If there is a good side to a recession, it is that such events are often breeding grounds for innovation, startups, and the birth of new companies. As they say, necessity is the mother of all inventions in situations like these. This was the case during the Great Recession when many startups started to emerge to fill the employment vacuum.
But, as any founding entrepreneur will tell you, starting a business in a flourishing economy is tough enough. Starting one on at the time of a major market dip can be more than difficult. Still many successful startups have emerged from the ashes of financial ruin. Sometimes a recession can give you the advantage of being the next big thing in the market.
Benefits of Recession-era Startups
With millions of workers suffering from displacement and unemployment rising up, entrepreneurs often emerge to complete tasks as contractors during periods of economic uncertainty. It is true that larger firms tend to lay-off employees during times of uncertainty, but they also need work done. Large layoffs are typically used as a conservative approach for large companies wanting to shield themselves from the ultimate downfall, but that does not mean the work has dried up.
During these massive layoffs, the company may have critical task completions that still need to be completed to survive the recession. In such situations, many new or former employees have contract relationships with new or former employers to complete such projects.
Such a relationship has a benefit to both the contract labourer and the employer. The employer can depend on the contractor to complete delicate operational tasks that are still critical to the company’s survival. This was why Uber was so successful. It also survived their operational expenses and recession by moving employers to contractors, making the relationship much more flexible.
Founders can often use this to their advantage by contacting their former organizations charging more per hour for tasks they are already comfortable performing, while still looking for other similar gigs and opportunities elsewhere.
Recessions also fuel opportunity. New startups can quickly arrive to fix issues in the economy. Recessions can often change shopping behaviours so many companies take advantage of this situation. Online payment applications like Paytm and shopping platforms like Amazon have all taken advantage of recessions to rise and flourish.
In today’s environment companies, including healthcare-related industries, are profiting from medical supplies, remote patient monitoring, and similar businesses that immediately provide a solution to the crisis. Such businesses will likely emerge as leaders that will help prepare for the economic instability due to their growth in revenue and reach.
When it comes to beginning a startup during a recession, finding and fixing issues including the immediate consumer and corporate cost-savings can be the biggest boon for successfully navigating the difficult challenges of entrepreneurship during a recession.
Downsides of Recession-era Startups
The biggest downside risk of starting a business during a recession is the fact that the budgets the founding entrepreneurs may be seeking may no longer be available. This lack of budget is one of the very definitions of a recession. Both companies and the public tend to reduce spending, hunker down, and hold-out for larger budgets in the form of corporate spending or a consistent paycheck.
This can be a problem for both self-funded startups looking to grow organically from customer revenue as well as those seeking private equity or venture capital support to scale an original concept. With tightened budgets on the corporate side, companies will be less likely to invest in products and services which don’t give them immediate value. And, if a founder is seeking investor financing, the probability of investor funding is significantly lower and investors become much more inflexible.
Unfortunately for startups with smaller budgets both paid and organic search marketing is less likely to succeed initially. On the organic online marketing side, startups should not expect to see some results but enterprise SEO definitely have more advantage. With established websites, large corporations can immediately push harder on SEO campaigns, thereby seeing more rapid results in shorter periods.
If you do not have an established website, you are less likely to collect a huge revenue unless you:
- Solve an immediate, real necessity in the market
- Become a viral success
- Have a unique value proposition
- Partner with a large corporation for distribution and marketing
Starting a company is extremely difficult even in the best economic environment. Doing this during a recession further lowers the likelihood of success. But, that doesn’t mean it’s not possible and that massive opportunities do not exist. It just means that you need a better approach and start-up knowledge.
If you are planning to begin a startup during a recession, Digital Presence Today can find and fix issues your startup will face. We help you gain access to unlimited opportunities, and strategies to make your startup successful. You can find more information at www.digitalpresence.today
