Starting a Business in a Recession: What You Need to Know

by Ana Lopez

Launching a new business venture is a big step, even in the best of times. Variables, higher costs and a new ownership responsibility are all major shifts, and the unpredictability of the economy makes them even more challenging. “Recession” strikes fear in the hearts of many, as a recession can choke the job market and choke the money flowing through infrastructure. On the other hand, a recession could be your ticket to a thriving new business.

Yes, there are obvious challenges in starting a business in a recession, but there are several benefits that can be in your future as well. Better yet, the creativity, flexibility and ingenuity you employ during this process will strengthen your resolve and business model long after the recession is over.

A recession cannot stop you from soaring to new heights. With all the right information and planning on your side, your new company is ready to cement itself as a solid and valuable player in the industry.

What challenges may arise?

A recession is a significant decline in economic activity that lasts for a few months. People tend to see recessions as a year-long struggle, probably because of the collective shock that was the 2008 financial crisis. Not to mention that the decade-long Great Depression left thousands homeless and needy. However, depressions are much more severe and widespread, especially in unemployment.

The US recently crossed a recession in the spring of 2020, which lasts only two months. The government shutdown and restrictions halted production, employment, spending, and the general flow of the economy.

Today, the country’s economy is still dealing with the ripples of the pandemic, but is growing steadily. A recent poll of economists found a growing prediction of a recession in 2023but that it will be mild and short.

With a possible recession on the way, what challenges might your business face if it does come? While there are many opportunities for growth, it is still crucial to know what challenges or obstacles may arise for you and your team. These include:

  • Widespread job losses and layoffs
  • Limited credit access
  • Slow economic output
  • Fall in consumer spending
  • Lower business investment
  • Bankruptcies are on the rise
  • Reduction in marketing and research

What are the advantages?

Historical challenges are great to keep in your back pocket. Later, they will help you draw up a contingency plan and overcome obstacles. It may seem scary right now, but the benefits of starting a business in a recession in many cases outweigh the challenges. How can your new company take advantage of these attractive benefits in the coming year?

1. Motivated investors

While investing may decline, it doesn’t stop completely. Getting out of the stock market and into a well-articulated and organized business model would be a saving grace for many investors. It is a win-win operation for both your startup and investor, as you both get security for the future.

2. Cheaper supplies

Due to reduced demand from both consumers and businesses, your suppliers are left with an abundance of materials. To keep money flowing and making sales, these suppliers are selling their products at significantly lower costs than before the recession.

When you start your business, you face a large overhead of new costs such as inventory, shipping, staffing and rent. Starting in a recession means you can get your hands on your first equipment, materials and infrastructure at a discounted price.

Because you buy for those suppliers at a critical time, you also build a trusting relationship with them that can last for decades. Negotiating long-term deals is a must to keep those costs reasonable after the economy picks up.

3. Reduced competition

Recessions can be frightening and are likely to scare off other startups during this time. However, that leaves more room and reduces competition for you and your team. A market once dominated by fortified players now has holes for a small but mighty startup to make waves. Remember that a recession will affect both large and small companies in one way or another, level the playing field.

4. Opportunities to address unique consumer needs

Recessions also give you the chance to influence customers. At a time when people are struggling or – as in the 2020 recession – isolated and reeling from a pandemic, they are looking for answers. That answer can come from your company.

In the past, their needs may have already been met by the established players in the industry. However, your new hire can identify the issues people are facing and introduce a relevant and timely solution.

For example, COVID-19 trends focused on companies offering contactless delivery or even products to beat the quarantine blues.

Shopping at home during the pandemic

2021, 30% of people shopped less in the store and ordered their groceries online. Therefore, a successful infrastructure during recessions can be carried over into the future. What issues does your product or service address, particularly in the recession?

Tips for starting a business in a recession

Recessions offer your startup a dazzling wealth of opportunities. By positioning your business model correctly, you can traverse the changing tides of the economy to find skyrocketing profits, leads, and opportunities. Discover the following tips to shape your next steps.

1. Find your niche

Before you set up shop, consider what your business brings to the market. Do you remember the benefit of open market opportunities to meet consumer needs? This is your chance to really dive deep into the use of your products and services. Ask these questions about your model to find out how best to advertise to a wide range of people:

  • What is unique about your product?
  • Is it handmade or made with unique ingredients?
  • Does it offer solutions to social issues?
  • Does it provide fun in a time of social distress? People may find comfort in these entertaining experiences or products.
  • What do you stand for? Think about the companies that put health first in 2020.

When evaluating your startup, consider its value to consumers, business partners, suppliers, and investors. If there isn’t a significant entry area or specific need for your startup, it may be better to wait until the economy returns to normal.

2. Research Trends and Opportunities

Likewise, your niche may be specific to recession trends themselves. Typically, recessions see a spike in household goods, such as healthcare and cosmetic needs, grocery staples, and housewares. People still need the bare necessities of life even as they try to save money.

But even “frivolous” products can sell well in a recession. Again, in dark times people want to find happiness and joy. Especially leisure items such as sporting goods, pet products and magazines increased during the COVID-19 pandemic while people went home looking for fun activities. What current trends or needs can your company offer your audience?

3. Build your trusted team

Because the state of the economy is uncertain, you want the most reliable team by your side. Building staff is a challenge at any time as people can be wary of the risk of startups. However, recessions often mean job losses and layoffs, so people are looking for work.

Share your plans for the future with your team to create that confidence and certainty. Employees who believe in the company vision are more motivated to dig deeper into their tasks and achieve goals.

4. Dial in to customer connections

In the midst of an economic downturn, people are cautious about their spending habits, so you need to impress and show what you’re worth. You can adopt digital marketing tactics, such as email marketing, to alert consumers to coupons and deals.

Social media marketing is also an excellent hub for small businesses. On apps like TikTok, you don’t need a huge number of followers to reach a wide audience. Their For You page allows viral videos to appear on anyone’s page. Capitalize on humorous trends and interact with users to make a big impact and go viral.

In addition, always appreciate the power of face-to-face connections. In an age where digital marketing is everywhere, consumers find it refreshing to chat with brands in person. Check out nearby seminars and networking events to make a name for your business.

Once those connections are established, you need to continually reach out to leads and repeat customers to build that connection. You can invite them to local corporate events such as barbecues or offer small gifts such as t-shirts and travel bags. Eight out of 10 people prefer physical promotional products about digital marketing techniques, so these personal touches during what can be a traumatizing time make all the difference to your customer base.

5. Make a detailed plan B

There are opportunities to move forward in a recession, but there can be just as much risk. By nature, they can be unpredictable in severity and longevity. So you need a detailed and comprehensive emergency plan.

Make a “what if” list for your business model. What if the prices of your base material rise? What if your landlord decides to foreclose your office space? What if products sell out too quickly? How are you going to navigate financial aspects such as quarterly estimated taxes or any unique tax relief programs?

Combine a list of all possible good and bad options and formulate the paths ahead. With a sharp eye and preparation, it will be easier to get through those events when they happen.

Remember the investors who looked for safer ventures to make money? During your pitch meeting, you’ll have the chance to showcase your in-depth research and plans for the future. Once they see your predictive and thoughtful financial planning, they’ll feel more confident in your ability to weather the recession storm and the sunnier skies.

Find growth in a recession

Recessions are, by definition, an economic downturn, but your business can use this time to its advantage. Starting a company in this day and age is not without risk and you have to look at that from all sides. Startups, however, have opportunities to meet specific needs and traverse a more open playing field.

With meticulous planning and all the facts, you’ll be ready to make your business dreams come true, whatever the state of the economy.

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