Key strategies for starting up businesses in a recessionary phase
Recession is the proverbial bugbear for businesses. While some sectors and businesses are impacted more than the others, depending on the source of the crisis as well as the deep reserves that a business would possess, the inter-dependencies between industries, geographies and even policy measures typically produce an all-round economic distress.
Although technically-speaking, two consecutive quarters of declining GDP define a recession, the phenomenon is broadly represented by a significant decline in economic activity spread across the economy which lasts more than a few months.
And more often not, barring some niche business activities, the smaller the business, the harder it is hit in a recession. As demand shrinks, cash flows dry up, retrenchments and closures become routine marked by a disproportionate loss of jobs in the small business segment.
However, even amidst this widespread air of economic despondency, a few silver linings do show up on the horizon. All is not lost even if you have suffered the buffeting from the winds of a recession. Or, if you are a newbie wanting to start out, a recession should never be the primary deterrent holding you back.
Every recession births the rise of new sectors and opportunities
First and foremost, you must remember that even the worst of recessions throw up pleasant and even counter-intuitive surprises and opportunities. For instance, research has shown that life expectancy of Americans had actually increased during the great depression of 1930s.
Similarly, Airbnb was forged out of the crucibles of the housing bubble during the 2008 recession. Further, did you know that the widely popular encrypted messaging service WhatsApp was founded in 2009? Or Uber, the ride-hailing app-based service was founded the same year right in the midst of the raging crisis? Such examples are aplenty.
Likewise, Covid has spawned an assortment of new-age businesses and startups – a food for your thought.
Identify the demand-supply gap: Find your own fit
Every recession generates some novel trends and needs for people. Once you have decided to take the plunge, look around for openings in terms of real needs and problems faced by people and society.
Work out thoroughly how you can solve those problems through your product or service and suitably monetise in the process.
Desist from considering products or services which are already available in plenty. Or if you do, you have to figure out a way of offering the same value proposition to end-customers at competitive rates if not at substantially-reduced rates. You don’t necessarily have to have an ‘out-of-the-world’ idea to forge ahead. Sometimes, a simple idea if implemented differently can work wonders.
Conduct a full-fledged market research accounting for existing competition and how your business can provide a viable and cheaper alternative to prospective consumers. The inherent advantage of a recession is that there is already less competition.
Consider multiple ROI scenarios
Following market and customer research, rigorously evaluate the feasibility of your business idea or the product or service you are contemplating, staying within the realm of reality. Prepare a thorough business plan accounting for all possible scenarios. This could include all investment and expenditure scenarios, customer numbers along with the resultant sales and profits.
For instance, you should be able to clearly estimate and visualise your RoI under the worst, medium and best possible scenarios. And if you can comfortably tide over the worst scenario case in terms of budget, time and efforts, you should go ahead. The bottom line is that there should be absolute clarity on how much shock (financial and operational) you can absorb and at what threshold you need to pull back.
A lean business model: Start small but sure, start local
No one has to build a global business with national and global footprints staffed by thousands of employees in a day.
Start small on a realistic scale and budget. Put together a small but reliable team of experienced and energetic professionals. Remember in a recession, good and experienced talent is looking for work.
If budget is limited, consider hiring fresh or inexpensive talent and train them as long as their grasp of the basics of your business is sufficient or if they fit the requirements of some critical functionalities of your business. Likewise, start locally in the geography where you reside and can leverage your local area networks and information. Also, the reliability of your supplier/vendor must be established beforehand.
Clarity on financing: Recession makes it easy
Capital is the motor that drives a business forward. Notwithstanding other factors, adequate and reliable financing at the start of a business often becomes the dividing line between the long-term successes of a business and possible failures.
How you are raising the initial capital, whether bootstrapping with your savings or seeking ‘friendly loans’ from friends and relatives or even mobilising from a public/private financial institution, there must be a clear-cut plan accounting for exigencies. Even as a recession usually is met through easy monitory and fiscal policies by Governments, because of the all-pervasive recession, there is substantial reduction in costs charged by services and companies (including financial services) supporting new businesses. Also in a recession, there are smart angel investors willing to bet their money on a solid idea. This must be capitalised fully by any wannabe entrepreneur wanting to set up a business in the middle of a recession.
Turn to new-age technologies
If you are someone who has shied away from technologies all these years, now is the time to court them.
In an age driven by the fourth industrial revolution where technologies and businesses are intersecting at various levels, avoiding them can prove to be counter-productive.
A recession imparts momentum to certain specific technologies at affordable rates and wannabe entrepreneurs must keep their ear to the ground in that sense.
For instance, Covid-19 has triggered its own set of technologies and platforms ranging from office automation, remote work and cloud connect, and cutting across sectors such as healthcare and education. Even otherwise, from digitisation of marketing and sales to customer relationship and human resource management to finances and accounting, there is so much that one can do with these technologies.
You will be surprised that many of these offerings are fairly cost-effective – with some being even free – and can multiply your business operations and revenues several-fold in a short period of time. With the eruption of AI, advanced robotics, machine learning, the sky is the limit.
In conclusion, recession is never a doomsday scenario for those resolved to start a business. You just have to mentally brace yourself for this challenge. Success will surely follow.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)