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If past history is any guide, economic recessions have a tendency to provide a burst in entrepreneurial activity. This is one of the reasons why the economy tends to run in cycles, the upsurge in new small business startup provides fodder for future economic growth. If you are thinking about becoming an entrepreneur, recession may be the best time to start a company.

Factors helping entrepreneurs start and thrive in an economic recession

  • Cheap resources: Everything from office supplies to rent to machinery are available at low prices. Much lower than  available just a few years ago. Most of the equipment can be bought at liquidation prices as many existing businesses downsize or go out of business completely. There is also a glut of commercial space in many business locations. Which means that  the rents are softening too.
  • Lower payroll costs: With unemployment reaching higher and higher levels, there are many skilled workers coming on the market. Many of them are willing to take a job at less than  what they used to make in their past jobs. Recessions are good for entrepreneurial companies to hire good employees at a reasonable cost. At the same time, it makes sense for the existing businesses to start planning their growth strategy and invest in human resources while they are cheap
  • Lowered job opportunities: Many of us have always dreamed of someday owning our own businesses. As we get caught up in the grind of our daily lives: climbing the corporate ladder, raising kids, upgrading toys, somehow the dream remains in the back corner, unfulfilled. During recession though, a job loss or a stalled career, may provide the right impetus towards this dream as good job opportunities are hard to find. Many of us take this time to re-evaluate entrepreneurship as an option. Sometimes, we only need a push and a nudge to finally take the step that we should have taken long time ago.

There are also some common traits of the entrepreneurs that start a business in a recession and become successful in the future

What to do when starting a business in a recession

  • Bootstrap your startup: Gone are the days of readily available venture, angel or bank funding. If you start a business now, you need to watch over every expense and really do more with less. You do not have a luxury to hire well known names at large salaries to be executives. Advertising budgets need to be barebones too.. A large number of businesses that start up in a recession and are successful are built with sweat equity. Apple Computers, Microsoft, Oracle, Genentech are prime examples of the businesses that started in a past major recession in US. They were all launched on a shoestring budget. Working within means and managed growth helps instill discipline and good fiscal management behavior. These qualities are key to long term success.
  • Embrace new technology or better create one: Sounds like a cliche, but the economic upsurge after a recession lot of times piggy backs on a birth of a new industry. Software and Bio-Tech are prime examples. So what will be the new industry this time around? Hard to say and I am sure there are many experts with ideas, but looks to me, given the priorities of the new administration and the oil shock of the last year, alternative energy and green technologies may just fit the bill.

The state of technology today makes it possible for the new entrepreneurs to think of marketing and advertising in new ways. Word of mouth marketing is now possible on the internet. More and more we are living in a world where ideas have started to matter more than the sheer amount of money that can be thrown at it.

And when the economy returns, and it always does, the businesses that were started now will do well. I think the time is ripe for new crop of entrepreneurs to emerge and one day rule the world.

What do you think?