During a slump, the ideal time to start a business is. There is less competition, more inventiveness, and more hungry people trying to start something fresh during a downturn.
So far, the Global Financial Crisis has been the most severe downturn of our lives. I’d just lost 35% of my net worth in six months and was terrified of losing everything. As a result, my thoughts began to shift, and I was finally inspired to start an online business that I had been putting off since 2006!
Is it a terrible idea to establish a business in a downturn?
Your work isn’t done if you’re able to start a business during a recession. You must not only differentiate yourself from competitors and advertise your product, but you must also always strive to improve your products. You’ve made a sale if you’re able to sell something once. When you can continuously provide something that people desire and need, you’ve built a long-term business. By constantly evolving your brand, you can strive to provide value to people’s lives. You don’t need to make drastic adjustments, but you should be constantly analyzing what’s working and what isn’t, as well as anticipating market gaps and developing products to fill them. The finest brands in the world don’t merely release new items for the sake of having something to offer they innovate intelligently, which helps them turn customers into passionate followers.
Is it a good idea to establish a business during a downturn?
The inevitable recession caused by the coronavirus pandemic may not seem like the best moment to consider starting your own business. People will lose their jobs, customers will spend less, and many businesses may go out of business. However, as contradictory as it may appear at first, starting a business in a downturn can have its benefits. Here are five reasons why a downturn in the economy can be the ideal time to start your new business.
Because Other People Will Not
The first reason why a recession is a great time to start a business is because others in your industry will be hesitant to do so as well. Most people become more risk apprehensive during a downturn, thus they are more inclined to put their company ambitions on hold. Because your competitors are hesitant to enter the market, you will be able to gain a footing before they do.
Established Business Will be Struggling
When a recession hits, a well-established company will be prepared for increased turnover. A business that was profitable prior to the recession may now be saddled with large fixed costs that it can no longer afford. A new business, on the other hand, can begin optimizing for the sluggish economy right once. You can start with a leaner, more nimble organization and possibly undercut even larger competitors on price.
Greater Availability of Labor
During a recession, people of all skill levels are likely to lose their jobs, which will increase labor availability and lower the cost of employing workers. As a result, businesses that start up during a downturn will be able to hire higher-level staff at lower salaries than they would have been able to during a boom.
People Will Be Looking for Cheaper Alternatives
Consumers and businesses alike will be looking for cheaper alternatives to products and services during a recession. As a result of your lower operational costs, you’ll be able to undercut established suppliers by offering more reasonable goods.
Being a New Business Will be Less of an Obstacle
It might be difficult to compete against more established competitors when you first start a business. Even if the costs and terms are better, customers are usually hesitant to acquire from a company with no track record. People will prioritize saving money over most other factors now that the economy is in free collapse. Your lack of trading experience will not be a barrier to new sales, as it would be in a rising economy, as long as your product holds up to scrutiny.
Cheaper Supplies
During a recession, everything you need for your new firm will be less expensive. Renting a building will be less expensive, raw materials will be less expensive, and ordinary supplies will be more accessible. In some circumstances, you may be able to arrange long-term supply agreements that will save you money both during and after the crisis.
Get Better Terms from Suppliers
During a recession, you’ll find that suppliers are more willing to negotiate terms, in addition to cheaper pricing. You should be able to negotiate lower minimum order amounts and better credit conditions, for example. When it’s difficult to attract clients, suppliers are more eager to bargain and collaborate with you to achieve a win-win solution.
Cheap Goods Will be Available at Auctions
Auctions will be held to sell the assets of companies that have ceased to operate. As a result, during a recession, you will be able to purchase machinery and office furniture at far cheaper prices than usual. During a downturn in the economy, you could even be able to buy a company outright for a low price. While no one enjoys profiting on the misfortune of others, if you do not take advantage of the assets being liquidated by another company, someone else will.
Borrowing Money Will Cost Less
Interest rates are kept high when the economy is growing to keep inflation under control. During a recession, however, governments and banks will lower interest rates to stimulate the economy. It, if you need to raise capital for a new business, now is the most cost-effective time to do so. Even after the economy begins to recover, interest rates are likely to remain low. As a result, you’ll be able to get low-cost financing for numerous years.
It Makes an Excellent Brand Story
Starting a business amid a recession can bring several chances for public relations and marketing. A story of an entrepreneur who defies the trend and brings a product to market amid a downturn in the economy, for example, would be a hit with the media. Depending on the goods you offer, you may also be appreciated for providing a necessary item at a reasonable price during difficult circumstances. When things return to normal, you’ll be able to tell people that your company was formed during a recession and survived a global pandemic. What a fantastic “About Us” page that would be for your company’s website!
Conclusion
As you can see, a recession could bring less competition, reduced startup and operational expenses for new enterprises. So, if you have a product or service that people will still need in a downturn, now might be the best moment to start your new firm.
What factors influence whether or not a recession is a good time to start a business?
It’s typically tough to grow a business to the point where it pays a living income while we’re at ease. After all, there are backup plans in place, such as getting a job.
When we don’t have as many options, though, we’re more motivated to work more. We’re more inclined to delve deep and develop answers that will help our businesses prosper if letting a firm fail is no longer an option.
Of course, mental drive may be created without a recession but it is the attitudes of entrepreneurs amid economic downturns that allowed companies like FedEx and Burger King to grow so swiftly. They catered to a certain market and offered products and services that clients desired, but the firm founders needed to get the business up and running in order to make a living.
Motivation may help you go from your early enthusiasm for your new business, through the hard work required to get any new enterprise off the ground, to the point where it is successful. It will not be simple to achieve success, but it is possible.
2. You Have a Better Chance of Getting a Better Deal
One of the most significant concerns when beginning a new business is whether or not you will be able to raise the necessary funds to commence the project you want to work on. While the expenses of launching many different types of small businesses have decreased considerably over the last three decades, a recession makes them even more affordable.
If you go to the vendors you want to deal with now, they are more likely to be willing to negotiate on their rates than if you went to them during a boom period. From manufacturers to marketers, everyone is prepared to talk about special recession pricing if only to ensure that money is coming in. Make sure you’re getting the most out of it.
Of course, there is a drawback: despite decreased prices, you are unlikely to boost your profit margin. However, depending on the contracts you’re willing to sign, you might be able to lock in lower prices for a long time.
Other issues can be discussed, such as when you will pay for the services or items you require. A startup business’s cash flow is frequently a worry, necessitating the use of a loan to meet initial expenses. You can lower the amount of money you need to borrow by deferring even some of those charges until you have money flowing in (something more vendors are prepared to negotiate lately).
Because your startup expenditures are lower, you won’t need to produce as much money to support both the business and yourself. That benefit can mean the difference between needing a job or another source of income to sustain yourself in the short term, as well as when your business becomes profitable.
A job is not always easy to find by these days, therefore it’s critical that a new firm becomes successful as soon as feasible.
3. You’ll be in good shape for a long time.
Many businesses are currently seeking for methods to save costs and slash their budgets. If you’re beginning a firm now, you’ll need to be careful of costs and keep them low but you’ll have the chance to start from the ground up and develop a strong foundation.
Companies that are founded during prosperous economic times may struggle to determine which of their expenses are genuinely necessary: if you’ve never done business without an expense account, it may seem impossible to continue doing company after you’ve lost one.
A business that starts out lean, on the other hand, will have a better picture of the future. Your firm may expand in the future, allowing you to add more benefits, but you’ll always know what’s actually needed to manage the business.
When the next recession hits, you may not even need to cut your business’ budget: a lean operation will be able to weather the storm. You can even discover new ways to do things that aren’t obvious to those who are looking at a tried-and-true company model.
Still Not Convinced? You Might be Plagued by These Myths About Starting Your Own Business
1. Starting a business requires a large sum of money. FALSE! We’ve already discussed how a recession can substantially reduce your costs, but depending on the type of business you launch, you may be able to get started with no money down. Work with what you’ve got and enhance when your budget permits. To start a business, you don’t always have to go into debt.
2. You lack the necessary skills to start and run your own company. FALSE! The vast majority of people has valuable skills that can be converted into a business. Sell handmade greeting cards and invites if you’re crafty. Do you have exceptional grammatical abilities? Tutoring children or proofreading term papers for college students are two options. Do you enjoy painting? Offer your talents to folks who are refurbishing their houses, or approach your local church about painting the homes of senior parishioners for a fee. Do you enjoy reading? For a publishing company, write book reviews. Do you have access to a computer? As a virtual assistant, you can try out freelancing work. Houses that are clean. Weeds should be pulled. Reports should be written. On eBay, you can sell items. Find something you’re good at and work toward getting paid to do it. There are numerous strategies to increase your income.
3. I should spend my time hunting for work rather than launching a business. FALSE! While working for yourself, you can still hunt for a day job. You’ll make enough money to get by until a day job comes along, or you may discover that you like being your own boss. Instead of going all out, freelance. When your schedule requires a lesser load, team up with people in a similar field to assist balance your burden. It is possible.
4. I’m unable to work because of health issues. FALSE! You can work if you have a high enough IQ (i.e. if you’re reading this). My friend’s body was horribly disfigured to the point where she could only move her head. She was in constant agony and required assistance to care for herself, but she went to work every day! With the use of a headset and a motorized wheelchair, she acquired two college degrees online and worked as a customer service representative. You have no excuse if she can work. You don’t have to feel helpless at home.
This week, I got the opportunity to speak with a small business owner from my neighborhood farmers market. She started a coffee roasting firm three years ago, sourcing beans from Colombia, her home country and the region where her family has been growing coffee for centuries.
Her tale is inspiring for a variety of reasons, but it also provides practical advice on what it takes to run a small business. I’d like to offer a couple of takeaways from our discussion.
My aim is that those of you who are just getting started with a small business can gain useful information and support from someone who has been there before.
Maria’s company idea is based on her education, career path (she studied agricultural engineering), and family tradition. In other words, she began with what she is familiar with and enjoys.
Personal positioning geography, business contacts, social ties, and so on may be added to this mix as well. Your small company idea should come from the intersection of your inherent skill, experience, training, and possibilities. This is also where you should begin your groundwork.
Starting a coffee roasting business in the city that is famed for being the birthplace and global headquarters of Starbucks is not for the faint of heart. Maria, on the other hand, was unfazed by the intimidation. She doesn’t try to compete with, or do business like, a coffee corporation: she understands where she belongs, and that spot is close by.
People buy her product because it’s one-of-a-kind: fair-trade Colombian coffee, roasted and sold locally, with personal touches. It doesn’t hurt, and it tastes fantastic, as I can personally verify!
So, how about you? Have you put your company strategy on hold because you’re worried about being overshadowed? Discover what makes your concept, product, or service stand out, and then profit on it.
One of Maria’s hardest obstacles, she said, was learning to ask for help. Admitting your own concerns and weaknesses can be frightening, whether it’s seeking guidance or direction on how to do something connected to starting a business or seeking a business partnership.
If you can get past that, you’ll quickly discover that there are others who have been in your shoes and are eager to assist. If you don’t admit what you don’t know, you’ll never learn or progress.
When establishing a business partnership, it’s critical to have a good business plan and enlist the help of people you can trust. Maria’s firm, for example, is supported by an investing partnership made up of four close families. Putting together a team or commercial partnership with folks who share your aims yet have unique talents and resources to contribute benefits not only you, but everyone involved.
Even if you’re just starting out, don’t count on staying on the lowest rung. You’ll be devoting a lot of your personal time and energy to your business at first, but it’s critical to set aside some time to dream, promote, network, and plan for the future. Know where you want to go and begin establishing the groundwork to get there, even if it’s as basic as setting aside money for a short-term goal or investing in your own education and training.
Finally, do not remain silent. Tell people your dream what you want to do no matter how stupid or unrealistic it looks, and things will start to happen. Don’t be scared to talk about your company aspirations since you never know what connections, resources, wisdom, or ideas people may have.
Don’t Let a Recession Stop You
At least in terms of entrepreneurship, any position in the economy’s ongoing cycles has advantages and disadvantages. However, just because we’re in a recession doesn’t mean now isn’t a good time to start a business.
If you never considered starting your own business until the economy began to falter, now may not be the best time to do so the more time you have to plan a business, the more likely it is to succeed but if you have done your research and know what it will take to get your new venture off the ground, don’t wait.
It’s not simply specific types of businesses that will thrive if you launch them now. While it may appear that consumers are less willing to spend money on entertainment and other frivolous expenses during a recession, any type of business can thrive provided it has a strategy to generate revenue.
Even MTV was founded during a recession, proving that if you can find a market willing to pay for your product or service, you can succeed regardless of the status of the economy.
What businesses thrive during a downturn?
What types of businesses thrive during a downturn? Essential services, such as health care, senior services, grocery stores, and maintenance, such as plumbing and electrical, frequently prosper during a recession.
Is now a good time to start a company?
Due to the epidemic, several businesses that were off to a promising start in 2020 have had to close shop. Others who managed to stay afloat are only now rethinking their strategies. This creates a massive market gap and numerous potential for companies to flourish. Entrepreneurs prefer to establish firms when the economy is booming, and few will see 2021 as the year to do so, since the world is still recovering from a pandemic that wreaked havoc on most countries. Having fewer competition means having one less item to worry about for entrepreneurs.
Consumers are more attached to their gadgets than ever before, and online consumption is at an all-time high. Since the epidemic began in 2020, e-commerce has increased by roughly 40%. To avoid being exposed to the coronavirus, consumers increasingly choose to order whatever goods or services they can. Many offices have gone, and more people are working from home and using online tools than ever before.
Is it possible to establish a business in 2020?
If you’re considering expanding your company, 2020 is an excellent year to do so. Interest rates on small company loans have remained low, and the Federal Reserve has no plans to raise them in the coming years. This means that loans have become more affordable for the majority of ordinary Americans.
Many lenders are now offering refinancing options, which might help you save even more money. Many student loan payments have been paused as a result of the COVID-19 issue, flats have offered free rent for a few months, and scholarships have been made available.
With more money in your pocket, you may be able to use the extra cash flow to invest in your company.
In a downturn, how do you make money?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
A recession favours whom?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time purchasers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
What is a recession-proof industry?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.
How do small businesses fare during a pandemic?
COVID-19 is wreaking havoc on the global economy, and it’s a pandemic that’s causing massive disruptions to people’s lives and livelihoods, as well as social and economic systems around the world. According to several assessments, this is the worst worldwide disaster since World War II. This virus is extremely contagious, and it has spread inexorably to every corner of the globe. COVID-19 is a major public health emergency, but it’s also a lot more. It’s a systemic shock with far-reaching consequences in the short, medium, and long term. This virus has caused a significant short-term economic downturn, closed numerous businesses large and small, displaced tens of millions of people, and has additional repercussions on commercial activity. Small and medium businesses around the world can and should play a critical role in preventing unemployment, poverty, and food insecurity rates from increasing at any moment.
Small businesses are the backbone of any economy, and their protection has never been more crucial than it is now, thanks to COVID-19’s global impact. Since the first pandemic case was discovered in Ethiopia, the government has taken a number of broad health and economic measures to limit the disease’s impact. Small firms, or small and micro enterprises as the lingo goes, have been gradually rising for the past decade or so, and have been recognized by the government as an engine for economic growth and job creation. However, in the face of the coronavirus epidemic, most of these businesses will struggle to survive in the current climate for more than five months, according to an Ethiopian news agency (2020).
According to the UN Ethiopia (2020) assessment study, Sub-Saharan Africa (SSA), including Ethiopia, is unlikely to escape the pandemic’s direct and indirect repercussions, as well as the global crisis that follows. While COVID-19’s trajectory in the region is still in its early phases, the effects of growth elsewhere are already being noticed. To build an appropriate and successful policy and programmatic response, whether at the country, regional, or global levels, it is critical to assess the scale, type, and depth of social and economic repercussions. As a result of COVID-19, Ethiopian small businesses experienced significant hurdles. The macroeconomic and development situation was difficult, as evidenced by slowing but still strong growth, the risk of debt distress, low levels of domestic resource mobilization, high inflation, high unemployment, particularly among youth seeking opportunities in an economy with high levels of informality, low forex reserves, and significant pressure on the Birr exchange rate. Conflict, loss of life and property, and 1.7 million internally displaced persons have resulted from social unrest sparked by long-standing grievances that may now be addressed in a more open civic and political context (IDPs). MSMEs are important not just for creating employment possibilities, but also for contributing to the country’s socioeconomic growth, particularly as facilitators of the transition to an industrial society. Among the many lessons learned from this epidemic is the necessity to modernize the economy, which includes assessing the small business sector and identifying both the formal and informal sectors at the sub-city level in the country, as well as the small companies themselves. While some businesses are taking steps to protect their businesses or putting their expansion plans on hold, others, such as those that have switched to producing hand sanitizers, facemasks, and other preventive materials, are pivoting to other branches by gauging local demand even as an opportunity.
According to Fairlie (2020a), due to COVID-19 regulations and health- and economic-driven demand shifts, the number of working business owners fell from 15.0 million in February 2020 to 11.7 million in April 2020. The highest reduction on record was 3.3 million active company owners (about 22 percent). The losses are significantly greater when conditioning on working around 2 days per week or 4 days per week (28 percent and 31 percent, respectively). The total number of hours worked by all business owners has decreased by 29%. Despite the fact that incorporated enterprises are more growth-oriented and solid, they had a 20% dip from February to April 2020. According to the statistics, there was a partial rebound from April 2020 levels in May, as well as a second rebound in June. From February to May 2020, the number of active business owners rebounded by 7 percentage points, resulting in a 15% decline in business activity, and an additional 5 percentage points rebound in June, resulting in an 8% drop in company activity.
The researcher was motivated to perform this investigation because of the aforementioned problem statements and the absence of sufficient findings in the associated domain. As a result, the study will fill information and other gaps, such as those created by current international research with inconsistent outcomes.
Small business challenges to adapt to the ongoing crisis
Small businesses coming online is one of the major trends to develop during the COVID-19 epidemic, and it opens up new options to handle a variety of problems. Indeed, the internet has proven to be a lifeline for many small enterprises, allowing them to stay afloat during the pandemic.
According to Facebook’s analysis, 23 percent of firms used digital ordering tools, 16 percent used service delivery tools, and 37 percent used digital payment tools in the 30 days before to the survey’s fieldwork. All of their sales are conducted online, according to 36% of operating personal firms that use online technologies. During COVID-19, however, we saw many small businesses find innovative ways to prosper, from expanding into new markets to finding new ways to offer their goods and services. Simultaneously, huge digital firms such as Facebook and Google are developing new ways for small businesses to engage with their customers.
Even when firms remain open, people face financial hardships as a result of lost jobs or less hours worked. It’s crucial to remember that when a business fails or needs to lay off employees, it affects entire communities of people who rely on job income to support themselves and, in turn, support other businesses and organizations in the area.