the business.

When the next recession rolls around, you may not even need to trim your business’ budget: a lean operation can simply sail on through. You can even find new ways to do things that aren’t apparent to people who are looking at an established method of doing business.

Don’t Let a Recession Stop You

Any point in the continuing cycles of the economy has its pros and cons, at least in terms of entrepreneurship. Simply because we’re in a recession, though, doesn’t mean that it’s a bad time to start a business.

Now may not be the best time to start if you never considered creating your own company until the economy started having problems — the more time you can take to plan a business, the more likely it is to succeed — but if you have done the research and know what it will take to get your new venture going, don’t wait.

It’s not just certain types of businesses that will do well if you start them now, either. While it might seem that people would be reluctant to spend money on entertainment and other unnecessary expenses during a recession, any sort of business can do well in a recession if you’ve got a way to bring in income.

Even MTV was started in a recession — if you can reach a market that will pay for your product or services, you can be successful no matter what state the economy is in.

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{ read the comments below or add one }

  • Papa Foxtrot says:

    Recessions create what I like to call supply bubbles. Essentially, many businesses have receded and old markets need to be filled and sometimes by completely new markets.

  • mary taylor says:

    Now is a GREAT time to start a business. With crisis comes re-evaluation and opens up the opportunity for new ways of thinking. For us, this means companies are reconsidering both what events can do for their business and how they structure the most efficient (cost and otherwise) team to get them

  • Dryer Vent Cleaning Kansas City says:

    It seems like alot of people are trying to start their own business lately. I was talking to a local car dealer recently and they can’t keep work vans in stock. They see individuals all the time who are launching a start up service business. I agree with Chandler CPA about the E-Myth. Great book for anyone who owns or is looking to start a business.

  • Christian Fauchald says:

    There is absolutely no better time to start a business. In a down economy, EVERYTHING is on sale: raw materials, resources, talent, business services, office/manufacturing/warehouse space… everything.

    Carpe some diem out there, people.

  • Lumiere says:

    I always figure that if you can make it in a down period, it only gets better and easier in the future. Surround yourself with the right people, along with encouraging friends and make that good idea happen, I say.

  • Chandler CPA says:

    Get a copy of E-Myth Revisted from amazon or download as a free trial from audible.com to ensure you build a business and not a job.

  • Wayne dryer vent cleaner says:

    I own a dryer vent cleaning business in FL….I also sell a training DVD to help others get into the business and I must say that I have been seeing a lot more people trying to do their own thing since the recession….I believe a lot of this is because people just have no other options right now….and we all want at least the hope for a better situation…..

  • Chandler AZ CPA says:

    You better believe that it is a great time to start a business. I’d rather be working on my own business than working an 8 to 5 job where I could get laid off any day.

  • Deb Bixler says:

    Direct sales and home business is the wave of the future because no home can get by on two incomes let alone one.. Great insight into the success rate on the internet.

  • Accounting Directory says:

    It is definetely a great time to start a business. With many folks losing their jobs (or in fear of losing their jobs) what have you got to lose? I would rather spend the down time building my own business rather than searching for a job.

  • Elli D. says:

    When your idea doesn’t require much capital, than recession is as good as any other time to start a business. But I wouldn’t say it’s and ideal time (and mentioning few successful business doesn’t prove anything) – the real entrepreneur has the vigour at any time, because he is driven by his idea, not by the environment.

  • Squirrelers says:

    One can also look at it as though being able to start and thrive in tough circumstances will only make it easier to succeed in more robust economic times.

    Frankly, this recession has given me the impetus to start my own blog, which has been active for the last 3 months. I’m certainly having fun with it.

    Also, John: that’s a good way to look at it about the pink slip. Sometimes those things can force on to move down a path that is a better fit in terms of skills and passions.

  • Credit Card Chaser says:

    Great advice as a recession is often not only a great time to start a business but one of the very best times to start a business (for most types of businesses although I will concede that businesses that are not well funded and need financing can find themselves in a pickle with trying to find financing during a downturn at times).

  • John says:

    Great post. I just got fired but I’m happy because I can now focus on my business. Getting the pink slip may be the best thing that happened to me.

  • Cd Phi says:

    This is certainly a risky move. I mean I don’t know how confident I’d feel about starting a business during this time but you make some great point. I’ve heard that a lot of commercial businesses are leasing for really cheap and even on a month to month basis. With that in mind, you’d still need a pretty good amount of capital to start your business if it requires that. On the other hand, I’d definitely agree that the recession has brought out the entrepreneurship in me though. I am almost always looking for ways to help or increase an innovation.

  • Financial Samurai says:

    If it wasn’t for the recession, I would have started my site, which is something I’ve been thinking about for the past 4 years. Whoo hoo.

    Goooo recession. 🙂

    • MoneyNing says:

      Good for you. Once you succeed, we can go celebrate (and you can get that luxury sports car I think you wanted a couple of months ago when you were waiting for your bonus) 🙂

      • Financial Samurai says:

        I believe I have already succeeded. And, I have no desire to buy a fancy sports car anymore. It feels great.

        • MoneyNing says:

          Oh. I don’t mean that your site isn’t successful at all, because it’s growth is amazing on every front. I was thinking about your $100k goal, which I don’t think you’ve met yet right? (I could be wrong here too, and I apologize to be ignorant.)

          • Financial Samurai says:

            I believe I have succeeded not b/c of the growth, but b/c I just started. Nope, haven’t achieved the 100K goal from my site by any means, but the income is definitely there now, and I didn’t even go look for it. Definitely a good goal to have for a retirement income hobby/side business for sure.

            Meanwhile, I’ll just keep chugging away at my day job.

  • James says:

    having a positive attitude and a great business plan are the start. have a product or service that people need will help you become successful.

    my thought is go for it, why not.

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