7 great reasons you should start a business in a recession

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Starting a business anytime is daunting. But to start a business in a recession, adds a new level of complexity to the mix. Often this provides addition challenges we may face.

However I have found in my own experience that there are certain opportunities we can use to our advantage. And I’m in good company. Other businesses started in a recession include: Airbnb, Etsy, Whatsapp and Microsoft.

There may never be the perfect time to start a business and the bottom line is that creating a business is tough, no matter when you begin.  You have to begin though!

start a business in a recession

Can you start a business in a recession?

So you want to start a business in a recession? What’s stopping you? I appreciate it’s a big leap into the unknown. A leap that few take and the primary reason for this is fear of failing.

To mitigate the risk of failure in your startup, there are a number of things you should do before and during your launch. Below I’m going to share the first month of my start-up journey. At the time it was incredibly scary, but looking back, it was the most rewarding period of my life.

Understand how much you need to live on

Before I decided to start my own business, I created a budget that was bare bones living expenses. It covered half of our bills and nothing more. It would have been unsustainable over a long period of time, but in a sprint period of start up, I was prepared to live like this.

I stuck to this budget for the 2 months prior to starting my business. This gave me my start up capital of just under £1000. This may be important to you or not, but my salary from employment directly before starting my business was £20,000.

Plan for the worst, hope for the best

Once I understood how much I needed to live each month, this provided my own personal break even. I had ambitions to exceed this, but if things didn’t go to plan, I needed to have other options.

If SHTF, what would I do?

If I absolutely had to, I could get a part-time job to cover my household expenses. I was prepared and willing to do this at anytime in my business. I had some experience in bar work and could have picked up evening/weekend shifts that would allow me to work on the business during the week. 

My worst case scenario, was that I needed to get a job. Not really that bad is it?

Day 1 of my new business

I was working evenings, weekends and during on my accrued annual leave, in the run up to launching my new business. Day 1 was the first day I was self-employed without other employment. And I smashed it!

The work I put in pre-launch paid off and I sold enough in the first few hours to make enough profit to cover my month expenses. If I wanted to, at that point, I could have taken the foot off the gas and coasted for the rest of the month.

However I was ambitious and this is a business, not a part-time job. Knowing my bills were covered, I was able to aggressively promote and market the business with any further profits.

Think in decades, not days!

Keep records

I still have the master excel doc from my first months, where I have a record of all sales, pricing, profit and payment status. I know exactly who my customers were, what they ordered and if they’d paid or not.

It did hit the fan

In my first months of business I was making hundreds of calls a week, introducing my business to the world. Remember this is 2009 and social media….lol what social media.

Business was actually good and I was getting orders from new clients. I’d sold a lot and outputted some great products. I was doing so well that my suppliers (who honestly took a punt by giving me credit terms) started to get worried as my credit was racking up.

When they asked for prompt payment on the 30th day, I did not have the payment. It’s not that I wasn’t going to be paid. I just hadn’t been paid yet.

A few begging phone calls later and setting up of credit terms, I was back in business. Actually I shouldn’t gloss over this bit. This period wasn’t just a few days but a few weeks and it was the most stressful period of my life to that date.

I have never been in debt, but I assume this is how it feels when you have debt collectors chasing you. I lost a lot of sleep and it was a tough time.

Business rule no.1 – A sale isn’t a sale till the money is in the bank

Following the period of overtrading, business processes were put in place and thankfully we never had such issues again. The rest as they say, is history. Starting a business is one of the most effective ways of achieving financial independence.

There will be tough times and there will be great times. There will be times you absolutely can’t do it anymore. But I promise you’ll grow and develop new skills you never had, as you begin your new adventure. Did I mention it can be pretty financially rewarding?

The decision to start a business in a recession is a personal decision. Are you ready?

Is it a good idea to start a business in a recession?

There are millions of businesses that started in a recession or tough financial period. The financial crisis of 2008 provided opportunity for many to realise their dreams. The pandemic was also one of the most exciting times for business owners and entrepreneurs.

In most of our careers, we do not get the time to stop and think. When the world slowed down, the pause gave time for reflection. The time to look for opportunity.

Give me a minute, i'm good. Give me an hour, i'm great. Give me six months, i'm unbeatable.

Every time I met a client who was planning to start a new idea or business, I’d say this to them and it would resonate wholly. Normally we’re too consumed with getting through the days activities. A recession may prove to be the right time for you.

Advantages of starting a business in a recession

When deciding to start a business in a recession there will of course be some advantages you want to use to your benefit.  I’ve listed some of the reasons your should do it below

7 great reasons why you should start a business in a recession

  1. Lean Costs – You are acutely focused on being lean and treat every expenditure decision as if the business depended on it. It often does. 
  2. There is a greater pool of talent, at more affordable wages – During the last recession, I had incredibly over-qualified people knocking my door for jobs. It was incredibly unfortunate for them, but from a hiring perspective, it was an employers market. I was able to hire the best talent, people who normally wouldn’t have looked twice at a small back-bedroom start up.
  3. Being agile –  Being a small and new business, I followed the money. I was able to capitalise on new markets and opportunities that present themselves, when they were presented. I made (and still do) instant decisions that directed the business.
  4. Stagnant existing competition – Your competitors are more focused on protecting their current business, downsizing and reducing costs to mount sales and marketing offensives against you.
  5. New kid on the block – I definitely found there was a supportive sentiment, in that businesses would give me a chance to win their business. It was over to me, to prove I was better, faster. Not necessarily cheaper.
  6.  You have less to lose – When I had nothing, I could lose nothing. There were also many others starting their business and failing. I could have explained the closure as down to the recession and that would have been conversation closed.
    Today the business supports 40 other families and has a huge socio-economic reach. If it were to fail today, the cost would be much greater and the failing much wider felt.
  7. There is less competition – There are less people who want to start a business in a recession. Fear is the primary reason for this. Be brave and you have greater chance for success.

Disadvantages of starting a business in a recession

Whether you start a business in a recession or “normal” times, it is going to be a challenge. According to the Kellog School of Management at Northwestern University, businesses born in a recession tend to start smaller and stay smaller. Source KSMNU This provides significant disadvantages to these businesses that we’ve outlined below

  1. Businesses opened during recessions often start small due to the lack of capital or investors.
  2. During a recession or economic downswing, firms have greater difficulty establishing a customer reputation and brand awareness.
  3. Less consumer demand = less opportunity for growth through marketing (social proof, testimonials).
  4. Greater chance of debt defaults due to other businesses going out of business.

Business ideas you can start in a recession

If you want to start a business in a recession, go for it. The question you are probably asking though is “what business to start?”. Many of the side hustle ideas we’ve shown previously have the opportunity to become much larger businesses. You many even want to consider looking at recession-proof business ideas. Have a think back to the pandemic or the 2008 financial crisis. What businesses excelled during this time?

Frequently asked questions

Just as within non-recession times, as long as you have products or services to sell, you can start a business. The top tips to consider are:

  1. Keep your finances lean
  2. Be agile in your offering
  3. Work harder now, so you don’t have to later – sell sell sell!
  4. Make a plan in case your business fails
  5. Be eternally optimistic
  6. Don’t buy a Ferrari with your first months sales.

When you decide to start a business in a recession, you must understand that there are some unique challenges to doing so. These include:

  1. Lack of investment
  2. Marketing growth may be slower due to less social proof (due to demand)
  3. Greater chance of debtor issues – keep on top of your Profit and Loss
  4. Difficulty establishing a brand

When choosing to start a business in a recession look for those businesses that are generally unaffected by market factors. Food, Drink & Pharma are key sectors considered recession-proof. Though within this, segments of the markets would be hit heavily by market down-turns. If you can keep it lean and profitable, any business is good to start anytime.

Final thoughts

If it’s not already clear from this article, while you must give ample consideration to the challenges you face, the choice to start a business in a recession provides a huge opportunity for you to achieve your own financial security.

My experience is not unique and I have the fortunate opportunity to have supported hundreds of ambitious entrepreneurs each year in my past business-world. There is opportunity everywhere and this opportunity is your for the taking!

Want to start your own business?

If you want any advice or guidance on starting your own business (anytime), please feel free to connect with me on my social channels or drop me a message via email. I may not have all the answers, but i’m more than happy to share my own experiences with those looking to share their entrepreneurial journey.

Finally, if you were going to start a business in a recession, what would it be and why? Leave your answers in the comments. I’d be delighted to read and reply to them!

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Hey, I’m Connor. I’m determined to help people like you achieve financial freedom. In my FREE 10 day mini course and weekly emails, I’ll show you the steps you need to make to become financially independent. My only question is, whats stopping you?

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