It’s scary when a recession hits. As people start losing their jobs and budgets shrink, you might start to wonder if your own business can stay afloat.
I live and work in Alberta, a Canadian province with an economy largely driven by the energy sector. With the falling price of oil, many businesses are suffering. Thousands of people are out of work. It’s normal to panic when faced with a downturn, especially if you run your own business. As a business owner, you’re responsible for supporting yourself (and likely lots of employees).
While it’s challenging for many, a downturn can actually be a good thing for a startup. I’m actually busier than ever. Here’s why an economic downturn can be positive for a budding entrepreneur.
It Drives Innovation
Losing your job can be shocking and devastating. But it is also an excellent motivator for trying something new. Maybe you’ve always dreamed of consulting, designing an app or running your own company. Being liberated from your job forces you to carve out a new path and to innovate.
During a recession, it’s not always possible to find your equivalent job with a new company. Often, you have to create it. It’s possible to turn your severance into a new business idea. I’ve seen a notable increase in the number of people running a side project, one they hope to grow into a sustainable business. I’ve seen online marketing companies pop up, as well as full-blown accounting firms. I’m encouraged by these new businesses. It gives me an opportunity to give back with mentorship.
Many successful businesses have been founded during recessions. Microsoft and FedEx, both founded during the 1970s, are just two examples.
It Weeds Out the Weak
If you started your business on the cusp of recession, you surviving it will determine just how strong you are (and how lean you are). Your margins may be very tight during a downturn, forcing you to analyze the value and effectiveness of every aspect of your startup. You’ll thrive when the economy rebounds because you know you can run such a tight ship.
If your business requires you to acquire real estate or hardware, you can generally acquire it at a cheaper price. You also stand a good chance of pitching your story of winning against a recession to earn positive media coverage.
We also see companies who have been operational for a while show their true financial colors during a recession. I’ve seen everything from clients trying to skip out on contracts to companies not paying their subcontractors, despite being paid by clients. Desperate times can call for desperate measures, but usually these are signs of a quickly failing business.
There’s Plenty of Available Talent
Not everyone is cut out to found a business, but a recession means plenty of talented engineers, accountants, marketers and coders are available for hire. Competition is fierce, so you’ll likely be able to snag the talent for a smaller salary than you’d be paying in a healthier economic environment.
But starting out or growing in a downturn is a double-edged sword. You’ll attract talented employees to help you build and out-compete your rivals. But things will eventually turn around and you’ll need a retention strategy. I’ve been fortunate enough to have focused on building a company I would love to work at, which I hope is the experience of my staff.
You Find Out Which Vendors Value the Long-Term Relationship
If you’ve nurtured relationships with your vendors, you may be able to approach them for short-term help with either pricing or payment terms. Ideally, they’ll trust that you can pay them their regular rate, at regular intervals, when the economy recovers. This kind of help will help you weather those particularly tough months. A strong relationship will ensure you both survive.
We’ve had partners approach us for help with things like a temporary discount. When business owners are humble enough to sit down and make something work, everyone benefits. Ask for help when you need it. The good people will help.
You Discover Which Clients Are Running a Tight Shop With Staying Power
Clients may ask you for help as their vendor. If you choose to give it, you’ll build an even stronger relationship. If they manage to stay afloat, you’ll know their company is well managed and one you’d like to do business with long term.
Clients who come to you and ask for a discount so they can keep you around are actually doing you a favor. They always have the option of simply cutting you and going for the cheaper option (there’s always a cheaper option). Use this as a time to get one another beyond monetary discounts. My business is partnering with some of our clients and actively referring each other net new business. We’ve also combined resources as a way to cut costs for both companies. Sometimes all a client needs is someone to talk to about what they are going through. After all, being a business owner can be lonely.
If your dream is a startup or a consulting business, don’t let a faltering economy stop you. In fact, now is the best time to get going. If you’re committing to succeeding, you will.