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Home>Business Planning>Starting a New Business in a Recession

Starting a New Business in a Recession

Posted on July 17, 2008 by Ellen Kirton

Starbucks' headquarters building in Seattle.Image via Wikipedia

Is this the time to start a new business?

Having been a banker for over 35 years, I can tell you that some of the best companies were started during a recession because they addressed a need during an economic downturn that continued to be successful even as the economy rebounded. One such type company is the employee placement companies. When companies have to downsize and cannot keep on skilled individuals on a full time basis or pay them benefits, then employment agencies are an ideal answer to meeting the needs of completing a job without their having to have a full time employee. When the job is done, the temporary employee is returned to the agency until needed again.

When I would lend money to businesses, one of the areas I would review is the company’s ability to withstand a recession. What was especially effective was a company’s ability to expand and contract according to impending business. Another would be if they were in a commodity market where they sold a high priced product that was discretionary and therefore would have difficult times during an economic crisis.

If you are starting a new business like Lola Kakes did with EffortlessHR, have you considered it’s relevance in a recessionary market Is your product affordable, does it fill an important niche such as being an alternative to a higher priced product or service out there. In the case of EffortlessHR, timing works because it is an affordable product, internet based, starting at as little as $24.95 a month.

Why does this work Because it helps small business owners to replace what some business owners are spending hundreds of dollars for in HR processing and employment management and retention. That makes sense.

A very good example of an existing company taking advantage of the difficulties of one of the kind of companies that has a high priced product, is McDonalds coming out with a premium coffee that is half the price of Starbucks. Brilliant timing! Many are saying, I’ll have McDonalds during the week and treat myself on the weekend to Starbucks so I can put gas in my tank.

What is your idea?

Considering how much you’re spending for gas and food right now, would you spend money on what you’re proposing to sell?

Would it work now and when we have an upward turn?

It is especially compelling if you were in corporate America and was laid off and said to yourself, this is the time to go out on my own. While that is true and the majority of businesses being started today are small businesses, be sure you have the right ingredients for success in this economic environment.

Also see our friend Chris Brogan’s article on how being a small business is a weapon and Seth Godin’s great article on why small businesses should not whine.

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Reader Interactions

Comments

  1. MR says

    September 14, 2008 at 1:56 pm

    I was just talking to someone yesterday who said this is the best time to start a business because you have to be more strategic. You have to think of creative ways to reach your market. If you start from the bottom, the only way is up. We also talked about a site to help people write their business plan. http://www.guidedbusinessplans.com. I guess it’s another way to bootstrap.

  2. Ellen Kirton says

    September 17, 2008 at 1:12 pm

    You’re right about the fact that starting a business during a recession absolutely requires that the new business owner know exactly who their audience is and target market. At the same time, it is critical that there be an element of how you can help prospective clients during a tough economy. Just like the “green” theme whereby if a company does business ecologically smart, that should be touted, so should “economy smart” be a focus. Thanks for your comments.

  3. Ankur says

    November 14, 2008 at 5:48 am

    cheers. Nice articles on your webpage. This can be used as a ready reckoner anytime.

    I also follow a blog on Importance of Human Resources:
    http://managehrnetwork.blogspot.com/

    Rgds,
    Ankur
    http://managehrnetwork.blogspot.com/

  4. Cathy says

    May 13, 2009 at 5:18 am

    Great and relevant advice! Thx

  5. Samuel says

    July 2, 2009 at 6:12 am

    The recession has affected every sector of economy and one need to be extremely conscious of market development at this moment of crisis.

  6. Daniel says

    July 8, 2009 at 10:26 pm

    It’s a matter of have savings no matter if we are in recession or not, even tough is hard to launch a business these day, courage is needed and to be lucky in order to have success. It’s a matter of planning and persistence. How many entrepreneurs are going to bankrupt because the economic recession? and How many are being successful? I even think mind control is part of the game, either way there is no need to risk that is why savings are needed.

    Liked your blog I have a similar post: How to start a business on 10 steps

    Best regards.
    Daniel

  7. mark says

    July 21, 2009 at 1:58 pm

    The McDonald’s versus Starbucks move was totally smart, especially since they are taking advantage of the economy, as well as people not wanting to spend as much money but still have their daily caffeine fix, which just goes to show how important it is to be smart in the same business moves that you are making.

  8. Mizanur Rahman says

    August 7, 2009 at 6:01 pm

    Thank you for your great information about business.

  9. George says

    August 26, 2009 at 1:16 pm

    I think many different business models can be successful in the recession, plus you are providing jobs which will help start to stimulate the economy.

  10. Janneth says

    August 28, 2009 at 2:09 am

    I learn a lot from your article. I think everyone can start a small business but it is very important to familiarize the product first.

  11. Shane says

    September 15, 2009 at 11:20 pm

    Depending on your type of business, and the model you base your business on – there may be advantages for starting a business in a recession. Your website is a great example, people are looking to cut costs, your business allows them to do that.

  12. Vlad says

    September 18, 2009 at 6:22 am

    Good article you have here on recession proof businesses.

    In my case I have had more offers for work during this slow down then before. I think that since businesses are looking for new ways to generate income they look at SEO as a way to help them survive. I also imagine on teh upturn I will get even busier as companies try to compete with the clients that have been doing SEO now.
    .-= [email protected] seo company´s last blog ..Google Click through rates based on position =-.

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