4 Tips for Starting a Business in an Economic Downturn
Grow Your Business, Not Your Inbox
COVID-19 has forced millions of companies to reassess their business models, but what about the businesses that are still just ideas in the minds of aspiring entrepreneurs? As mass layoffs and desperate bailouts dominate the news, few people are talking about what it's like to launch a business in the current climate.
But like other crises throughout history, the coming recession will create genuine opportunities for founders. As Michael Loeb, founder and CEO of Loeb.nyc, said, "Moments like these are like forest fires. The blaze will cripple some businesses, but they will also provide the heat to release new seeds into the soil. Many amazing companies have been born from the ashes of economic downturns and market crashes."
The 2008 housing and financial crash saw people in the U.S. seeking affordable accommodation without long-term commitments. That's when Airbnb emerged as a cheaper and more flexible alternative to traditional housing. By 2011, Airbnb was valued at more than $1 billion.
If you think your business idea is ready for the next step, position it as a solution to emerging customer needs. Here are four tips that will help.
1. Find your niche.
Industry-defining companies like Airbnb take form during recessions. Are you able to address a unique niche right now — offering a solution to help people get through the current crisis? Alternatively, can you adapt your original idea to address that niche?
Take a moment to step back and assess the world around you. Identify the issues faced by friends, co-workers, people in the news. Envision the potential solutions to problems that aren't being answered by what's currently out there.
Many such niches are getting carved out amidst the current turmoil. Both healthcare and education — two of the most vital industries in any society — are seeing significant disruption. These industries need innovative reconstruction initiatives urgently. Education hadn't been disrupted meaningfully in 100 years. Now parents and students are looking to optimize their time, online resources and teacher interactions to avoid losing months of study.
If your product or service doesn't yet fit a current need, see if you can adapt it to fit the new normal. Conditions won't be normalizing anytime soon — adaptability is a strength. Do you have a software product that can, for example, improve users' videoconferencing experience, even if it wasn't initially designed to do so? Can your service facilitate businesses' online experiences or communications?
If you can fill a niche with your product, do your best to seize this chance — such opportunities are scarce. As Jonathan Greechan, co-founder of global pre-seed accelerator Founder Institute told me, "You want to be skating towards where the puck is going, not where the puck is right now."
2. Give people what they need: connections and connectivity.
During a downturn, people are less inclined to buy things that don't address real needs. Frivolous products will fail. The ideas that work are focused on solving one problem well.
What do people need right now? What do you need right now?
One thing everyone needs is connection. Become indispensable by creating and strengthening connections between people. You won't be able to do this without harnessing your online presence — the more interactive, the better. Use digital tools to market yourself and build relationships with your customers. Tiktok is a light-hearted way of reaching younger consumers. Instagram can propel the visual elements of your product and initiate debate. Throw a Houseparty launch event. Intimacy and online connection are the pillars of the new normal — even when large gatherings are again permitted, securing your online presence now will guarantee you greater exposure in the future.
Keep privacy front of mind, or you'll lose trust fast. South Korea and the U.K. have developed apps to track COVID-19 infection rates, but privacy advocates have raised concerns about how the tech accesses personal data. Stay one step ahead of such pitfalls by looking at what other companies (including your potential competitors) are doing and learn from their mistakes and successes.
3. Ready yourself personally to take the plunge.
Look in your wallet. If getting investors to cough up seed funding was hard before, it'll be far more challenging now that they're tightening their belts.
"Investors aren't looking for ideas right now — they're looking for businesses with a team and traction," Greechan says. "You need to have some minimum expendable capital to get your business idea off the ground and raise more funds."
If your savings are a black hole and you're currently unemployed, you may have to take a step back. Of course, you could ask friends or family to invest, but this is a trying time for everyone, so tread carefully: You don't want to alienate those close to you in your time of need. Consider bringing a partner on board, but be aware that they'll want to see you contribute financially, as well — at least a couple of thousands of dollars.
Also, ask yourself honestly if you're in the right headspace. To be a business leader in a time such as this, you need to:
- Be open and creative, so you can see the world from different angles and identify opportunities where others can't
- Have the fluid intelligence to solve new and unexpected problems as they come
If you're preoccupied with other parts of your life, your ability to be open and flexible may be compromised.
To capitalize on your strengths, be disciplined. Write a checklist every morning with the things you'll achieve that day, such as reaching out to industry leaders you want to partner with or designing your minimum viable product. Take things one step at a time, despite the sense of urgency. Get feedback at all stages of your MVP development. Your MVP doesn't have to be refined or expensive at this stage — it just needs to embody your idea and can test how markets will respond to it. If you currently have a full-time job, don't quit until you've received strong and positive reactions to your prototype.
4. Reap the benefits of launching during a recession.
With the economic downturn, the majority of companies that support new businesses are offering discounted rates. Shopify, for example, is offering a free 90-day trial, and HubSpot has suspended marketing email limits and dropped the cost of paid ads significantly. For an entrepreneur, the cost of launching is less expensive than usual and will probably stay that way for the next 12 months.
Another perk of the current climate is the broader range of available talent available. Many major companies have been struggling. Airbnb laid off 25 percent of its staff due to the pandemic, for example. Many highly skilled workers are now looking for roles. Previously unattainable recruits are now within reach.
The sweat equity of new employees is as valuable as financial equity. Their professional experience will help you understand when to start pitching and approaching potential clients.
A recession is when category-defining companies take form. Just as cryptocurrency companies boomed when confidence in banks and traditional systems reached an all-time low, businesses that propose alternative solutions to common problems during crises have an advantage over competitors.