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Starting a Business During a Recession

Written by: Donovan Wadholm

Article Overview: When entrepreneurs start a new business they often have a nasty habit of paying little attention to whether or not the timing it right for that business idea. Some will start their business either way, no matter what the data (or the bozos) say. And some of those entrepreneurs are going to be successful in spite of the worst of odds. But today’s economic uncertainties actually puts the question of timing front and center in the entrepreneur’s minds eye.

Starting a Business During a Recession

It Was The Best Of Times, It Was The Worst Of Times…

When entrepreneurs start a new business they often have a nasty habit of paying little attention to whether or not the timing it right for that business idea. Some will start their business either way, no matter what the data (or the bozos) say. And some of those entrepreneurs are going to be successful in spite of the worst of odds. But today’s economic uncertainties actually puts the question of timing front and center in the entrepreneur’s minds eye.

So here are some things you should consider before starting a business in today’s brutal business climate:


It was the worst of times:

•Consumer’s are tightening their purse strings which will mean slower sales. One of the most common mistakes a new business makes is over estimating their revenues, leading to a lack of working capital sooner than they can achieve their break even point. During these less than robust economic times, entrepreneurs will have to make sure they are fully capitalized before launching.

•Access to credit for start-ups has always been tough…now it is even tougher. Lenders have increased their requirements for personal credit scores, collateral and equity. They have also shortened loan terms and increased interest rates making the loans you can get less than desirable.

•The number of venture capitalists and the size of their deals is shrinking. Even before the current economic downturn VC firms started looking at two types of start-ups deals: a) The very large deals - i.e. fifty million plus and b) The very small deals - i.e. those under one million. Today, many venture capital firms have all but disappeared and valuations have become leaner for those start-ups obtaining capital.


It was the best of times:

•In most areas there is tons of cheep real estate on the market and the supply is only going to grow as retail and service businesses take a massive hit. Now is the time to negotiate the shortest lease terms, lower rental rates, cash for fit-up, an initial rent free period or any combination of concessions you can dream up.

•Starting lean and “bootstrapping” your business will allow you to test ideas and make adjustments and give you time to work out the bugs. Assuming you have enough capital to make it through a slower than average period, starting now will allow you to test market new products and services without the fear of loosing too many customers while you make adjustments.

•Input costs (gasoline, food prices, energy, etc) are declining and suppliers are desperate for business. Sales are slow for everyone, including those supplier and vendor who will be selling to you. In addition to cheaper inventories and overhead, advertisers are hit particularly hard during economic downturns. Entrepreneurs can use that fact to get the best bang for their marketing buck and a stellar deal on your grand opening blitz.

•Competition will be focused on their own problems rather than trying to ward off potential new entrants. Now may be the perfect time to stage a sneak attack on the big guns in your area. While they will be busy cutting advertising, cutting customer service, cutting corners and struggling under the weight of their own size you can swoop in light, nimble, and packing cash to draw customers into your store.

•Finally, if you can make it in these times…you can make it any time. Some of the country’s most successful businesses including Burger King, FedEx and Microsoft were all started during some of our country’s toughest economic times. Who knows…your company may be next.

I wish all of you a prosperous Year!

Donovan Wadholm

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Article Tags: bozos, break even point, business climate, business idea, credit scores, economic downturn, economic times, economic uncertainties, lease terms, loan terms, minds eye, nasty habit, personal credit, purse strings, service businesses, start ups, valuations, venture capital firms, venture capitalists, working capital



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