Recession Coming? 10 Reasons To Start A Company In A Downturn - Forbes

Recession Coming? 10 Reasons To Start A Company In A Downturn - Forbes


Recession Coming? 10 Reasons To Start A Company In A Downturn - Forbes

Posted: 11 Mar 2020 10:24 AM PDT

The economic dislocations and loss of life caused by the coronavirus are heartbreaking and will get worse, before they get better.

No one knows the ultimate economic impact of the coronavirus. However, it seems nearly everyone believes a global economic reset is upon us. The current 128-month expansion cycle of the U.S. economy is a record breaker, exceeding the 120-month, 1991 – 2001 economic boom. However, if you are considering starting a business, keep in mind that economic downturns offer startups certain advantages.

Market Timing Is Hard

Determining the perfect moment to enter the startup market, whether by creating a company or joining an ongoing venture, is akin to attempting to time the financial markets. According to financial columnist Daniel Solin, "One large study looked at more than 15,000 predictions by 237 market timing newsletters over a 12-year period. At the end of the period studied, 94.5% of the newsletters went bust."

Economic conditions periodically create headwinds and tailwinds, but it is impossible to accurately time such exogenous factors. It often comes down to personal factors when determining the "right" time in your life to launch a venture.

Ten Startup Advantages During An Economic Downturn

1.    Survival Is Winning

It may sound counter intuitive, but the greater constraint investors place on their financial resources during a downturn, the better your chances of success, if your venture can self-fund, secure friends and family money or generate adequate revenue from its customers. You might grow more slowly than if you had institutional capital, but if you can weather the downturn, you'll be well positioned to reap the rewards of the next economic expansion.

Marginal ventures that might be funded in a vigorous economic environment will not attract sophisticated investors' time, attention or money in a downturn. Fortunately, this reality results in valuable resources being applied to a fewer number of viable opportunities.

2.    Hard Knocks University

"You can learn very little from victory. You can learn everything from defeat." Christy Mathewson, Professional Baseball Player

Mr. Mathewson was correct. Victory usually satisfies, but it seldom educates. Successful entrepreneurs learn far more from setbacks than they do from successes beget by riding out upward economic trends. Economic headwinds require you to be more creative and wily, thereby enhancing your problem-solving toolkit.

Elbert Hubbard, a 20th-century writer, once said, "A failure is a man who has blundered but is not capable of cashing in on the experience." Blunder away but be sure to learn from each setback. Rising with the tide requires little effort, but it seldom positions you well for the market's inevitable vagaries.

3.    A Loyal Team With Great War Stories

"The only thing that overcomes hard luck is hard work." Harry Golden, U.S. Newspaper Publisher

Adversity brings teams closer together. Behavioral scientists have proven that the more arduous your collective journey, the stronger your team's cohesion. For instance, Elliot Aronson and Judson Mills' 1959 study confirmed that the more adversity a person endures, the greater value they associate with the experience and the higher their degree of loyalty to the team with whom they shared the challenges.

Aronson and Judson concluded that, "…persons who go through a great deal of trouble or pain to attain something tend to value it more highly than persons who attain the same thing with a minimal effort." As such, a startup team that faces a variety of rigors, before it succeeds, is likely to have a high group affinity and a resulting low turnover rate.

4.    Take A Dip In The Brimming Talent Pool

"If you think hiring professionals is expensive, try hiring amateurs" Unknown

One upside of an elevated unemployment rate is an increase in the overall size and quality of potential employees, coupled with downward pressure on recruiting costs. New hires in a depressed economy also tend to be more willing to accept below-market salaries in exchange for solid benefits and equity-based compensation.

Market uncertainty also tends to reduce the number of wantrepreneurs, as they are generally more reticent to join a startup when their path to riches is less certain. However, a recessionary market also generates a surplus of big company refugees. Such individuals are often desperate and willing to talk themselves into nearly any position that will pay their bills. Although you might get lucky and identify an entrepreneurial star, be wary of hiring folks who've been laid off from large organizations.

5.    Above The Crowd

"Why march to the beat of your own drummer when you can skip?" Dave May, Professional Baseball Player

Every entrepreneur who has competed in a vibrant market knows that one of the biggest challenges is getting noticed. As the overall industry noise mounts during a boom cycle, it becomes increasingly difficult to attract the attention of journalists, investors, potential customers and would-be partners.

In contrast, success stories are novel in a down market, which generally results in meaningful exposure for those startups which succeed. At Expertcity (creator of GoToMeeting, acquired by Citrix), we received pervasive media coverage as a contrarian success story during the depths of the dot-bomb crash. Although it can be more difficult to extract money from customers' wallets in an economic downturn, the overall decrease in market activity makes it easier for emerging companies to cut through the clutter and tell their story. 

6.    Match Value Prop With Market Realities

"A bend in the road is not the end of the road... unless you fail to make the turn." Unknown

Some startups are well-matched to succeed in economically challenging markets. However, even if your venture is not ideally suited to a market slowdown, you may be able to modify your company's value proposition to conform to the realities of the market. For instance, a product that enhances productivity can be sold as a revenue generator in an "up" market and as a cost saver in a "down" market.

Selling a cost-saving solution is more difficult in a robust market, as greater value is placed on making money when times are good, as opposed to saving money. However, when survival becomes an immediate goal, products that help companies weather near-term economic storms become especially attractive.

7.    Customer Dollars Taste Great

"Money is plentiful for those who understand the simple laws which govern its acquisition." George Clason U.S. Financial Author

In flush times, startups tend to raise too much money. An excess of capital is often driven by VCs who prefer to stuff as much money as possible into the deals they like. Ventures with excess capital often dither, attempting to craft an ideal solution. In contrast, when wily entrepreneurs are faced with a precarious bank account, they quickly iterate on a minimally viable product, thereby avoiding an over-engineered solution.

Sophisticated entrepreneurs understand that the ideal source of capital is from customers' wallets, not VCs' Limited Partners. Not only does such revenue validate the startup's value proposition, it results in zero dilution. The sooner you generate customer revenue and internalize customer feedback, the shorter your path to self-sustainability.

8.    Phoenix Effect

"If you want to succeed, double your failure rate." Thomas J. Watson, Founder, IBM

A firm that survives an economic nuclear winter is better positioned to take advantage of an economic uptick, as opposed to a startup launched during an economic turnaround.

This was the case with Computer Motion (NASAQ: RBOT, sold to Intuitive Surgical). We entered the medical device market in the midst of a recession. We addressed the market realities by leasing our surgical robots, rather than following the conventional path of selling them outright. We then sold the leases to a finance company, which generated cash to pay our bills, while allowing the hospitals to acquire the robots for a relatively small monthly fee.

If we had stayed on the sidelines, waiting for less market uncertainty, we would have lost the opportunity to file the landmark medical robotic patents that eventually motivated Intuitive Surgical to purchase Computer Motion for approximately $150 million.

9.    Measure Thrice, Cut Once

"Failure to prepare is preparing to fail." John Wooden, U.S. Basketball Coach

That is correct, do not measure twice – measure thrice. A market downturn slows the velocity of everyone's efforts. This does not give you a license to only work 10-hour days and take off both days every weekend. However, it does afford you the luxury of some deliberation, which is often more challenging to employ during periods of economic frenzy. A heightened degree of thoughtfulness will reduce costly mistakes, such as bad hires, pursuing multiple, disparate markets simultaneously, crafting one-sided partnerships to gain media exposure and making inefficient marketing commitments.

10.  Bargains Galore

"The bargain that yields mutual satisfaction is the only one that is apt to be repeated." Unknown

Top talent is not the only resource you can economically acquire in a downturn. Nearly everything you need to fuel your business will cost you less when times are tough. An entrepreneur's two most valuable resources are her time and money. A down market results in a much higher propensity for companies to negotiate below their list prices and to even barter for in-kind services. Such markets allow you to creatively craft deals that reduce your costs and conserve your cash.

If your business model is predicated upon a significant marketing spend, a depressed economy can be to your benefit, as publishers are generally willing to heavily discount their perishable ad space.

Pollyanna Need Not Apply

Salmon live most of their lives swimming with the current; however, once they reach reproductive maturity, they make an arduous journey upstream, often jumping up waterfalls, in order to reach the spawning grounds of their birth. Salmon begin their journey when their biological alarm sounds, irrespective of exogenous conditions.

This is the mindset would-be entrepreneurs should have when deciding the right time to jump into a startup. If you wait until macroeconomic conditions are ideal, you may find that your personal situation is no longer suited to either starting or joining an venture.

In the startup world, there is always an upside to an economic downturn. Adversity translates into opportunity for those willing to swim upstream and not wait until the tide turns. Go ahead and jump in, the water feels great.

How starting a small business helps build your future - IrishCentral

Posted: 01 Apr 2020 07:34 AM PDT

The future is something every student, parent, and working individual thinks about. Prices of necessities keep going higher, and the standard of living also goes along the ride. It cannot be helped that one has to think about where they will be in the next five to ten years. 

Perhaps, you are currently employed and you think that you have a stable job that you get to keep forever. Unfortunately, nothing is certain even with big companies and businesses. 

Last 2019, over 8,000 chain stores have closed in the US alone, and that's around 3,000 more than in 2018. That same year, auto company Ford announced 12,000 job cuts by 2020 to save about hundreds of millions in US dollars. With these pieces of information, you really have to wonder whether or not you are secure in your current position.  

Starting a small business

If the above statistics got your attention, you may start to think about what you can do to secure your and your family's future. Time and time again, one idea that proves to be helpful in starting your own small business. Perhaps, it is a big leap from the usual tasks you're used to doing. However, allowing yourself some quiet time to reflect on the advantages versus the cons will help you decide on taking a chance. 

Here are ways how starting a small business can help build your future:

Allows you to have full control over your life's direction

Starting a small business means you have every right to decide what it should be all about and who your target customers will be. It is also up to you to set your working hours and decide how much you want to earn. You can control the entire process without having to sacrifice anything in your life, thus helping you steer your life to a kind of future you've always wanted for you and your family.

Generates steady cash flow

Do you feel that your job is limiting your income potential?  The primary reason why employees strike out on their own and seek greener pastures is to earn more money than they are currently getting. When your salary is not enough to sustain a growing family, it is only natural to change careers or start a business of your own.

However, it would be best if you keep in mind that along with starting a small business means making smart financial decisions. You must first consider how much you want to earn and how much time you are willing to give. In addition, you may use tools or apps, such as Wave, that will help you manage and track your expenses, sales, and revenues.

When you are handling your business well, you are better assured of steady cash flow from your small venture. In time, you will have enough to live the life you want without worries.   

Shapes you to become an expert in your field

Starting a small business allows you to form the right questions, make the right moves, and improve your problem-solving skills. Suddenly, you know how to do your taxes, keep licenses updated, and follow regulations and laws related to your small business. The said skills can eventually make you an expert in your field. When you are an expert, you can approach problems in a systematic manner. 

Furthermore, you learn from various trials and errors, and you apply what you learn along the way. Yes, you may make mistakes, but you learn not to sulk over these failures; instead, you find solutions immediately so you can and move on and deal with other important matters.

Being consistent with your professional ways produces excellent results, as well as products or services that people want and need. Because of this, they eventually learn to trust you and your brand, thus gaining more loyal customers. The bottom line of all this is that your expertise is vital to the longevity of your business and its ability to continue earning revenues, thus giving you and your family better financial security in the long run.

Exposes you to more networking opportunities

By having a business, you become exposed to people who may have specific skills or enterprises that could be beneficial to the growth of your small venture. Other small business owners are also likely to contact you for a project or a collaboration. Small businesses who help each other have a more substantial chance to survive the competitive world. 

Here some of the advantages of networking for your small business:

Building connections leads to finding the right people with whom you can have collaborations or partnerships for a long time. These are like-minded people who share the same mission and goals as yours. Making such connections is also a way of making friends. When you are friends with the people you do business with, the business becomes more fun. It not only helps the growth of your business, but you also gain more positive people in your life who will be around for years to come, through thick and thin.

Networking gives you a chance to stand out and get noticed by the right people. When you offer your best products and services, they will, in turn, put out a good word for you. This way, you are able to gain more customers.

Being at the right place at the right time, such as events for entrepreneurs, allows you to meet other business people who are already veterans in their field. These individuals are fountains of information who may be able to share tips, tricks, insights, and constructive criticisms that you can apply to your own small business.

Surrounding yourself with people who encourage and empower you is also a confidence booster. They uplift and share positive messages that will inspire you to keep doing what you are doing. When you feel good about yourself and your business, you keep going and do anything that will benefit your thriving business.

Enables you to minimize loans and pay off debts

Are you having trouble making ends meet?  Do you often take small loans with hefty interest rates?  A small business can keep you from living off on loans, allowing you to live a debt-free life.

Managing your business well to keep you earning continuously will help you avoid signing contracts to get loans. You must also exercise self-discipline and control your spending habits, especially if being a spendthrift is the reason for your constant need for cash. 

Remember that it also takes money to make money, and your business needs it for operational costs. A fraction of what you earn is also for your family's needs, insurance, savings, and retirement. If you have debts, your business will also help you pay them all off, that is, if you learn to make sound financial decisions. 

Hones your creativity

Do you work nine to five in the office for a pencil-pushing position?  When you start a small business, you take on multiple roles. You are the one to brainstorm ideas, market your offerings, and make necessary changes to your products and services to make them more useful to your customers.

By having a small business, you get to improve your creativity. With this, you're able to come up with various solutions to different issues affecting your business. Creativity is also what enables you to move swiftly and effortlessly within a competitive environment. It inspires innovation and challenges your way of thinking. If you want your business to keep thriving, it is essential to make changes and adapt to them.

Moreover, a creative business person can accept multiple points of view. They can also reimagine concepts that will keep customers interested in their offerings.

You become a better decision-maker

Your decision-making skills are of the essence when you are managing a small business. Unlike large companies with processes and protocols, you are the sole driving force behind the management. Unfortunately, not all small business owners get the chance to receive training on how to handle business operations on their own. But, this doesn't mean that you can't help improve your decision-making skills.

By having a small business, you learn to identify a specific core problem and gather all the necessary information relevant to it. You learn to list down your options, as well as the pros and disadvantages of those choices. From there, you will be able to anticipate the consequences, both good and bad. Through this, you're able to become a better decision-maker, which will not only positively impact your business but also your life in general.

In conclusion...

For a regular employee who worries about the future, starting a small business is the way to go for several reasons. It allows you to have full control over where you want to go in your life and generates a steady cash flow, but only if you manage your finances well. It also enables you to build connections with like-minded people and veterans in the industry to which you belong, as well as shape you into an expert in your chosen field. Furthermore, by having a small business, you get to improve your creativity and decision-making skills. All these things contribute to better financial security and a more flourishing future for you and your family.

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