With debate continuing to rage over whether the economy is on the verge or even in the grip of a recession, many entrepreneurs in startup mode may be getting a crippling case of cold feet. Even seasoned business owners tend to panic when they hear the "R" word. But the truth is this: new companies can prosper in hard times.
For one thing, small companies are more agile and can move quickly to cut costs or switch strategies. For another, they frequently can hire experienced employees laid off by bigger firms who would not be available in an upmarket. They can often step in to supply outsourcing services embraced by larger businesses during economic downturns. Opportunity still knocks for those who know how to take advantage of it.
I have seen this phenomenon first-hand. I started my business coaching business in Australia in the early '90s when that country was staggering under the fallout of the U.S. savings and loan collapse. I expanded to Asia in 1997 just two weeks before Hong Kong's Hang Seng stock index plummeted 23 percent over a four-day period. Clearly, given the size of my company today, I was not adversely affected over the long term.
That said, anyone launching a business in today's economy must take the right steps to weather the storm. Here are some recommendations:
- Focus on selling necessity-based products or services. Even in a downmarket, consumers and businesses need staples like computer services, and food and trash collection. Ironically, luxury items like boats and designer shoes can succeed if you can hang on long enough for the business to catch fire. The trick is to avoid the middle market, whether it's a mid-priced restaurant or a picture framing service in a modest neighborhood. If people can opt for a less expensive alternative or delay a purchase while times are tough, that's not the business to be in.
- Use guerrilla marketing techniques to get the word out. There are dozens or even hundreds of free or inexpensive ways to promote your business without sinking a fortune into advertising. A new coffee shop, for example, could give away 1,000 coffees for the first five days with relatively little expense to help publicize the business as well as attract people who might become repeat customers. You can also paint a car to advertise a local business, write a column for a local newspaper and so on. Jay Conrad Levinson's guerrilla marketing books and column are filled with other ideas.
- Sign a few big customers at a discount. Many kinds of businesses can cover their overhead with one or two big contracts, so it's worth it to give those customers a price break. If you're a one-man PR agency, having one or two major clients can pay the bills. If you're a swimming pool builder, striking a deal with a couple of building contractors might keep you going while you look for more profitable projects.
- Minimize your full-time staff. Hire part-time employees or outsource part of your work to keep your costs in line. Sources like Guru.com can help you find freelancers who can take overflow work or specialty jobs so you don't have to invest resources employing people who will be underutilized. As your business grows, you can add more full-time employees.
- Run a tight ship budget-wise. There's no reason to buy brand new furniture, for example. Go to an auction to outfit your office; it won't kill you to sit in someone else's chair for a few years. And limit your long-term commitments. You don't need to buy or lease a copier. That's what FedEx and Kinko's are for.
- Buy a business instead of starting one. Many businesses that are for sale are perfectly viable, but the owner has run out of time or energy or simply isn't cut out to be an entrepreneur. If you buy the right business (and books like my Billionaire in Training can tell you how), you will already have a foundation and an income stream that can be nurtured rather than having to start from scratch. You may pay a little more to get off the ground, but you'll have money coming in from day one.
It all comes down to smart business. During the last recession after the internet bubble burst, First Union Corporation senior economist Mark Vitner was quoted as saying it was a misconception that small businesses fare poorly in economic slowdowns. He said that well-run businesses could hold their own in difficult times.
That principle is as true for startups as for established businesses. Be prepared, as the boy scouts say, and you stand a good chance of being a survivor.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.