The Entrepreneurial Spirit and the Economic Crunch
Photo credit:
theritters Are you thinking about starting your own business but concerned about the economy? Feeling the pull of being your own boss but wondering if that could possibly be a good decision under the current circumstances? Then you'll be relieved to find out that 92% of existing entrepreneurs say they'd have started their business regardless of the economic climate, or so say Ernst & Young's Entrepreneur of the Year finalists and winners.
But how do you do it? What do you need to do to make a new business work during an economic crunch? I talked to some people who've started businesses within the last year, and this is what they have to say.
Look On the Bright Side
Sometimes, it's better to be on your own when the economy's down than it is to be part of a company. Len Porcano, of Novisi, remembered the last time the economy had a downturn and his company cut 2/3 of their workforce. This time, slowing economic conditions actually motivated him to go out on his own because he felt like he had a better chance of maintaining income if he "could respond [himself] more quickly to where opportunities developed in a weakened economic landscape."
Being an entrepreneur can also allow you more room to learn from your mistakes. As long as you have some income to count on, you can try new things and "see very little whiplash from mistakes," says Philip Tepfer, whose sailing-and-regatta clothing company, Sail(Proud), has found success in the current market. He sees the ability to make mistakes on the small scale and learn from them as a luxury, and one that larger companies don't have.
Know Your Strengths
Knowing where you're strong is the first step toward knowing how to position yourself when the economy tanks. Philip realized that Sail(Proud) is at an advantage because they're "a small, agile entrepreneurial company. We don't have high payroll expenses, HR costs, enormous marketing fees, and the like." Their size and agility allows them to dodge 'n roll in situations where larger corporations would have to take the hit.
Jesse Levin and Danielle Caro found that integral parts of their original business plans gave them a leg up in the current climate. Jesse designed The Archer Group to specifically "cater to clients looking to invest in the emerging markets." This gives him an advantage in the current economic climate, when traditional markets are struggling. Danielle, who founded the marketing and design firm Fox & Gazelle, intentionally designed her business processes to be efficient and streamlined. This keeps her overhead low even when the economy is strong and becomes a huge asset when it's weak.
Leverage Your Strength
If you know your strengths, you can figure out how to use them to your advantage. While streamlining processes "was a core aspect of our business plan from the start," Danielle says, it "is only made more relevant by this environment." The pared-down processes are not only an advantage she can offer clients, but they also allow her to invest much of her profit back into the business.
Sometimes, it's possible to structure your company so it will not only survive but will also thrive in adverse economic conditions. Len realized that, as companies were downsizing and not rehiring for other positions, they needed a less expensive way to fill those gaps and get those jobs done. He positioned his company to step in and handle that "extra" work, and thus made his business particularly viable during a recession.
Regroup
When Philip saw that he wasn't going to be able to rely on retail sales like he'd hoped, he immediately came up with other markets for his merchandise. Knowing that even the giants of retail are suffering right now, he sought out other markets. "We still do retail sales," he says, "but now we're seeing much more positive results from our yacht club, regatta, event, boat show, and corporate sales." While his ultimate goal is still the retail market, he's ok taking it slow for now.
Regrouping doesn't always mean selling your product in different place or to different people. Christopher Jacobs points out that strategically adding services can make a huge difference when you're starting out during an economic slump. His company, Emergent Energy Group, found that many municipalities needed their cheaper, cleaner energy solutions even more as finances became tighter, but often didn't have the resources for an intitial investment in doing energy differently. They changed their approach, he says, "in that we offered a service to write grant applications."
Remember Your Motivation
Starting a business is often hard, and requires even more of a committment when the economy is rough. When you can remember why you wanted to work on your own in the first place, though, all that hard work is worth it. Several of the entrepreneurs I spoke with don't want to work in a traditional office environment. Others relished the challenge of starting a business when times are rough. Still others saw an opportunity and decided to take it, wanting to get in before anyone else did even if it meant extra hours and some lean times. Whatever your motivation, keeping your reasons before you, even writing them out and putting them where you'll look at them often, will help you when you wonder if you were suffering from temporary insanity when you gave in to the entrepreneurial bug.
Whether you start your business soon or wait for an economic upswing is up to you. Knowing that others are making it, though, can make all the difference in the world. If you're starting a business, thinking of starting a business, or waiting until things change, leave a comment. I'd love to hear your story and the thoughts behind your decision!
Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.
Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.
I was talking to a friend about this recently, and he said that companies are more likely to use independent contractors during an economic crisis, once they start laying off regular workers. So, starting a business that can serve intermittent business needs during an economic downturn might actually be the smartest move.
Sometimes being forced out is the jump start (kick in the rear) that inspires people to make a much needed change. I know it's hard to give something up or quit a job but being fired makes the hard decision for you. Then once you get beyond the "fear factor" people often feel free to explore creative options they've been thinking about or start that business that they're friends and family are tired of hearing them talk about.
The claims of consumers pulling back seems to be only half true. While people are looking much closer at their spending and cutting back. You could not have told that Sat. morning or Sunday at the local mall. Many of the retailers were running significant sales and it did get people into the stores.
Old Navy had half off of coats. When I walked by there was a good sized crowd of maybe 50 people waiting for them to open. I went to JcPenney both weekends for their early morning sales specifically to get deals on winter coats for the kids. By mid morning both weekends the store was absolutely packed. Finding the right way to market what you do based on the current situation seems to be key.
I think more people are also looking closer at the longevity of what they are buying for both green and financial reasons. That could be key in finding a way to do business.
Sarah:
I started my company because of the economic collapse. Green Retirement enables people to retire early, and with less savings, by living a green or frugal lifestyle.
You cite a statistic that 92% of entrepreneurs would have started their business anyway. You leave out a more important statistic, 95% of businesses fail within 5 years, and in this economy you can make it 99%.
However, not everyone loses when the economy goes kaput, some businesses will prosper. I have an article titled, "Economic Collapse Winners and Losers", that you may find interesting.
The thing to keep in mind is that if you start a business in a strong economy, invest your life savings and fail, you can always find a job. In this economy, if your business fails, you're...
@ Andrea--That's definitely true. Several of the people I interviewed mentioned that, or mentioned that they started that way with hopes of tweaking when the economy's better.
@Bargain--Absolutely...when they have to come up with something, people pull the most amazing things out of their hats.
@Lucille--You know, I experienced that this weekend. Went shopping with a friend and our local mall (and it's been FOREVER since I've been there!), and it was swarming! People ARE still spending, they're just doing it differently.
@Green--I didn't forget the statistic--I left it out because that's not what my article is about ;) The odds are always stacked against entrepreneurs...my point is that a down economy isn't necessarily reason not to try your idea now. There are definitely things you can do to help your business succeed, too.
And the prospective job market if you fail is definitely reason to consider waiting...I guess my question is, does that outweigh the reasons to go for it? If it does, then wait. If it doesn't, then go for it.
I restarted my business just this year and it has been doing very well fortunately. I think the reason is that I have reasonably priced products. People seem to still have money to spend, however they are being very careful with it and are absolutely looking for good values.
If there was ever a time to start a business, it's now.
@ Aunt Jenny--That's an interesting insight--things aren't so bad that we aren't shopping, but we have realized that we need to make each dollar count. Sounds like you're doing that in your business--pricing so that people see the deal while still making a profit. Would you price higher if the economy weren't struggling?
@Carl--This seems like something you believe pretty strongly. I'd love to hear more on why.
How do you start a business if you don't have any money?
The best way to insulate yourself from economic calamity is to diversify income streams. As a young guy my largest asset is my human capital, meaning I have most of my working years ahead of me and quite a bit of education to translate into labor market value. Remaining in the labor market is the only way to capitalize on this potential. In fact, I'm actively seeking a second job in the evenings/weekends to boost income. The second job will be a resume builder and help refine qualities that will make me even more valuable as an employee.
That's not to say that entrepreneurship is not a good alternative. I also have two reasonably sized small businesses I can operate at odd hours (especially since my consulting job is flexible), and experiment with various micro-businesses on a trial-and-error basis. These are usually product-oriented ad campaigns launched with Google Adwords or other flexible marketing programs.
The goal is to fail as often as possible. The more ideas I try the better a sense I'll have of what works. Launching a small business doesn't have to be a laborious bureaucratic business, filling out federal, state, and local paperwork. It can be as simple as finding something you can sell on Ebay and starting a basic account. We often psyche ourselves out about starting a business, when it can be extremely simple.
I also find the limited investment requirements for micro-businesses to be advantageous. I've sunk plenty of funds into larger projects, and have learned that experimenting with a few hundred dollars is all it really takes to get the majority of business ideas ready for trial by fire.
Finally, I urge caution in transitioning entirely into entrepreneurship. If you have the option of retaining your job while experimenting with a business, try that first. At least you have your job to fall back on.
And most importantly, remember that we will all likely fail countless times before succeeding..trying not to get discouraged early on.
Even though your post is a month old, it's even more relavant now than it was a month ago. My dad, an accounting professor of 20 years, says that a business that can make it during lean times will be even more profitable during the good times. I take that to heart because I am considering starting a business. I appreciate the candidness of the comments and replies on this blog and this website and am glad I found it. Thanks!
A downturn can be a blessing in disguise! Many times this is the time you can save money in the start-up process. Current businesses are running sales and trying to move old inventory and you can negeotiate better leases on buildings among many other options. What we are finding at
http://www.CapitalBull.com
is, workers who were laid off received buy-outs, these employees can not find work and turn to owning their own business. They use the buyout as their downpayment, a blessing in disguise. More and more are turning to business ownership; especially in downturns.
I recommend the book "art of the start" (http://blog.guykawasaki.com/2006/06/the_art_of_the_.html) which has a chapter on Bootstrapping your business.
The best way to get started of course is to either have one working partner support the business owner (which is what we did) and/or do the new business on the side of a day job (which we also did). We also run a low overhead, services-based company (Web technology, targeting government and government funded organizations), so we have no inventory.
I was pretty disillusioned when I investigated business loans - not fabulous rates, with a tremendous amount of work developing a business plan, for a collateral based loan. No thanks. We do have a line of credit for cashflow.
I personally think owning my own business (through which we get our health insurance) is a much safer situation for my family than working for another company which could let me go with no notice. It is definitely not easier, though, but I do feel more in control of our destiny. We are also lucky that contracting is always an option for us.
I think all of you have very good points. I have spent the last four years growing a service company 4 times its size from when i joined on(with someone elses money I know). I have loved every minute of my job and I would not trade the stuff I have learned over these past few years for anything. But I have been telling myself for to long that I could do this for myself and I don't care what the economy is going through, if you have a good product that consumers need and you are honest and full of heart you will succeed. I plan on taking the plunge at the beginning of the year after I can arrange some finances for the first few months and then I am going to dive in head first. I heard the other day that if you think big than you shall recieve big but if you think small then that is all you will be looking for and the big oppurtunities will fly right by. Thank you for taking the time to read what I have to say and I hope everyone has a wonderful night.