in Startups

Use a Recession to Create an Edge

Many would-be entrepreneurs would not consider starting a business in the middle of a recession. Understandably, it is a very scary time to begin a venture. Startup capital is low and customers may not be able to afford the products or services you have to offer. On the surface, being an entrepreneur during a recession can be a bone-headed idea.

True entrepreneurs know to look past these images and know that there are no absolutes in business, only perceptions. There may be risks in an unstable economic climate, but there are also opportunities that may not have existed otherwise. This is why more new fortunes are created during times of crisis. During the Great Depression, more new fortunes were created than in any other time in history. See the article Great Depression Millionaires for more information.

Why can it be better to create a venture during a recession? First of all, recessions level the playing fields. During favorable economic conditions, larger companies retain market share in their industry, making it harder for new businesses to come into the game. When the economy goes into crisis, entrepreneurs can come in and serve the customers who have been abandoned or are looking to change services.

Secondly, it is easier to purchase new products or services at cheaper prices. Of course, it is also harder to raise capital, but entrepreneurs who already have capital to invest or have a means to acquire it may find that starting a business can be done more cheaply than before. It is easier to make a high return on an investment, especially when the economy begins to recover.

The rules of engagement change during a recession. Too many entrepreneurs think the only way to succeed is to offer cheaper products or services than competitors. In practice, this has not been an effective business strategy because these companies end up competing on low profit margins and are unable to survive indefinitely. The truth is, during a recession customers are not looking for cheaper products. They are really looking for those that are going to provide them with the highest return on their investment in the long term.

Don’t be discouraged in a recession. There are plenty of opportunities if you have the right attitude.