Why is a Recession a Great Time to Start a Company
The coronavirus pandemic that has rocked the world this past year has put a lot of things into question. The global economic slowdown has caused millions of people to lose their jobs and livelihoods. With this, the onslaught of a global recession is a high possibility. The fear of a recession, however, should not deter entrepreneurs from starting new businesses. An economic recession in many ways can be extremely helpful for start-ups. Here are some ways in which a recession is beneficial to entrepreneurs.
1. Economic downturns create well-rounded entrepreneurs
Starting a business at a time where the economy is slow is hard and requires a lot of work. Entrepreneurs are scrambling to figure out how to find angel investors. At the same time, they are working to understand and increase their customer base. An economic downturn allows start-ups to focus on their customers at a much deeper level. Solving problems can now happen at scale.
For example, technology-based start-ups at this period will go through a phase of product development and refining the existing products for maximised utilisation. Start-ups will also look for a company advisor who can help maximise the revenue the company acquires.
2. Reduction in hiring costs
With an economic downturn and massive unemployment, the main positive is that companies now have a bigger pool to fish from. Newly hired employees in a time of economic recession are willing to work for lowered salaries. A company advisor can be of great help in the hiring process. During an economic downturn, large companies are bound to let go of a plethora of employees. A company advisor helps pick out the good fish from the bad ones.
3. Moving with the tide
Small start-ups are malleable and as such can move fast during an economic crisis as compared to bigger companies. They are easily able to steer these changing tides. Start-ups can identify the weakness of larger companies and work more efficiently to maximise the opportunity missed by the larger companies.
4. Saving on expenses
During a recession, the price of most products and services drop considerably. As a result, businesses that are struggling and want to off-load their products and services will sell at a lower rate. Smart entrepreneurs will take advantage of the situation and help their company compete at a greater level with these businesses. This will help the start-up come out on top. With more business coming in, entrepreneurs can rethink on how to find angel investors who will help put in more money to advance the company further.
5. An upturn in the market will occur
Any start-up that can make it through an economic recession shows its hardy spirit. This encourages an angel investor to invest more into the business. Entrepreneurs who have proven themselves and helped their company grow in such a time help show their investors that the company is ready to scale at a larger level. Once the economy starts to rebound investors will want to look for companies that have shown spirit and perseverance in the market.
To sum up
In the world of start-ups, there is always some upside to a negative event. The entrepreneurs that view an economic recession as a negative will not gain much knowledge and as such their companies will not be able to face the hardships that may come their way. But, entrepreneurs that do take a chance and power through these tough times are the ones that come out on top and they are the ones who will persevere.
About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps start-ups raise funds from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. He has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.