The Recession Is A Good Time To Start A Business

Before I get into the topic, I’d like to extend a special thanks to all those who came out to our Financial Freedom and Credit Repair workshops this weekend. Now more than ever it’s critical to get your finances and your mindset in order to be able to combat our descending economy. Remember that if you need help or advice, stay tuned to this column or contact Insiders Group Inc. and we’ll be happy to try and aid you.

Even we here at Insiders Group Inc have had troubles from the recession. We’ve had to reorganize and execute certain strategies to stay ahead of the turn and refused to take the gloom and doom publicized by the media as defeat…and neither should you. Though thankfully we aren’t in a depression, during the United State’s most famous one in the 1930’s, a soda company named Moxie (that still has some followers in the New England and Maine) stilted their marketing because they figured people didn’t care about buying their product. At the same time, upstart Coca-Cola, stepped up it’s marketing heavily and started on the road to becoming the powerhouse it is today. So despite the recession, there is still ample opportunity to succeed.

Our apprentices ran across a fantastic online piece that highlights what I’m talking about. In her Industry Standard article ‘Five Reason Why A Recession Is A Good Time To Start A Company,” Melisa Chang writes for details why “A recession is actually a great time to nurture and incubate a small company.”

Here are her five reasons why:

1) A recession forces founders to be frugal. Starting a company without a lot of money is an excellent discipline for entrepreneurs and for every early-stage company. While it may feel painful to track every dime, the lessons that frugality teaches are invaluable. Having limited capital leads to creative thinking, healthy deliberation about expenditures, and the need for founders to pay very close attention to cash flow, budgets and balance sheets.

2) Recessions force entrepreneurs to take another close look at their ideas. Incubating a business that is based on a flawed idea won't work. A great start-up team or a lot of money can lend the appearance of success, but in the long run, a business built on a bad idea will end up standing on shaky legs. During a severe economic downturn, entrepreneurs will be sure to look long and hard at their business ideas before jumping in. A recession will force questions like:
• Will there be a market for this product if customers are cutting back?
• Do I have the capital to get this off the ground without raising VC money?
• Will the product or service benefit users in both good and bad economic times?
These types of questions will force business owners to refine their thinking -- and will leave them with more solid ideas and plans.

3) Recessions lead to committed startup teams. A common perception about recessions is that jobs are put in jeopardy. This may not be true, but if people feel nervous about their job security, they probably will not want to leave a comfortable situation -- especially for a start-up. But the flip side of this is that anyone who does come to work for a startup will be incredibly committed. A founder will have employees who really believe in his or her vision and products, and/or who love the start-up environment so much that they're willing to live with the added risk and Spartan conditions. Those are the types of people entrepreneurs need for their teams.

4) Startups get a head start. Let's say you have a great idea and you know that you're going to start a company, but you're wondering about the timing. What should you do? The answer is: Start now. This will give you a lead over the competition, and will be well worth any extra struggle. When the economy comes out of recession, your business will be that much further along, and that much closer to being ready to raise capital (which will once again be available, with VC firms eager to invest after sitting on their cash during the down years). You can get a great head start on that day by starting your business now.

5) Recessions toughen up companies. A recession is a great time to start a company, but it isn't the easiest time to incubate a business. That doesn't mean entrepreneurs should back away from the challenge, however. Adversity brings out qualities that every entrepreneur needs to succeed – guts, problem-solving, strength and perseverance. Starting a company in the lean times helps develop those qualities more quickly, which will help the startups in the long-run.

Melissa Chang is the founder of Pure Incubation, an Internet incubator based in the Boston area. She blogs at http://www.16thletter.com.