Recession is a natural part of the business cycle. Whether a stock market recession or an overall economy recession, the end result is the same – businesses need to respond quickly and effectively in order to survive and thrive during an economic downturn. Small businesses in particularly are vulnerable to fluctuations, in any market, and have been shaky since before the recession began, according to a report by Euler Hermes, part of the German insurer Allianz. Statistics about small business failure and success can vary from source-to-source because of the many different definitions and types of small businesses worldwide, but those from the Small Business Administration show that two-thirds of new small businesses in the U.S. only survive two years, with just 44 percent surviving four years, regardless of any problems with the economy.
As business owners scramble to stay alive, it’s worth keeping in mind one important thing: we’ve been here before. And on a positive note, recessions have occasionally proven to be great opportunities for those starting new businesses. Many big companies in every industry – like Hyatt, Burger King, MTV, Trader Joe’s, FedEx and General Electric – all started during sour economic times. Below are five big reasons a bad economy equals big opportunities for small businesses:
Recessions encourage entrepreneurialism. Many people believe that recessions encourage the very spirit of entrepreneurialism because there is not as much to lose. Large numbers of workers lose their jobs when the economy goes south and decide to finally take their the leap of their dreams – starting their own businesses. Paul Kedrosky, senior fellow at the Kauffman Foundation – which published a study in spring of 2009 about business start-ups and the recession – stated, “Entrepreneurship is about innovation, but it’s also about scarcity… and there’s no better way to weed out the wimps than with a depression or recession.”
During a recession, we see lower overhead … and lower prices. When the economy goes down, everyone wants to cut costs. You can keep your overhead lower than established businesses and offer services at a lower price.
High unemployment can help you find great employees for less. In a recession, people too good to be let go are being let go. You will have a lot of potential candidates to choose from as you look to staff your own company, and they will be willing to work for less than under normal circumstances.
An economic downturn weakens your opponents. Because of the recession, your competitors are weaker than usual. They may also even be closing up shop and selling out or deciding that a bad economy means the time for retirement is nigh. Regardless, everyone will be tightening their belts. You might find a very lucrative niche for yourself if changes in your marketplace causes significant holes to develop.
Everyone loves a sale. When the economy goes south, people lower prices. This means small businesses can get a lot of supplies at a discount because suppliers need revenue any way they can get it.
If you start a small business during the recession and manage it very carefully, as well as take advantage of every opportunity that presents itself in your specific industry, you will be well prepared to weather the storm and become more profitable as the economy recovers.