Starting Up in a Recession

There’s been much talk about how small businesses are going to survive the current economic downturn (do we get to call it a recession yet?), and whether it’s such a good idea to start a startup right now. Investment funds may be drying up and that means it’s a terrible time to be raising funds.

But for startups that are self-funded and aren’t looking to raise a tonne of cash, the situation is a little different.

A self-funded startup has two key directives – keep costs low, and generate revenue as early as possible. This doesn’t change in good times or bad, because in either case, the founders aren’t getting paid until their startup makes money.

If a recession comes with deflation in prices (or generous retail discounts enticing consumers to spend) and sends overall prices down, the founders might actually find it a little easier to get by, as living expenses fall.

If a recession comes with unemployment or deflation in wages, the founders don’t feel it as much as the employed (or previously employed), because they were unemployed to begin with, and their job security is in their own hands. To some extent, the opportunity cost of striking it out on your own may be marginally lower with deflation in wages. And if the startup is looking for co-founders or new employees, what better time to look for good people when wage expectations are lower and people view “stable jobs” like banking with suspicion?

It’s not all roses, of course. If the startup is banking on advertising revenue, this may be harder to come by as brands may reduce their advertising and marketing budgets during the recession.

If the startup is selling a product or service that customers pay for, you’d have to look at whether customers are more or less likely to buy your product or service at a given price during bad times, or whether that demand elasticity remains unchanged. You might have to lower your prices, you might have to give more value, but that’s really the same for everyone in a competitive environment.

We don’t think it’s necessarily a good or bad thing to be a startup in a recession. If you really want to start a company (and you do really have to want to for it to work), chances are, you’ll do it anyway. In any case, growing a startup means looking at the conditions and adapting, regardless of the economic situation we might find ourselves in.

Here are a few more interesting articles about this topic:

Why to Start a Startup in a Bad Economy
Ask 37signals: Does “Getting Real” work in this economy?

Talk to us: Are you trying to start up right now? How do you view the current situation?

3 responses to “Starting Up in a Recession

  1. This is quite true. It is more about adapting to the situation. And in a startup, it is much faster and easier to adapt to situations.

  2. i think it’s best to start in a recession and ride along wave out of recession.
    I’m starting a new T-shirt line here, so i hope all goes well too 🙂

  3. @fupper: all the best to your t-shirt line too!

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