There are opportunities aplenty during a crisis and those looking to launch a start-up should embrace the risk
Starting a business is incredibly difficult. From gaining funding to start, to having the commitment to leave your full-time employment and go out alone – it’s no wonder fear of failure is one of the main reasons most don’t ever follow through with their ideas. Add in an inevitable recession – like the one we’re fast approaching – and the odds can seem stacked against you.
But out of any crisis comes huge opportunity, and necessity is the mother of invention. As with any recession, the economy is facing a new set of problems desperate for novel solutions, and for entrepreneurs who can capitalise on these gaps on the market with agility and courage, the opportunities can be huge.
A PHOENIX OR A UNICORN?
Look at any previous recession, and you’ll see a swath of companies rising from the flames and leapfrogging the competition.
Take General Motors, which launched a year after the Bankers’ Panic of 1907, or Microsoft, whose aim in 1975 was to help companies eliminate high technology costs during the worst recession in two decades. These are just two examples of huge businesses who took advantage of downturns and the opportunities they present.
The banking crash of 2008 was no different. The likes of WhatsApp, Uber and Groupon all saw a break in the market for their idea and ran with it without waiting for the economy to recover.
MailChimp is another example. Hit hard by the downturn and resulting cost-cutting measures of its business audience, it pivoted to add a freemium option to its model and saw its membership rocket from 85,000 to 450,000 in 12 months.
It could be said that some of the household names we know today wouldn’t have worked without a recession. The likes of discount platform Groupon, and Airbnb which launched to undercut costly hotel rooms, thrived on a captive consumer market which wanted to save money. Launch in a boom, and the same companies would have struggled to get off the ground at all. You only need to look at the recent struggles of Groupon for proof. The company reported losses of £22million in the last financial year amid a strong economy and a customer base that no longer relied on heavy discounts (the current tumultuous market will once again serve the company well).
TO THRIVE … OR STUTTER
Of course, while it’s easy to say recessions offer ample opportunity to launch a start-up, and for it to thrive, it’s the value that your idea will bring to the market that is the real key to success.
There’s no doubt we will see another group of unicorns emerge from this recession, and in contrast, the start-ups that launched amid the economic strength of the past two years could stutter as we navigate through the next few years.
Entrepreneurs about to launch mid-market products with high price points could find this chapter particularly painful as disposable income falls and the public rein in on unnecessary spending.
Yet there are plenty of opportunities to grasp now as the global economy adapts to the “new normal”.
The rapid and forced move to home-working, for example, offers plenty of opportunities in tech and home-office solutions – demonstrated by the surging stock price of videoconferencing platform, Zoom). Meanwhile, other sectors, such as home fitness and education, will see a flood of newcomers as businesses race to take advantage of growing markets.
Giants will continue to pave the way and brandish their strength to capitalise quickly on the current environment as we’ve already seen with Google, who moved fast to expedite school approvals for G Suite for Education in a bid to own the home-education market ahead of competitors.
It takes a cool head to launch a start-up while people around you are losing their jobs, companies are being wound up, and uncertainty seems to be a buzzword, but it’s clear the advantages are there for those that are ready to embrace the risk.
While investor funding can be hard to secure during recessions due to a general nervousness and tightening of portfolios, it’s those who are able to bootstrap that will benefit most during a market downturn, accessing low interest rates on overdrafts or credit facilities implemented by the banks to keep consumer spending high.
Whether you bootstrap or not, keeping the business lean and efficient will be a priority as will acting quickly. For start-ups entering the market, lean models mean you can nimbly undercut competitors at a time when the rest are looking inwards to save money.
When I started Myprotein, in 2004, a £500 overdraft is all I needed. And the knowledge and cost-saving mentality I had in those early years stood me in good stead with the resolve to get through the recession when it hit four years later.
By their very nature, the start-ups that are built through recessions are the ones that are often the leanest and most efficient, and can go on to be hugely successful. With the right product, they benefit not only from a captive audience amid the downturn but are stronger when the market recovers, with a head start on those whose activities were on hold or took a substantial hit.
But having the courage to launch a start-up when everyone else is telling you not to takes guts. For those who are willing to ride the wave and embrace the risk and discomfort, this might be the perfect time. The only two questions to answer are: “do you have the right product, and do you have the stamina?”