(Newswire.net — January 24, 2023) — Since the second quarter’s economic results showed that the United States had experienced two successive quarters of economic decline, economists have debated whether that means the United States is in a recession. For many entrepreneurs, recessions sound like a bad time to start a business. However, historically, some of our greatest businesses, such as Disney, Microsoft, and Electronic Arts have been founded during recessions. The estate of the economy, it turns out, isn’t a barrier to starting a successful business. Here’s why now is a good time to start a business.
Remote Work Has Transformed Entrepreneurship
Remote work has transformed the nature of work. Yet, its impact on entrepreneurship has been less recognized. Many businesses have been formed that are wholly remote, and many established businesses have decided on some kind of hybrid work model. Remote work means that founders can make do without many of the costs that typically encumber startups. If your business allows it, you can build a fully remote business, avoiding rentals, or the need to buy property. It has never been cheaper to start a company.
Not only does remote work allow businesses to be super lean, but it also allows them to scale quickly, because resources can be more focused toward growth opportunities, and businesses don’t face the drag on growth that comes with having to have a physical office. Businesses can also tap into the global marketplace of talent far more effectively than a business with a physical office.
You Can Achieve Work/Life Balance
The Great Resignation has been spurred by millions of people quitting their jobs in search of better work-life balance. This search has been made possible through remote work. Remote work allows people to work as freelancers, either on platforms such as Upwork, or Otta or, directly with remote contracts from established businesses. Remember, being a freelancer is being a business. It is advisable, though, to shield yourself from liability by forming a business and operating through that business. You can learn more here.
The Internet Has Made Niche Businesses Possible
Many people have niche interests that, at best, may not be able to get them more than 100 or 1,000 paying customers. In the past, that meant that a business was unviable. The internet has made niche businesses a profitable and attractive possibility. You can build a business with just 1,000 or even 100 paying customers, or “true fans”. For instance, you could earn $100,000 a year, charging $100 a year per fan, if you have 1,000 true fans, or $1,000 if you have 100 true fans. Obviously, the nature of your offering is very different if you are charging $1,000 as opposed to $100.
A niche business can be built on an internet platform such as Substack, Patreon, Roblox, or Teachable, where you would offer content to your fans. The internet solves the matching problem of finding fans of your content. Whereas, in the past, if you lived in a small town where nobody was interested in getting piano lessons, for example, with the internet, you can find people who want piano lessons, from across the world. All you need is 100 or 1,000 people who are willing to pay for your content, for your business to be profitable. Throw in the absence of meaningful overheads thanks to working remotely, and the business could be really profitable.
A Recession Can Be a Good Thing
During recessions, many businesses go out of business or scale back their expansion plans. With interest rates rising, borrowing becomes more expensive. Customers are more price sensitive and are pulling back on spending. That sounds like a terrible environment for a new business. However, if your business has a great product-market fit, or what venture capitalist, Marc Andreessen calls, “the only thing that matters”, then, having loads of potential competitors leaving the market or reducing their activity, is a positive, because even in a bad economy, you will be able to get funding. Recessions don’t mean the world ends. It means that those loss-making businesses that, in good times, may have easily received money, are now met with skepticism. If anything, the caution of bankers and investors means that they will gravitate toward good companies. So, with a great product-market fit, the absence of competition just means you will grow faster, and the bad economy will take capital away from your competitors.
Terms Are Negotiable
In a recession, suppliers are looking at declining revenue. This presents you with an opportunity that you might not get in a strong economy: you can negotiate for better terms than you would otherwise get. Businesses with capital are in a strong position to negotiate favorable supply agreements, knowing that their suppliers really need the revenue and want to reduce their inventory.
Historically, Funding has Never Been Easier to Get
Although interest rates are rising, historically, they remain very low. In addition, there’s still a lot of easy money floating around. Last year, venture capitalists invested more money into startups than at any other point in history, putting $328.8 billion into U.S. startups and $61.8 billion into Chinese startups. In 2022, more early-stage startups are raising $10 million or more, than at any point in history. All this at a time when the economy has faced a pandemic, global supply chain disruption, and the side effects of the Russo-Ukrainian War. Despite all the doom and gloom, there will always be funding for good businesses.
The Lipstick Effect
At the height of the Great Depression, many economists noted that sales of lipstick shot up. Since then, economists have observed that sales of lipstick and other beauty products have remained resistant to recession. We all can’t be in the beauty industry, but the lipstick effect shows that during tough times, people seek ways to improve their mood by buying little luxuries, luxuries that don’t hurt their budget but help to keep them feeling positive. That is a lesson for every entrepreneur: if you have a strong value proposition for customers, you can overcome the effects of a recession, and even grow.