5 Reasons to Start Your Company During a Recession

Problems create entrepreneurial opportunities, and 2020 is not lacking in problems

8 mins read

As mass layoffs and desperate bailouts dominate the news, with the current COVID-19 pandemic, few people are talking about what it is like to start a business in the current climate. But maybe, it is worthwhile for you to start your company during a downturn.

If history gives us a good precedent, out of the past financial crises, is that a cohort of extremely resilient businesses emerged. General Motors, CNN, Airbnb, IBM, and Uber are just some examples of businesses that were founded amid economic downturns. 

According to a study by the Ewing Marion Kauffman Foundation (2009), 57 percent of Fortune 500 companies have been founded during a recession or bear market.

As history shows, successful companies can be born in tough times. Could there be promising start-ups from the entrepreneurial class of 2020 that will go on to become household names? If you think your business idea is ready for the next step, here are five tips that will help:

Related: 5 Pitfalls Entrepreneurs Should Avoid

Starting with a blank slate is your advantage in 2020. This year, the competition is weak, and you can gain an advantage that might last for years.

  1. This year, the competition is weak

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.

However, if the majority of these companies got started during rough economic periods, it suggests that these may not be bad times for a start-up. With no draining layoffs, no legacy costs, and no bank calling you to cut the credit line, entrepreneurs who start companies now can focus on building a great new product or service. 

Starting with a blank slate is your advantage in 2020. This year, the competition is weak, and if you start your company this year, you can gain an advantage that might last for years.

  1. Ready yourself to take the plunge.

Look in your wallet. If getting investors to cough up seed funding was hard before, it’ll be far more challenging now that they are tightening their belts. 

This is because investors are not looking for ideas right now — they are looking for businesses with a team and traction. The 2020 funding environment will favor outstanding founders. They will still raise rounds, and the mediocre startups will suffer. But who wants to be mediocre anyways?

You, therefore, need to have some minimum expendable capital to get your business idea off the ground and raise more funds. Use the temporary shortage of capital to your advantage and foster a culture of frugality and wits. 

Also, ask yourself if you are honestly in the right headspace. To be a business leader in a time such as this, you need to:

  • Be open and creative, so you can see the world from different angles and identify opportunities where others can’t.
  • Have the fluid intelligence to solve new and unexpected problems as they come.
  1. Take A Dip in The Brimming Talent Pool

In 2020, it will get easier to compete for talent and retain employees. This is because 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.

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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. Offer meaningful work with good pay and possibly some stock options – and people will gladly assemble their own Ikea furniture to work for you. 

Add to that the possibility of worldwide recruiting, which the work-from-home explosion has accelerated, and your inbox will be overflowing with applications.

  1. Finding your customers

As an entrepreneur, your major in the first year is to build something that a hundred people love, rather than something that 10,000 people kind of like. If you do an excellent job of creating something valuable, you will find those 100 people, no matter if it is the year 2020 or 2007.

During this stage, the macroeconomic environment just does not matter so much. It will easily take one or two years until you have genuinely figured out product-market fit.

Take advantage of the low advertising prices as well. If you truly offer something that people need, now is the best time to attract users cheaply. 

  1. Find your niche.

Industry-defining companies like Airbnb have taken form during recessions. Are you able to address a unique niche right now — offering a solution to help people get through the current crisis? Alternatively, can you adapt your original idea to cater to that niche?

Take a moment to step back and assess the world around you. Identify the issues faced by friends, co-workers, people in the news. Envision the potential solutions to problems that are not being answered by what is currently out there.

If your product or service does not yet fit a current need, see if you can adapt it to fit the new normal. Conditions will not be normalizing anytime soon — adaptability is a strength. 

Here is to the real entrepreneurs

Fortune hunters who are just in the game for easy money are likely to leave the scene during this crisis. But real entrepreneurs will enter the arena and stick around. 

The next couple of years in a downturn environment will be your training period. The sales you make will be the hardest of your life. The fundraising will be slow and cumbersome, especially if you are a first-time founder. You will get scars. But those are the kinds of scars that will make you great in the future.

You might as well start start your company now when everyone else is too scared to join the race. You will have a head start.

Jackline Mukami is a content writer with proven experience in copy writing, editing, and content marketing strategy.


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