April 02, 2008
Posted by bahellman
Its fair to say the US economy is in a recession, whether the beginning, middle or end is the real question. My question to the nobosh community is if recessions benefit entrepreneurs? Is it a good time to start a business when the economy is in a recession? Looking forward to everyone's thoughts on the subject.
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April 02, 2008
Posted by stevelup
( 3 ratings )
Tough question. If you ask this question of 6 experts you may get 7 opinions; but here goes-
There is a good possibility that a recession represents a unique and profitable opportunity for entrepreneurs.
Here is the reasoning:
Funding –
a recession affects almost all funding mechanisms except that to which startups typically turn– i.e. the "friends and family" funding;
Timing -
mild recessions can last from 6 months to a year. This is a reasonably typical incubation period for a startup before it needs to go to the next round of financing from angel or venture investors. Therefore, an entrepreneurial startup that begins today may outlive a mild recession and coordinate its next financing need with a recovery-based upswing;
Creativity-
in a recession, innovation and cost savings solutions are held in higher esteem than during times when money is plentiful. This favors the creativity which is inherent in entrepreneurs. Said another way, in good times a rising tide lifts all boats, but in a difficult economic time, only the truly creative are recognized as providing good value.
Competition-
a recession tends to “wash out” marginal players. This reduces competitive pressure and can focus consumer attention on the new, innovative solutions, services and products. This is especially beneficial for those entrepreneurs who identify new niche opportunities.
Risk -
recessions represent periods of increased risk. Entrepreneurs are born risk-takers and are comfortable in such an environment. While the risk-adverse operators will be under great tension, the risk-taking entrepreneur will find increasing opportunity.
I, too look forward to thoughts, comments and feedback.
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