How To Start A Business During An Economic Downturn
The global economy, and of course the Australian economy, has taken a sudden nose dive due to the Coronavirus crisis.
The world was taken by complete surprise, no one was ready when businesses and communities were closed down and put into lockdown for an indefinite period of time.
The future is still uncertain and we are nowhere near a recovery.
Many companies, big and small, took a sudden nosedive, with some to never recover again.
With all of the uncertainties brought about by the COVID-19 pandemic, profits have taken a backseat over safety and staying at home.
Notwithstanding the ailing economy, people still need to earn an income and there is also the need for the delivery of basic goods and certain luxuries.
Many companies have closed down however, there are few that have thrived. It is intriguing that during all this economic turmoil, some companies are still able to deliver goods, earn good money, and pay for their workforce.
In fact, there are companies that opened right when the COVID-19 pandemic started.
What is their secret?
This question requires exploring a number of questions and considering multiple factors. It is a complicated time we are in. Knowing how to start a business during an economic downturn is important. Starting a business in general is hard. How much harder is it during a crashing economy like there is today?
If you are planning to continue generating an income stream during these trying times, here are some important steps to take:
- Education and Research – Educate yourself on the market today by asking yourself these questions:
- What are the products and services people need today?
- Will my products or services still be viable after the COVID-19 crisis?
- Do I want a short-term business specifically for the Coronavirus lockdown period or do I want a long-term business that takes advantage of the demands of the market right now and into the future under the “new normal”?
- Decide what products or services you will offer – Based on the questions above, you should be able to decide which products or services you will be offering (if you haven’t decided already).
- Financing – Make sure you are ready financially. Starting a business requires money. Manage and prepare your financial resources. This can be from your own pocket, financing, loans or investors. It is important that you have a financial blueprint before you start.
- Figure out your initial investment requirement. During these tough times, most businesses rely on their websites as their storefront so all transactions are performed online. However, there are factors that require physical assets, like storage, delivery vehicles, computers, etc. You need to figure out what you need for the initial setup and how much money you need so you can start.
- Determine the number of staff you need. This will be an important factor in determining your initial investment because businesses typically do not profit from the get-go. You need funds to cover your business for a few months for things like salaries, expenses and other fixed and variable costs.
- Physical store or website? You need to know if you will focus online or on a physical store.
- Finding local vendors and suppliers. Because movements and travel are limited, you need to source out local vendors and suppliers.
- Have a solid business plan. Increase your chances at being successful in your venture. A solid business plan is your blueprint for success.
One of the main considerations in starting a business is FINANCING. You can’t start or run a business without money. In a crashing economy, it is even more difficult to get access to capital.
Before taking out a loan, ask trusted friends and mentors for advice and ask them to review your business plan to make sure you have not overlooked important factors.
Asking for advice from the right people will save you from costly mistakes.
Some people you should ask for advice are:
- Family and friends who are successful business professionals
- A small business banker or loans manager
- Someone you know who works in your local chamber of commerce.
- An accountant can give you sound advice especially when it comes to money management, investing and capital.
- Business managers and experienced investors
Marketing is important – before, during, and always. Be smart in your marketing strategy. During a recession, it is important to make the most of every dollar you spend on marketing. Get ahead of the game and your competition.
Stand out, be unique, and be strategic.
The main purpose of marketing is brand recognition. Your ads and message do not have to be expensive, they just need to be unique and memorable.
Explore all platforms especially online. Get in front of your target audience and be consistent. The only way your customers and potential customers remember your company is when they see and hear from you regularly.
Make your logo and your company brand simple and recognisable.
The majority of consumers have access to the internet so it makes sense to focus your marketing energy online. Marketing online is affordable and has a wide reach. Furthermore, you are not limited to any geographical location, age, gender, and other factors.
Start Small, Start Smart
Start small and work your way up. With the condition the economy is in today, it is smart to start with something that is easily manageable as you test the waters.
You can always scale up as you progress further. Aim to do your best but make sure that you manage your expectations because with a crashing economy, certain things can go wrong at any time.
Use Technology To Your Advantage
Take advantage of the latest advancements in technology. Technology provides a way to help businesses save time and money.
Here are some ways technology can help you:
- Reduce the need for labour or a bigger workforce
- Open up your market by selling online
- Use your website as your storefront
- Allow online and automated payments
- Simple and efficient communication, especially with customers by using email campaigns, push notifications and retargeting campaigns.
- Use the internet to find and communicate with like-minded individuals, fellow entrepreneurs, business leaders and the like.
- Optimising your website by allowing web payments, shopping carts, and online sales processing.
How You Can Lower Your Initial Investment Costs
- Use the economic crisis as leverage. When negotiating your lease for example, ask for a discount, better options or a few free months. With businesses closing down and rents not getting paid, you do not have a lot of competition and lessors and landlords might be more flexible especially if you can show them that you can pay on time.
- Look for struggling companies that you may be able to buy your stock and inventory from. This way, you can negotiate a solid discount on the items while also helping these businesses to get rid of their stock at the same time.
- Look for possible ex-deals or barter opportunities. It is not uncommon for companies to exchange products or services without any money involved.
- Keep your overhead costs low. Find areas within your overhead costs where you can cut or eliminate completely. For example, instead of hiring an accountant or payroll officer, outsource to an independent contractor you can pay per project. In terms of legal advice, you can get a monthly subscription to an online legal website where you can create and customise contracts and deals instead of keeping a lawyer on a retainer or paying an hourly rate.
What Are The Best Businesses To Start In A Crashing Economy?
There are specific businesses or industries that can survive during an economic downturn. They are called recession-proof or counter-cyclical businesses.
- Food – food is a necessity. Recession or not, people will always buy food. This is one industry that will always survive. What is happening to today’s economy is the best example. Even when some cafes, restaurants, and other foodservice companies have closed down, food delivery and groceries are still one of the most in-demand businesses today.
- Auto-repair Service – With lockdown restrictions and the lack of public transportation, people rely on their private vehicles even more. Auto-repair services are in high demand because people cannot afford not to be able to use their vehicles.
- Household Items – laundry detergents, toiletries, kitchen necessities, and other household products are on top of the delivery list of most people in lockdown today.
- Little Luxuries – items like ice cream, chocolates, pastries, hair accessories, cosmetics, sports items, and many others are in-demand today because these items help alleviate boredom. Getting to enjoy the small luxuries keeps people sane and happy.
- Work-at-Home Jobs – Due to travel restrictions, work-at-home jobs have become more popular. And it looks like the trend will continue even after the COVID-19 crisis.
- Mobile Clinics including veterinary services – Clinics for humans and animals are necessities, whether there is a pandemic or not. Today, online consultations are popular. Only when it is absolutely necessary are you advised to go to the clinic or your medical professional will come to you.
- Plumbing, electrical, and home repairs. This is one industry that is often overlooked but is essential. Even with a lockdown strictly implemented, if you have a leak in your plumbing or problems with your electrical lines, repairs need to be done right away.
- Liquor – The liquor business (manufacturing and distribution) will never go out of business. Liquor is not a necessity but it is just as in demand as essential goods.
Why Start A Business During A Recession?
No matter how difficult the economy is, there will always be opportunities for those who know where to look. You can turn adversity into an opportunity.
A crashing economy changes the buying patterns of the end consumer and essential needs can vary.
At the end of the day, there is still an underlying “need.” And that is the reason entrepreneurs start businesses during a recession.
Having the right product and/or service is a good starting point however, here are some other reasons why you may want to consider starting a business during an economic downturn:
- People want to save money – during hard times, people will look for better prices, discounts and promotions. People are still buying. That is an opportunity!
- People want innovation – recessions create additional problems for people. This is an opportunity to provide solutions through innovation.
- People are looking for work – When companies are closing down, there are talented and highly-skilled professionals looking for work. This is an opportunity to build a great team and a strong business.
- Interest rates are lower – banks and other financial institutions lower their interest rates during recessions. It means you can start your business with lower repayments.
- Less competition – because companies are going bust left, right and centre, you have less competition.
- Smarter investors – if you have a good business model, whether or not there is a recession, smart investors will take a punt on you.
- Building good business habits – a tough economy will test your determination, leadership skills, and business acumen. If you survive a crashing economy, you will be bullet-proof when the economy improves.
Starting a business during an economic downturn is challenging but it also has its benefits. As long as you study, research, do your due diligence, think strategically, and take advantage of every opportunity you come across. The experience you get during a recession will be the strong foundations for a long-lasting business.
Consider it trial by fire. When the economy gets better, there is no obstacle or business challenge you won’t be able to tackle.
Even during hard times, there is always an opportunity. An opportunity to learn, to build, and to make money!
What people see as a disaster, can be a great opportunity for the discerning eye. When people panic because there is a shortage of an essential need, a smart entrepreneur should see it as an opportunity to provide what the market is lacking. It is all about perspective.
Listen to what the market demands and always be ready to jump in and deliver what the market wants.