What do the megacompanies Publix, Advance Auto Parts and HP (Hewlett-Packard) have in common? They were all founded in the 1930s during the Great Depression. As these companies illustrate, it’s possible to start a business in a down economy and go the distance.
“A down economy can be a great time to start your own company,” says Raviraj Hegde, head of growth for Donorbox, an online donation platform. “Many businesses over the years have been started during depressed economies. Somehow, entrepreneurs make their companies grow, despite difficult economic conditions.”
Personal injury lawyer Justin Lovely, founder of The Lovely Law Firm, started his business in 2009 near the bottom of the Great Recession.
“If you have enough liquidity or cash flow to do so safely, a down economy can be a good time to start a business,” says Lovely. “Looking back on when we started the law firm in 2009, it was an ideal time. Many law firms failed in 2008 because they had overextended themselves. Yet people continued to require the assistance of lawyers. We were able to fill that gap.”
If you’re looking to start a business, here are several reasons why doing so in a down economy may be the ideal time to become your own boss.
The competition during a down economy is going to be a lot less stiff because many would-be entrepreneurs will be hesitant to take the risk. Instead, they’ll likely decide to wait out the financial storm until the economy improves. That means you won’t have to contend with as many competitors as you normally would during a strong economy.
“Less competition is probably the biggest reason that businesses can shoot for big success during a down economy,” says Hegde. “For instance, you might see an entire industry start to suffer in the depressed economy, but there will continue to be some demand for those services. As a result, whatever firms remain in the industry to fill that demand—even at a lower price point—can make a profit. A small startup company could remain extremely competitive in that kind of marketplace.”
The costs of getting a company going are generally lower during a down economy. For instance, you’ll likely be able to procure discounted products, services, and equipment for running your business. That will make operating your company less expensive, giving you a higher profit margin.
“Lower cost of goods and services can help you become profitable fairly quickly,” says Hegde. “Such savings will also allow you to hit a lower price point and capture customers who might not otherwise afford your products or services.”