The world is struggling with inflation post-pandemic. There’s a global energy crisis exacerbated by Russia’s invasion of Ukraine. Surely starting a business while the world’s leading economies are sliding into recession is a terrible idea?
Not necessarily. The “R-word” doesn’t have to be a deterrent for entrepreneurs. In fact, some of the world’s largest and most well-known businesses started during recessions – Microsoft, Disney and Fortune magazine, to name a few. And Tony Robbins reminds us that when Apple dared to launch during a recession, it set them apart as leaders and innovators.
To survive a recession, don’t go down with the ship; set yourself up for success by following these five startup tips.
1. Embrace change and innovate
In times of difficulty, problems abound and solutions are scarce. However, this is when some of the best businesses are created as it forces us to be innovative.
Ted Wolf, Co-Founder and President of Guidewise, tells Forbes that many businesses don’t see a strong need to innovate during the good times. It’s when times are tough that we pull out the most innovative solutions.
Just look at history. Some of the world’s most important inventions were developed during World War II, such as radar, computers, penicillin, and more.
The financial crisis of 2008 gave rise to world-leading pioneering startups in the sharing economy: Airbnb and Uber. Fast forward to the COVID-19 pandemic when a staggering 9.8 million new business applications were filed. The world learned how to work remotely, and businesses in e-commerce, delivery services, and online learning thrived.
Take this café in the U.K., which was forced to close during the lockdown. They moved online and launched a unique brownie delivery business that caught the attention of Vogue and major TV shows.
If only businesses were this savvy all the time. As philosopher William James argues in his 1910 essay “The Moral Equivalent of War,” people need a way to unite and innovate in times of peace with the same dedication seen in war times.
2. Be attractive to investors
One challenge for new businesses during a recession is securing funding. Investors have more choices today due to rising interest rates and other asset classes being available to them, so you need to be more appealing than ever. And beware: Investors may be more risk-averse and less likely to fund unproven ideas. Differentiating yourself from the competition now matters more than before –– show that your idea or company can be cash flow-positive fairly quickly, or at least demonstrate a path to profitability.
However, even while investors are pulling back, it is certainly not impossible. Jack Newton, Co-founder and CEO of software company Clio, assures Business Insider that the market is not drying up entirely and investors are still writing checks, and money is certainly still being deployed for companies that can prove their value during a recession.
You’ll also want to be sure that you can demonstrate your competitive advantage and prove that your target market is actually looking for an alternative option. In essence, make sure what you’re offering is in demand during a recession.
3. Recognize and seize opportunities
Indeed, some industries see increased demand during hard times. Nicole Gibbons, who founded U.S. paint firm Clare in 2018, saw sales soar as a result of the 2020 lockdown. Instead of brunching on weekends, people with cabin fever turned to DIY (do-it-yourself) and began renovating and painting their homes.
During the dot-com bubble, Salesforce shook things up by offering its software as a subscription-based service, rather than a one-time purchase (which was the norm among other software companies). This forward-thinking strategy helped them not only survive but become a dominant player in the CRM software industry to this day.
While some look for emerging gaps in the market, another strategy is to find a business that is recession-proof. What do people need? People will always need to eat and get their hair cut, their pipes fixed and their taxes filed. And as large companies lay off employees, other entrepreneurs need website-building platforms, IT services and accounting.
By being smart and intuitive, you can turn a recession into an opportunity.
4. Build your dream team
One reality of an economic downturn is job redundancies. Many companies over hired during the past few years, and sales just didn’t measure up. The result, which may be to your benefit, is an influx of talented, experienced professionals and fewer job vacancies. Your startup could be a very attractive prospect to high-caliber job seekers, and they may even be cheaper to hire. Now is the time to build your dream team and grab talent if you can afford to do so.
One great example of this is Zoom. In 2020, many companies were forced to lay off workers as a result of the economic downturn caused by the pandemic. Zoom took advantage of this and hired thousands of talented employees who were excited to join a growing company. The company’s rapid growth during the pandemic led to a drastic increase in workforce –– from 2,400 employees to around 6,000 today.
With decreased competition for resources in general, another plus may be the opportunity to negotiate lower rent and other business expenses. The cost of creating and delivering products and services is also coming down, and you may actually find it easier to get your business going.
5. Be a part of the solution
Launching a startup during a recession can help the economy by creating jobs. You may even have an opportunity to try ideas that can benefit everyone, people and the planet alike.
Food delivery company Postmates, for example, innovated during COVID-19 and unveiled mental health, safety and education programs. Initiatives included providing its couriers with education certificates and free career guidance, as well as access to 24/7 telemedicine. A few months later they were scooped up by Uber for USD2.65 billion.
We’ve also seen a major boom in eco-conscious startups. Aardvark is a great example. Inspired to combat ocean pollution, they launched their paper straw company on the brink of the Great Recession. They went from producing millions of straws in 2007 to billions in 2017. In 2018, sales soared by 4,900%.
Good startups emerge in bad times. By taking steps to ensure the long-term success and sustainability of your company, you may even have the opportunity to influence the future of your industry.
Recessions are inevitable, yes. But they don’t have to be a death sentence for your startup. If you are an expert with a proven record that is attractive to investors, you may be strong enough to weather the storm. Embrace change, seize opportunities and hire people you trust. History has shown us that with a good idea and the right mindset, you can be successful in any economic market.
Above all, never stop innovating. Keep a positive attitude and stay focused on the long-term goal of building your business.