7 Reasons to Start a Business During a Recession

Starting a business during a recession may not seem like a great idea, but in fact it just might be the best time to launch your new venture. Companies such as Airbnb, Uber, and Venmo started during the recession that began in 2008. And years back, Hewlett-Packard, Hyatt Hotels, and Microsoft, among others, started in recessionary times. There are many reasons that economic downturns can be a great time to launch a company, no matter the size. In fact, doing so can offer some long-term advantages.

My partners and I started InfoWorks International, our business consulting firm, during a recession, and it proved to be a fortuitous time to begin. The downturn in the economy motivated our clients to seek out more cost-effective ways to meet their business needs. They were interested in working collaboratively to create new solutions to problems. They had the time and availability to work with us to create something new. Many of our competitors were struggling, and some of them closed their doors. Without a lot of overhead, we were in a good position to make something happen.

There can be many benefits to starting a business in a recession, but here are 7 of them that stand out:

1. 1. Competitors get weeded out: Recessions can mean shuttered doors; competitors may go out of business. During the recession of 2008, about 1.8 million small businesses went under. While that recession was a particularly bad one, any recession means a contraction of economic conditions and a reduction of business activity. In a recession, companies that are just making it must make the tough decision to keep going. Competitors that are on the rails may find their money and energy running out. Cutting their losses, they exit the market. That leaves an open space for your business.
2. 2. Innovative solutions: The adage “necessity is the mother of invention” applies here. A downturn in the economy prompts customers to look for cheaper, better, and more efficient options to meet their needs. Targeting cost-conscious consumers, a business startup can develop a new, niche market or gain market share in an existing market. A good example of this is Airbnb, which was started to offer more availability and lower prices than traditional hotels.
3. 3. Valuable lessons: During a recession, you can learn a lot about what works, and what doesn’t. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.” Companies that struggle or fail during hard times can show us what to avoid in the future. Similarly, companies that thrive in an economic downturn are doing something right, so it’s worth paying attention. Starting a business during a recession allows you to “go to school” by watching what happens to your competitors.
4. 4. Resources: A recession can increase the availability of resources. Companies with overstocked inventory can provide discounts, and you may find more suppliers competing for your business. In addition, it can be easier to find the talent you need for your company to grow. Recently, the pace of job openings is beginning to slow, and some employers are eliminating roles or laying off workers. In a recession, the labor market slows down and there are more opportunities to find the right personnel for your business.
5. 5. Time: It’s called a business slowdown because the pace of commerce decelerates. That “extra” time is a gift that helps a new venture get going, without the frenetic pace of a booming economy. The spoils go to the entrepreneur who knows how to use the time advantage. In our case at InfoWorks, we found that the subject matter experts we needed to develop our products and services had more time to devote to our projects, because business was slow. That was a great benefit.
6. 6. Reduced costs: The services and supplies you need, as well as financing costs, can sometimes be on sale during a recession. That’s because the suppliers you require for your new venture may have cut costs to keep their own businesses going and to attract new customers. When we started our business, a local printing company offered us bargain rates, and it proved to be an immediate cost savings, as well as the beginning of a long-term business relationship. On the financial end, a recession can bring falling interest rates, which means a lower cost of capital for credit-worthy entrepreneurs. Banks may employ more stringent lending standards in a business slowdown, but they are anxious to attract customers with top credit and cash flow. If you qualify, entering the market during a recession can give you access to advantageous credit terms.
7. 7. Collaboration: Sometimes a recession makes it easier to band together to get something done. When we started our business during a recession, we talked to several large companies who were interested in developing training programs, yet needed to manage their costs. By working together, we created products that not only met their needs and saved them money, but served as the foundation for our company over many years.

So while it may be true that there is never a “best” time to start a company, it’s certainly not true that a recession is the worst time—and there can actually be many advantages over the long term.