You may be tired of hearing about the recession: layoffs, bailouts, and retailers' holiday struggles have dominated the headlines for months. Here's a positive side to the struggling economy, though: startups and small businesses can take advantage. According to the US Small Businsess Administration, the last two recessions were good times for startups – here are some reasons why.
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Availability of resources
Two of the main requirements for a startup business are cash and skilled employees. While the ongoing credit crunch has made it extremely difficult to get money through loans, small businesses typically rely on two main types of funding that are not directly impacted: self funding and venture capital.
Self-funded startups use the employees' own funds, credit cards, or personal loans to get started. Venture capital firms invest in startups only after careful research into the business plan and products and services offered. Both of these funding sources are still viable during recessions.
And as larger companies lay off skilled workers, finding qualified employees becomes easier for startups. In fact, being laid off from a corporate job can provide the impetus for an entrepreneur to start his or her own business.
Accountability
One advantage that small businesses have in a down economy is accountability. Publicly-traded companies must answer to shareholders every quarter: when they fail to meet revenue expectations, their stock price suffers and the borrowing power of the company as a whole is reduced.
Small businesses don't have this external pressure. While well-run businesses do regularly hold themselves accountable for results, there's less of a backlash when economic conditions beyond your control bring you up short of your goals. Instead, you just tighten your budget and start working out ways to beat your budget next quarter: new products, new strategies, or new marketing efforts.
Planning and budgeting
Developing a new business plan during a down economy can help you stay realistic. Often, the most important annual goal for a small business isn't record profits. Instead, it's your total number of clients or locations, new product launches, or other goals that help you prepare for the future.
Knowing that you're facing a weak economy can also help temper your expectations for startup businesses: you wouldn't be starting the business if you didn't think it could succeed, but setting realistic goals can help keep you grounded. Your sales expectations, for example, will reflect the weak market.
More responsive
One of the traditional advantages of small businesses over large corporations is agility, and this holds true in downturns. As purchasing slows, smaller businesses are better able to find new marketing channels, adapt their products or services to fit the changing market, or simply cut costs.
This benefit comes into play when exiting a recession, too. As the economy starts to recover, small businesses are better positioned to ramp up spending and hiring quickly to take advantage of the improving climate.
Cheaper expansions and upgrades
Even when cash is scarce, all businesses need to continue to spend money to stay competitive. Startups and small businesses have advantages here, too: for one thing, smaller companies can be more flexible about where they buy equipment from. Used cubicles from Craigslist? No problem. Purchasing shelving from retailers that are closing their doors? Great idea. Computers or office phones from eBay? That'll do.
In addition, the size of your operation means you have more financial options: buying electronics on a credit card, for example. Or, saving money on software licenses by only purchasing for the few people who really need to use particular programs. Larger companies are sometimes forced to make major capital investments in new equipment or software for entire divisions.
Have any good tips for starting a new business? Share them below!
