Slow Economy and Developing a New Business

I have been asked this question several times recently, and held discussions with various people about the relationship between the state of the economy and a good environment for starting a business. The question tends to be phrased as a version of

“Is a recession, or slow economy, a good time to start a new business, and why?”

Before you attempt to beat the odds, be sure you could survive the odds beating you.

The first point to consider is illustrated in the image to the right. Starting a business is a risk, and you must first evaluate whether or not it is a risk worth taking.

Take, for example, an employee for a company who has fairly good job stability, a small reserve of funds in case he is laid off, and some money put aside for retirement savings in an RRSP. He is presented with an idea for which he has the necessary skills to turn into a successful business. However, in order for him to work on the project, he must quit his job so that he can devote all of his energy to developing the idea.

I will not attempt to answer the question as to whether or not he should quit his job. However, there are a few questions that the candidate should consider. Can he afford to quit his job? How hard will it be, should this idea be a flop, for him to find another job? Can his life tolerate the additional risk of working for himself.

Once he knows the answers to these questions, in addition to those questions which reflect his interest in the idea, he can make an educated decision as to whether or not he should take the risk. It should be noted, however, that in a slow economy, the likelihood of being able to find another job, should this business flop, is drastically lower than in a fast economy.

From a business point of view, someone who is starting his own business (that is to say, he has answered the previous question such that he decides to quit his job) will find that a slow economy makes for easy growth. Costs are reduced in such an economy, and being able to find cost-efficient ways of growing a business will be significantly easier. Operating costs will therefore be lower, and while larger companies use a slow economy to consolidate their operations, smaller companies can take the opportunity to absorb the cuts from their larger competitors.

The economy, in moving out of a recession, will benefit the bold. Those who used the time to perfect their product, to gain a foothold in the market, or to streamline their operations, will be far ahead of those who merely tried to cut costs and survive until the end. Such companies will find themselves struggling to catch up to those who innovated over the past year(s).

If you want to be on the leading edge of innovation, there is no easier time to get there than when the competition for the edge is relaxed.