Slow Economy and Developing a New Business

By on July 21st, 2009

I have been asked this question several times recently, and held discussions with various people about the relationship between the state of the economy and a good environment for starting a business. The question tends to be phrased as a version of

“Is a recession, or slow economy, a good time to start a new business, and why?”

Before you attempt to beat the odds, be sure you could survive the odds beating you.

The first point to consider is illustrated in the image to the right. Starting a business is a risk, and you must first evaluate whether or not it is a risk worth taking.

Take, for example, an employee for a company who has fairly good job stability, a small reserve of funds in case he is laid off, and some money put aside for retirement savings in an RRSP. He is presented with an idea for which he has the necessary skills to turn into a successful business. However, in order for him to work on the project, he must quit his job so that he can devote all of his energy to developing the idea.

I will not attempt to answer the question as to whether or not he should quit his job. However, there are a few questions that the candidate should consider. Can he afford to quit his job? How hard will it be, should this idea be a flop, for him to find another job? Can his life tolerate the additional risk of working for himself.

Once he knows the answers to these questions, in addition to those questions which reflect his interest in the idea, he can make an educated decision as to whether or not he should take the risk. It should be noted, however, that in a slow economy, the likelihood of being able to find another job, should this business flop, is drastically lower than in a fast economy.

From a business point of view, someone who is starting his own business (that is to say, he has answered the previous question such that he decides to quit his job) will find that a slow economy makes for easy growth. Costs are reduced in such an economy, and being able to find cost-efficient ways of growing a business will be significantly easier. Operating costs will therefore be lower, and while larger companies use a slow economy to consolidate their operations, smaller companies can take the opportunity to absorb the cuts from their larger competitors.

The economy, in moving out of a recession, will benefit the bold. Those who used the time to perfect their product, to gain a foothold in the market, or to streamline their operations, will be far ahead of those who merely tried to cut costs and survive until the end. Such companies will find themselves struggling to catch up to those who innovated over the past year(s).

If you want to be on the leading edge of innovation, there is no easier time to get there than when the competition for the edge is relaxed.

Related posts:

  1. Top Reasons to Work From Home and Make It Work
  2. Business and Social Media – Part 4
  3. Motivating Employees
  4. Business and Karma – An Ethical Decision
  5. Business and Social Media – Part 3
Categorized under: Advice for Small Business Owners, Career, Motivation, work, Work at Home.
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  • http://lichtman.ca/ Jeremy

    Good point.

    The two times I’ve started businesses were both when my back was against the wall – no job, poor economy etc.

    For me – and this may not hold true for everybody – having no options is just the sort of thing to make me turn it up a notch or two.

    I’m not so certain that this would be healthy advice for me to give somebody else though…

  • http://lichtman.ca Jeremy

    Good point.

    The two times I’ve started businesses were both when my back was against the wall – no job, poor economy etc.

    For me – and this may not hold true for everybody – having no options is just the sort of thing to make me turn it up a notch or two.

    I’m not so certain that this would be healthy advice for me to give somebody else though…

  • ekochman

    That was the one situation I did not address… having no other real options. At that point, you still need to answer the question about what you have to lose, but the answer is probably “not much”.

    Giving this advice to someone who doesn’t have a job might actually be a good thing – if you don’t have anything else in the works, and you’re presented with an opportunity to work for yourself, why not give it a try?

  • ekochman

    That was the one situation I did not address… having no other real options. At that point, you still need to answer the question about what you have to lose, but the answer is probably “not much”.

    Giving this advice to someone who doesn’t have a job might actually be a good thing – if you don’t have anything else in the works, and you’re presented with an opportunity to work for yourself, why not give it a try?

  • http://www.rafihecht.com/ Rafi Hecht

    Please explain how in a slow economy, operating costs will be lower. Thus far, I’ve seen prices more or less stay the same in general, and necessities like food and gas are always going up. Please explain. Thanks.

  • http://www.rafihecht.com Rafi Hecht

    Please explain how in a slow economy, operating costs will be lower. Thus far, I’ve seen prices more or less stay the same in general, and necessities like food and gas are always going up. Please explain. Thanks.

  • ekochman

    In a slow economy, there is more fight for what business does exist. Thus, suppliers will be more willing to negotiate a deal in order to get the business. Some prices have stayed the same, such as food. Gas, on the other hand, was up at close to $1.50 a liter a year and a half ago. Applying this to a particular item, you may not notice the difference.

    But, for example, if you wanted to get 10,000 booklets printed, and the listed price for that is $5.00 per book, you can likely negotiate a deal in a slow economy. After all, the profit margin on that is high enough that at $3.00 a book they may still be turning a profit, although a much smaller one. But at least they get the business, and they aren’t losing money by staying open.

  • ekochman

    In a slow economy, there is more fight for what business does exist. Thus, suppliers will be more willing to negotiate a deal in order to get the business. Some prices have stayed the same, such as food. Gas, on the other hand, was up at close to $1.50 a liter a year and a half ago. Applying this to a particular item, you may not notice the difference.

    But, for example, if you wanted to get 10,000 booklets printed, and the listed price for that is $5.00 per book, you can likely negotiate a deal in a slow economy. After all, the profit margin on that is high enough that at $3.00 a book they may still be turning a profit, although a much smaller one. But at least they get the business, and they aren’t losing money by staying open.

  • Jason T

    Hey,

    This is a great post concentrating on the current times. I believe a down economy is the perfect time to start a business especially if your job position/ function can be transformed into a business. The truth is most folks have performed false job positions for so long that the idea of intelligent work that will amount to income is scary. But I can not stress enough that in a down economy when the employment rate is raising individuals need to dust off their resume and remember what they learned in college. Use your skills to acquire income and offer the world something it’s missing.

  • Jason T

    Hey,

    This is a great post concentrating on the current times. I believe a down economy is the perfect time to start a business especially if your job position/ function can be transformed into a business. The truth is most folks have performed false job positions for so long that the idea of intelligent work that will amount to income is scary. But I can not stress enough that in a down economy when the employment rate is raising individuals need to dust off their resume and remember what they learned in college. Use your skills to acquire income and offer the world something it’s missing.

  • admin

    Absolutely true. I don’t think now is a better or worse time for starting your own business, but it’s becoming a more obvious choice to some people who might have otherwise ignored this option, and now are looking everywhere for where to earn a living.

  • admin

    Absolutely true. I don’t think now is a better or worse time for starting your own business, but it’s becoming a more obvious choice to some people who might have otherwise ignored this option, and now are looking everywhere for where to earn a living.