Eight reasons for launching a business during a recession

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Date: 26 May 2020

A husband and wife smile for the camera as they open their new venture.

It was evident very early on that the coronavirus pandemic would have a seismic impact on the global economy. We have already seen a stock market crash with one of the biggest falls in the Dow Jones Share Index in history. The Bank of England has warned of a looming recession that will be the worst in 300 years. While we wait for the lockdown to be lifted, we are also bracing ourselves for a new era of economic hardship.

But entrepreneurs should not be disheartened. Starting new business always comes with new challenges, but there are still windows of opportunity for those ready to take on the challenge. It shouldn’t be forgotten that household names, such as Whatsapp, Uber and Slack, were founded during the financial crisis of 2008/09.

For all types of business in 2020, technology is an integral part of operations. With a reliable IT company like Mustard IT, business processes can be streamlined and made more efficient at a lower cost. 

1. New opportunities

While some businesses may choose to exploit the opportunities presented by these difficult times, others will launch business ventures with a more sensitive approach.

During the COVID-19 pandemic, social restrictions have meant that the markets for home delivery and online services for entertainment, education and interaction have increased. New businesses may be able to find a niche that would otherwise be unavailable under normal circumstances, then use this time to build and grow a brand. However, during this crisis, consumers are more sensitive to the actions organisations are taking to improve the situation. So startups must provide something of real social value or contribute towards a worthy cause. 

2. Wider range of talent

It is unfortunate that unemployment is higher at times of recession, but the benefit for a new business is the increased pool of potential employees. New staff may be willing to accept lower salaries than usual. And although employees prefer positions offering more security during uncertain times, redundancies and furloughing means that many of these positions will be reduced. Many employees may be prepared to accept a post in an unproven, start-up business at a time when jobs are scarce. So, be sure you establish a clear understanding with these employees.  

3. Access to investment

Investors do not necessarily stop funding small businesses during times of recession and may even be more interested in diverting funds from the stock market to put into a project showing potential. Pitching to potential investors will require a full executive summary and a clear layout of how the business will succeed during difficult economic conditions. Investors will also need to understand such things as your place in the market, your competitive advantage and how your offering is better than your rivals. 

4. Better options for credit

Current government relief initiatives are focussed on helping existing businesses improve cash flow and mitigate their losses during a recession. However, accelerators and incubators can be excellent sources of funding and support for start ups. You might also look to more traditional credit options such as banks who are currently reducing their interest rates in a bid to encourage spending. This is advantageous for businesses starting out that need to take out business loans. Banks may also offer higher credit limits in a time that new ventures are few and far between. 

5. More affordable resources

Another advantage that can be exploited during a recession is the higher number of things that can be sourced at a lower cost. These could include products, equipment or assets that other companies are selling off as a result of the recession. New businesses can look for new partners, suppliers and vendors that are offering reduced rates, which can potentially save on both initial costs and long-term payment deals. When the economy is low there is always the chance to find special rates and deals, so it is a good idea to shop around before making agreements.  

6. Less competition

In more prosperous times, certain markets can quickly become saturated as a result of an abundance of competitors. While competition keeps an economy healthy, an excessive amount of competition can make it hard for small businesses to survive. In a financial crisis, demand may be lower but there will also be fewer businesses entering the market leaving more opportunities for those that remain. Without having to devote time to new competition, businesses can focus on the established players. This will buy some time to familiarise themselves with the market conditions before the economy inevitably returns to form.  

7. Chances for exposure

For entrepreneurs competing in a new market, getting noticed can be a major challenge. In a vibrant, competitive market, attracting the attention of the media and potential customers amid the non-stop industry noise is no mean feat. By contrast, with the economy in recession new businesses have a much greater potential for increasing exposure and building brand recognition. Successful new businesses are easier to notice when the market is supressed, which means they can receive more media coverage than is usual.  

8. Learning opportunities

It is certainly true that we learn much more by overcoming adversity. For this reason, you could find yourself in a better positioned to enjoy the fruits of our labour when the market improves. Naturally, the growth of a new business is likelier to be slower during a recession, but if you can weather this you are well placed when conditions improve. And, the challenges you face now can force you to be more creative and resilient – qualities that will serve them in the long run.

It is no easy task that founders of new businesses set themselves in the middle of a global crisis. But for those with the tenacity to get the job done, the payoffs will come eventually, if not immediately. We all hope that our economy will get through the rough patch as soon as possible, but without parties willing to take the leap, this return will be slower. 

Copyright 2020. Article was made possible by site supporter Zachary Gottlieb

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