Why the recession is a good time to start a small business

Over the last few years the news has been full of reports of the recession, rising unemployment and well known businesses going under. So surely only a fool would consider starting a business or going freelance in the current economy, right?

Not according to history. In fact, if you do a bit of research, it seems that a recession is actually a pretty good time to start a business. Here are a few reasons why.

There’s less competition

In boom times, everyone wants to start a business – and anyone with some money to spare wants to invest in one in the hope of getting rich quick.

However, once a recession hits and businesses start folding, people get more cautious. They have less money and confidence to launch new ventures, and there are fewer investors willing (or able) to throw funds at them.

So, as long as you have the funds to do so, starting a small business or going freelance in a recession can be a great idea. You’ll have less competition, and the competition you do have probably has access to less investment.

Big companies are more cautious

Just as a recession makes investors more conservative, big companies often become much more cautious about spending money and expanding. Which creates opportunities for smaller, younger companies that can act more quickly and make bolder decisions because they have less to lose – and more to gain.

So look around and see if you can spot a niche that has opened up or been overlooked, or a service that is not adequately offered by bigger organisations, and work out a way to meet demand and maximise the opportunity.

You can afford to offer greater value

There’s a good reason big companies are more cautious in a recession – they need to turn over huge amounts of money just to keep going.

Every decision they make or process they put into place often involves a long chain of employees, who need an office to work from, and equipment to use. However, as a small business your overheads are far, far lower – especially if you run your business from home.

This means you can afford to make decisions quickly, and potentially offer your services at a lower rate. And a recession is a great time to make the most of that point of difference, especially when the people and companies you are selling your products or services to need to save money too.

You’ve less to lose

When times are comfortable and you have a great job that pays you a secure and generous salary it’s hard to leap into the unknown. But when a recession hits, there is often no such thing as a secure job (or generous salary)!

Which makes it much easier to bite the bullet and give that brilliant business idea you’ve been dreaming about for two years a go.

More opportunities open up

It’s easy to assume that a recession limits the amount of business opportunities available. But in fact it can be quite the opposite.

Many companies that grew rapidly in boom times struggle when money is harder to earn. They may have been built on shaky foundations, without a well-planned structure to sustain them, or simply be based on a poor business model that collapses when tested.

As these companies sadly close, their customers and clients will need to find an alternative business to meet their needs, opening up potential opportunities for you.

Also, governments often make big cuts to public spending in a recession – leading to the closing of local and national services. Again this creates new opportunities for the businesses quick and smart enough to fill the gaps.

Governments offer more support

While a recession may lead governments to make cuts in public spending, it also pushes them to demonstrate practical support for small businesses. They want to be seen helping businesses in tough times – it’s good for the economy and their votes if they succeed.

So look around for programs, incentives, grants and other funding initiatives that may be available to start up businesses or small enterprises – you’ll be surprised at the help you can unearth with a bit of searching.

In addition to national government incentives, it’s also worth searching for other local and national schemes, grants and competitions that can help give a boost to small businesses.

You’ll follow in successful footsteps

Around the world, dozens of familiar (and phenomenally successful) businesses started in tough economic times. They include:

  • Disney
  • Apple
  • Burger King
  • FedEx
  • Microsoft
  • CNN
  • Sports Illustrated
  • Hewlett Packard
  • General Electric
  • Hyatt
  • IBM
  • General Motors

Start making your business a success

So while a recession is undoubtedly tough, it’s also full of opportunities to start a small business or freelance career and make it a big success. What all great businesses seem to have in common is that they were able to identify a need and meet it – a business model you can follow whatever the economy is doing if you’re savvy, quick and brave enough to make the leap.

What’s your experience? Did you start your business in a recession? Are you toying with the idea of starting a new venture? Join the discussion on our Facebook page.