With the world's economy in recession, there has been considerable pessimism about business opportunities – however, it could be the ideal time to start a new business.
Global gross domestic product (GDP) growth is projected to decline by about 2% in 2009 from the 4,8% that was witnessed two years ago. With caution pervading the marketplace, jobs are being shed, investments are being scaled back and credit is tight. What is counter-intuitive though, is that it may also be a great time to start a business.
"Some of today's top corporations started in the middle of a recession," explains Frost & Sullivan's chief economist Vinnie Aggarwal. "16 of the 30 companies that make up the Dow industrial average can claim such an origin story."
General Electric began during the panic of 1873, and the Great Depression saw the birth of Hewlett-Packard. More recent examples include Supercuts, Famous Amos cookies, Chilis, and Microsoft, which all started in the turmoil in the 1970s. Sun Microsystems, Compaq Computer, and Adobe Systems began operations in the 1980s' recession.
"Times of recession offer unique opportunities to start a successful business," Aggarwal says. "Recessions change the way in which businesses operate, clients consume, and competitors compete, all of which can be advantageous to a new business."
A critical quality of a recession is that it disrupts the economy's normal rhythm, presenting a unique opportunity for new businesses to take advantage. There is an urgent need for new ideas and solution to address critical requirements in the marketplace.
As companies cut back, there is increased demand for low-price alternatives, especially as clients loosen their brand loyalties in the search for cheaper alternatives. Potential competitors are also likely to be weakened by the recession, presenting an opportunity for new companies to expand into their fields.
In these environments companies also reflect more seriously about the basic business essentials. In boom times when credit is loose, it may be easier to obtain funding for an "off-the-wall idea", but in an economic downturn, entrepreneurs must refine their thinking and develop more solid business plans for the future.
"There is also a wider pool of applicants to choose from, as many of today's top talents are being let go," Aggarwal adds. "Moreover, startup companies are also more likely to have a more committed startup team to work with, as employees are more committed to the their success."
Additionally, while starting a business in a time of boom may mean quitting a secure and lucrative job, there is less risk when one is unemployed.
"Starting a business is hard, regardless of the economic circumstances," Aggarwal concludes. "However, starting a business in a recession is no more difficult and offers its own set of unique opportunities, allowing one to stay one step ahead when the boom times return."