During economic downturns or periods of turbulence, the notion of starting your own business can be especially intimidating. News reports about businesses closing their doors and lenders growing tight-fisted can be disheartening, even to the most intrepid aspiring entrepreneur. So does this mean that it’s a rotten time to start a business today?
Plenty of today’s successful companies began when the economy was lousy or the stock market was in the dumper. A 2009 study by the Kauffman Foundation
, a think tank that studies entrepreneurship, found that half the companies on that year’s Fortune 500 list of closely held and public companies and nearly half the companies on the 2008 Inc. 500 list of fastest-growing companies were founded during recessions or bear markets.
Mike Scanlin, who began work creating his successful investment advisory firm, Born to Sell, in the depths of the 2009 recession, says businesses launching during downturns are, in his experience, stronger than ones begun in economic halcyon days. Their entrepreneurs are more careful because they have to be. “In a recession you have to plan like this is all the money we’re ever going to have and you have to make that money last,” he says.
Certain types of businesses thrive especially when the economy is challenged: Discount retailers and e-tailers; businesses that provide inexpensive pleasures, like candy, cocktails or low-cost entertainment and dining options; companies that help people make their big-ticket items last longer, like auto repair and handyman services; and computer consulting and repair firms.
If you’re contemplating opening a business soon, follow these rules to help raise your odds of success:
Cater to the customers who are buying now: Although you need a vision for your company that will work in good economies and bad, you always want to adapt it to suit the times. For example, many retailers and e-tailers have recently broadened their selection to include lower-priced items or are marketing more aggressively to affluent customers who aren’t feeling pinched by the economy.
Robert Middleton, founder of Action Plan Marketing in Boulder Creek, Calif., runs an intensive, pricey 12-month Marketing Mastery consulting program that normally takes only 20 people a year. He has, however, also developed a lower-priced Marketing Club providing online, do-it-yourself resources for only $29 a month. The Marketing Club has attracted more than 750 monthly subscribers.
Keep your focus: If you plan to add products or services to serve additional markets, make sure they’re aligned with your overall business goals. In her book, Diary of a Small Business Owner, Anita Brattina writes that expanding her publishing business’s offerings actually hurt the company because her firm lost its vision and was chasing too many disparate markets. Middleton’s approach is, however, a good one. As businesses grow from applying strategies they picked up from the less expensive Marketing Club, they become prospects for the more intensive program.
Reinvest in what’s working: Keep an eye on the particular products and services that are generating results for you these days. Ask new customers how they heard about your company. If you run a website, use an analytic service that monitors where users are spending the most time and money. Then put more cash and effort into where the growth is.
Be frugal to a fault: Set your priorities for the business (product development and staffing should take precedence over advertising, for instance), spend money on the basics, then restrain yourself from splurging on nonessential expenses. Don’t take on big overhead costs if you can avoid them. If you can run your business from your garage at the start, do that until you have enough cash to pay for rent. Scanlin says: “You don’t have money to throw lavish launch parties, and print up lots of T-shirts and hand them out to everybody you know.”
By Gwen Moran
Gwen Moran is a small business authority and author of The Complete Idiot’s Guide to Business Plans. She has been running her own businesses since 1992 and was a national finalist in the U.S. Small Business Administration’s Young Entrepreneur of the Year awards competition.
Next Avenue Editors Also Recommend:
Next Avenue brings you stories that are inspiring and change lives. We know that because we hear it from our readers every single day. One reader says,
"Every time I read a post, I feel like I'm able to take a single, clear lesson away from it, which is why I think it's so great."
Your generous donation will help us continue to bring you the information you care about. What story will you help make possible?
© Twin Cities Public Television - 2020. All rights reserved.