Can you start a business in a downturn?
By Kukil Bora, SiliconIndia   |    2 Comments
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Can you start a business in a downturn?
Bangalore: "Starting a business during a recession! Are you crazy?" You may have to face this kind of question if you want to start up a new company in an economic downturn, as many people think starting a business during a recession is a mistake. On the face of it, it does sound utter insane, but there are opportunities to be exploited. If you look at the economic downturns throughout history, you'll find that most recessions after the World War II, last an average of 10 months, followed by growth cycles that last an average of 50 months. So, for a start-up, there's no better time than an economic downturn to get going, anticipating the next growth period. There are many well-known entrepreneurial success stories that were born during a time when the economy was in the dumps. One may ask - How did these companies survive or succeed? They succeed and succeed very well because their founders recognized the market need. They identified the need and fulfilled it, which is the success mantra for any thriving enterprise. To name a few, Microsoft was just a little company in Albuquerque, North Mexico when it was created by Harvard University dropout Bill Gates in 1975. But today, it has turned out to be a jaw-breaking enterprise. Who knew that Hewlett-Packard (HP), born in a Palo Alto garage at the end of the Great Depression in 1929 will have its presence in nearly every country in the world one day? There are many other big names like Wikipedia, General Electronics (GE), FedEx and Disney that started their journey in bad economic times. Research has shown that during the 2008 recession in the U.S. some 530,000 companies were launched every month and that more than half the companies on the Fortune 500 list began trading during recessionary times. So, with a nod to these success stories, let's explore the advantages to starting a business during recessionary times. Recessionary time is the right time for fantastic deals in virtually every category starting from essential business equipments to land to talents. As asset prices knock down during a downturn, equipping the new office is less of a financial burden. Adding to it, there are a lot of possibilities to get better-qualified people during this time since even big guys in the industry are seen laying off talent. Most of the time, existing companies look to change their suppliers during an economic slump. Here is the opportunity for you to win a new business. Even if your prices are higher, if you can come in with greater value, you have a good chance. Many companies want to find new partnerships with new companies that have a different, better way of delivering products and services. Therefore, being the new kid on the block can also be the key advantage for a start up. Compared to established companies, startups have advantages because they can give better price points. This is a time when clients will be looking for cost cuts. Established companies may not be able to give drastic cuts keeping in mind their level, operating cost, overheads and the likes. But for a startup, they can give a better price because they have less operating expense and overheads, and customers also, to cut cost, will be open to take risk and try new comers. So, are the recessions advantageous only to start-ups? No, they're not. Enough opportunities are there for the existing companies as well to make incredible gains in the years of economic slowdown. Some of the most recent success stories are those of Google, PayPal and Salesforce.com. From 2000 to 2001, each of these companies flourished, leading PayPal to go public in 2002, followed by Google and Salesforce.com in 2004. During the dotcom bust, Google brought a new business model - "pay only for use" - meaning pay only if someone clicks on the advertisement. Such cost effective business models also have a lot of relevance. With volatile markets and banks going under, it's definitely a frightening scene to most people. But, starting a business even in an economic downturn is a very optimistic approach. Just because the economy is hurting doesn't mean we all need to go into "shut down mode". Opportunities still exist and we've to explore them.

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