Given the state of the U.S. economy, who would think of starting a new business? Actually, it’s a better time than you might think.
The timing of a business startup doesn’t seem to be a factor in whether the enterprise will survive or fail. According to the statistics, it doesn’t matter much to startups if the economy is in a recession, even though we might think that it would.
That’s good news for some newbie entrepreneurs, especially those who are starting up new businesses because they feel that they don’t have any other options.
A cheerful supermarket checker recently provided an interesting and useful perspective on decision-making. After a brief discussion of the discouraging economic news, she said she was feeling relieved. She said that she had been struggling with the decision of whether to retire or work for a few more years – but now that Wall Street had made the decision for her she just felt happy to have her job.
Sometimes, even for the most steely-eyed decision makers, it comes as a relief when somebody else makes up our minds for us.
You may be thinking about starting a new business because you don’t like the look of the job market— or the job market doesn’t like the look of you. It may be because running your own business has been your lifelong dream and you now see an opportunity to fill a market niche. Whatever the reason, your startup plans shouldn’t be discouraged by the recession.
Actually, there are some advantages to starting a business during an economic slowdown or recession.
The biggest reason is that a recession “presorts” entrepreneurs. There are those who have put together the necessary financing, and those who simply imagined that a bank was going to lend them the money. Startups can forget about bank loans. These days, even loans guaranteed by the Small Business Administration are scarce enough to qualify for endangered species protection.
In general, recessions eliminate a lot of startups based on borrowed money. And since borrowed money raises the risk of failure, the change in the lending climate probably helps startup entrepreneurs.
More generally, recessions tend to force entrepreneurs to do some things more carefully – especially things like planning, negotiating, problem solving, and thinking things through that might have been done carelessly or not at all in a better economy. And we know, from the statistics, that good preparation raises the probability of success and lowers the risk of failure.
Everything changes in a recession…but everything doesn’t come to a halt. From a business startup point of view that is an important thing to remember. Recessions create market niches, too, often giving traction to smaller, lower-cost firms. The giant stock brokerage firms, for example, can no longer credibly claim superior knowledge and market wisdom, and that will provide opportunities for smaller, more efficient entrepreneurial businesses.
Recessions force business startups to prepare financially for a “cold start” – that the business will be running rough for at least a few months and maybe even longer. Entrepreneurs starting their businesses in a recession need a stronger balance sheet than they would in happier economic times. Having the capital and cash needed to cover the early months lowers the risk of failure. In fact, it often gives an enterprise the kind of confidence that will itself attract customers in a time of doubt and uncertainty.
Another advantage that recession startups have is in the costs and “fit” of the space they need. Commercial landlords are much more willing to discuss appropriate lease terms in a recession than in boom years.
Generally speaking, brand new commercial buildings are not your best source of flexible deals. You would think that a vacant new building would be hungry for tenants, and they are. Most often, though, the financing arrangements for the buildings place strict limits on the terms of the lease, making them less flexible, less negotiable, and generally less than ideal for a startup.
Startup entrepreneurs should definitely explore the sub-lease market, which can often be the source of lower-cost, relatively short-term leases. The important thing is to make sure that the leased space, and its costs, fit your business plan.
Financing can be more difficult to obtain in a recession, depending on how it has affected your own resources as well as those of family members and potential partners. This recession, though, is characterized by a lot of cash being held, so many individuals are in fact looking for a way to invest in something they understand, a local business run by someone they know.
Recession or not, if your startup is a good business, you have the financing, and you have done your homework, go for it.
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