Stump the Slump

A recession is only as barren and lifeless as you make it. Work the downturn, and watch as your new business takes off.

Who in their right mind would want to start a business during a recession? Hey, it's not as crazy as you might think. Many entrepreneurs know that hidden among the recent deluge of stories of crashing revenues, lost contracts and layoffs are myriad opportunities. And they're determined to mine them.

"This isn't your parents' economy," says Steven Van Yoder, a marketing consultant in San Francisco and author of an upcoming self-published book tentatively titled Rise Above Recession: How to Recession-Proof Your Business to Thrive in Any Economy. "You need to learn from it and build a business that's going to withstand the new storm. Recession-proofing needs to be built right into the foundation of all businesses these days."

Working the Economy

The first thing your new company is going to need is a solid business plan. Not only can a business plan help you get a line of credit from your bank, but a solid plan also provides a clear path to revenue. Make sure you also include a few contingencies for tough times. (For more information about writing a business plan, visit www.entrepreneur.com/bizplan.)

Your plan should include data on your market size and geographic reach. If, for example, you plan to open a retail shop that sells baby products, you need to make sure there are a lot of young families in the area where your store will be located. Start with free data from the U.S. Census Bureau. Then check with your county and town governments as well as your local school district. You'll find a plethora of information on local family demographics. Even the bridal registries at local retailers can help you determine how many babies will likely be born in a given area.

As you consider the type of business you want to start, estimate how much it will cost to get the venture off the ground. During a recession, those with low startup costs-and no need for venture capital-typically do better. "Right now, there's very little appetite for outside capital because investors are worried about their own stock profiles," says Richard Geller, co-CEO, co-founder and chief marketing officer of Sponsera Corp. LLC, a McLean, Virginia, consulting firm that helps small businesses build alliances with large corporations.

It's important to keep necessary startup expenses low. That may mean starting the business in your home, buying used office furniture and leasing computers, which requires a lower initial cash outlay than purchasing. Hire as few people as possible. "I was a salesman by day, a proofer by night. I'd be the courier if need be," says Joe LaValla, 44, co-owner of Integrity Graphics Inc. in Windsor, Connecticut, referring to the early days of his printing company. "Instead of hiring people to do these things, we put in the hours and knew it was going to pay off in the future."

Of course, when the economy goes south, it takes more than hard work to get a company off the ground. It takes an understanding of changing business dynamics. In hard times, consumers decrease their spending on luxury items; businesses put off major purchases. And your company gets stuck in the middle if you don't position your products or services as must-haves. Companies that provide value-real or perceived-do well regardless of the economy. That list includes repair shops, consulting services and technology providers.

"The better times are, the more the dial moves toward luxury; the worse times are, the more [it] moves to necessity," says Rob Frankel, a branding consultant in Los Angeles. "If you're smart, your brand will take on more value to your users, to the point where they value it more as a necessity than it may be." If your product or service is well-branded, Frankel notes, consumers will be reluctant to part with it even if it's not truly a necessity. "That's the point of branding-to turn users into loyal users and evangelists."

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This article was originally published in the February 2002 print edition of Entrepreneur with the headline: Stump the Slump.

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