Why Recessions Are A Great Time to Start a Business

by Thursday Bram · 24 comments

entrepreneurship advice

Things are pretty rough for many folks where I live. Jobs are scarce, scattered, and most pay minimum wage or barely above that. A friend with two college degrees and 12 years of service in the military was recently unemployed for a few months already because he didn’t want to settle for minimum wage or factory work. It’s rough out there. If you’re in the same boat, why not try your hand at starting your own business?

Don’t let the economy being down scare you. In fact, there are many reasons why the national economic situation should encourage you to start a new business now. FedEx, Microsoft, Burger King, and even GE were started during the recessions the U.S. has experienced over the last century and a half. Here are three reasons why you could succeed in a recession.

recessions coronavirus1. You 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 provide 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. Becoming successful won’t be easy, but it can be done.

2. 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 starting one even less expensive.

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 is profitable as fast as possible.

3. 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 of 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.

Still Not Convinced? You Might be Plagued by These Myths About Starting Your Own Business

1. You need a lot of money to start a business. FALSE! We already talked about how a recession can drastically lower your cost, but depending on the type of business you choose, you may be able to get started with no upfront investment at all. Work with what you have and upgrade as your finances allow. You don’t always have to go into debt to start a business.

2. You don’t have what it takes to start and run your own business. FALSE! The majority of people have some set of profitable skills that can be turned into a business. If you’re crafty, sell handmade greeting cards and invitations. Got mad grammar skills? Try tutoring kids or editing term papers for college students. Love to paint? Offer your services to those who are remodeling or approach your local church about getting paid to paint the homes of elderly parishioners. Like to read? Write book reviews for a publishing company. Got a computer? Try out freelance work as a virtual assistant. Clean houses. Pull weeds. Type reports. Sell stuff on eBay. Find something you know how to do, then work on getting paid for doing it. There are many ways to earn more money.

3. I need to invest my time in looking for work, not starting a business. FALSE! You can still look for a day job while you work for yourself. You’ll be bringing in enough money to get by until a day job comes through, or you might just find you like being your own boss better. Freelance instead of going all out. Partner with others in a similar field to help balance your workload when your schedule needs a lighter load. It can be done.

4. I have health problems and can’t work a business. FALSE! If you have a sufficient IQ (i.e. if you’re reading this) you can work. I have a friend whose body was so severely deformed, she could only move her head. She lived with severe pain every day and needed assistance to care for herself, but she still went to work everyday! She earned two college degrees online and worked as a customer service rep with the help of a headset and motorized wheelchair. If she can work, you have no excuse. You don’t have to sit at home and feel useless.

Ready to Get Started Yet? Here Are Five More Tips from My Friend
I had the opportunity this week to chat with a small business owner from my local farmers market. Three years ago, she launched a coffee roasting company that sources its beans from Colombia — her country of origin, and the place her family has grown coffee for generations.

Her story is inspirational for many reasons, but it also offers practical wisdom about what it really takes to be a small business owner. I’d like to share a few lessons I gleaned from our conversation.

My hope is that those of you who are just starting a small business will walk away with practical advice and encouragement from someone who is already in the trenches.

small business adviceTip #1: Start where your knowledge, education, and experience meet.
My friend Maria’s business concept is a combination of her knowledge, career path (she studied agricultural engineering), and family heritage. In other words, she started with what she knows and loves.

You could also add personal positioning to this combination — location, business contacts, social connections, etc. The crossroads where your natural ability, experience, training and opportunities meet should be the source of your small business idea and the place to start your groundwork.

Where is that sweet spot for you?

Tip #2: Don’t be intimidated by other “big fish” in the pond—find your place.
Choosing to start a coffee roasting business in the city known as the birthplace and international headquarters of Starbucks isn’t for the faint-hearted. Maria didn’t let this intimidation get to her, though. She doesn’t try to do business like, or compete with, a coffee corporation: she knows her place, and that place is local.

People buy her product because it’s unique — fair-trade sourced from Colombia, roasted and sold locally, and enhanced with personal touches. It doesn’t hurt, and as I can personally attest to, that it tastes amazing!

What about you? Have you cast aside your business plan because you’re afraid you’ll be overshadowed? Find out what makes your idea, product, or service unique — then capitalize on it.

Tip #3: Ask for help.
Maria shared that one of her biggest challenges was learning to ask for help. Whether it’s asking for advice or direction on how to do something related to setting up your business, or seeking out a business partnership, admitting your own insecurities and inadequacies can be very scary.

If you can get over that, you’ll quickly find there are others who’ve been there before and are more than willing to help. You’ll never learn and grow unless you admit what you don’t know.

When it comes to considering a business partnership, it’s important to draw up a solid business plan and confide in people you trust. For instance, Maria’s business is bolstered by an investment partnership consisting of four close families. Creating a team or business partnership with others who have similar goals but unique talents and resources to bring to the table doesn’t just benefit you, but everyone involved.

Tip #4: Start small, dream big.
Don’t plan to stay at the bottom rung even if you’re starting out there. You’ll be investing a lot of personal time and energy into your business at the beginning, but it’s important to leave at least a little time to dream, market, network, and plan for the future. Know where you want to be, and start laying the groundwork to get there, even it’s as simple as creating a short-term savings goal or investing in your own education and training.

Tip #5: Share your dream.
Lastly, don’t stay quiet. No matter how ridiculous or unrealistic it seems, tell people your dream — what you want to do — and things will start to happen. You never know what connections, resources, wisdom or ideas others might be able to contribute, so don’t be afraid to talk about your dreams of the 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 }

  • info@azenithlawas.com says:

    I started my business last year before this pandemic even started. I have been running it for over a year now and I can say, the journey has been pretty amazing. Even with what is going on in the world right now, a lot of people I’ve helped and that they are considering running their own businesses. I believe that this lockdown, quarantine, downtime that we have, have brought so many realizations in our lives. Realizations that will help us make it possible to live a life in a way how we want it to be lived.

    • David@MoneyNing.com says:

      COVID-19 has been a shock to our lives, that’s for sure. And good thing you are able to encourage people to start their own business these days. Not that it should be the goal, but I’m sure you’ll reap many benefits from those people you’ve helped for years to come.

  • Christie says:

    Didn’t you start this site during the last recession David? I thought I remember you talking about this. Is there going to be another wave of new blogs and sites this time around?

    I want to start a site too but I don’t think the opportunity is there anymore. What do you think?

    • David@MoneyNing.com says:

      I started a little before the last recession, but the recession was when the site took off.

      Opportunities are always going to be there Christie. Instead of thinking about it, why don’t you use the time to just start building a site? What do you have to lose?

  • Chasing my dream says:

    Good timely post. I just started networking to let everyone know that I can create graphics for clients, and the best part is to be able to continue collecting unemployment benefits while I get things going.

  • 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.

    • David@MoneyNing.com says:

      Having fun is key to any successful business. Good luck to your adventure and you will be the one telling everyone about your success story in the next recession!

  • 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.

    • David@MoneyNing.com says:

      There are definitely deals to be had in a recession. Selfishly, I hope the deals don’t last though because that means the economy is back up to full speed!

  • 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.

  • 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

  • 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.

  • 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).

  • 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.

  • 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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