Why A Recession Is A Good Time To Start A Company
The Industry Standard:
… A recession is actually a great time to nurture and incubate a small company. Here are reasons why:
1. A recession forces founders to be frugal. Starting a company without a lot of money is an excellent discipline for entrepreneurs and for every early-stage company. While it may feel painful to track every dime, the lessons that frugality teaches are invaluable. Having limited capital leads to creative thinking, healthy deliberation about expenditures, and the need for founders to pay very close attention to cash flow, budgets and balance sheets.
2. Recessions force entrepreneurs to take another close look at their ideas. Incubating a business that is based on a flawed idea won’t work. A great start-up team or a lot of money can lend the appearance of success, but in the long run, a business built on a bad idea will end up standing on shaky legs. During a severe economic downturn, entrepreneurs will be sure to look long and hard at their business ideas before jumping in. A recession will force questions like:
* Will there be a market for this product if customers are cutting back?
* Do I have the capital to get this off the ground without raising VC money?
* Will the product or service benefit users in both good and bad economic times?
These types of questions will force business owners to refine their thinking – and will leave them with more solid ideas and plans.
3. Recessions lead to committed startup teams. A common perception about recessions is that jobs are put in jeopardy. This may not be true, but if people feel nervous about their job security, they probably will not want to leave a comfortable situation – especially for a start-up. But the flip side of this is that anyone who does come to work for a startup will be incredibly committed. A founder will have employees who really believe in his or her vision and products, and/or who love the start-up environment so much that they’re willing to live with the added risk and Spartan conditions. Those are the types of people entrepreneurs need for their teams. More reasons here.
