Starting a business is a frenetic and confusing task. But in a tough economy, things can get even tougher, requiring upcoming entrepreneurs to triple their efforts. This is partly because a tough economy puts pressure on credit markets and potential customers are more careful about how and where they spend their money. Recessions and economic downturns can also have many negative effects on small businesses.
As a business owner, you will need to be smart, smart and careful about the steps you take to launch and grow your business. Building a business in a tough economy or recession isn’t impossible, but it can be tough. Recessions are notorious for closing the doors of new and established businesses alike. In this article, we’ll give you steps on how to start and grow your business in a tough economy or recession.
How to start and build a business in a recession
1. Choose the Right Business
Not all businesses can withstand harsh economic conditions. Some businesses thrive in recessions while others struggle to keep their doors open. If you haven’t started a business yet, you should take the time to find out if your business idea makes sense in a tough economy.
But what if you have already started your own business? How do you grow your business during a recession? Companies use several strategies to survive a recession. One of them is to behave like a recession-proof business.
Essentially, this means understanding your customers’ struggles and doing your best to provide them with what they need. It can offer deep discounts or offer alternative products that are more cost-effective. If you’re wondering which types of businesses do better in a recession, check out our article 13 Recession-Proof Businesses That Thrive in a Down Economy.
2. Plan Well and Get in a Good Financial Position
There is never a shortage of capital for new and established businesses during economic expansion. Banks and investors are always on the lookout for a business to help fund with the expectation of a huge return.
But in times of recession, the well of available money dries up. This does not mean that you will not be able to invest or be approved for a business loan. It simply means that doing so can be difficult.
A really good business plan, proof of concept, and good personal credit history will go a long way in finding funding for your business. Before seeking finance from an institution, investor, or even family and friends, make sure you can demonstrate that you can manage funds responsibly.
3. Run as Lean as You Can
When an economy is slow, it usually means that the money supply is tight. This means finding money to run your business will be challenging. So it is always better to use less money to run your startup. Popular startup essay writer and Y Combinator founder Paul Graham hit the nail on the head during the 2008 economic crisis when he wrote: “Why Start a Startup in a Bad Economy”. In the essay, Graham reinforces the idea that survival in any economic environment; drive cheap. Here is an excerpt from his essay.
Keep in mind that just because your sales drop or that financing is more difficult, it doesn’t mean you should close the business. Economies expand and shrink so if you can stay there during the contraction, you will be in a better position to take advantage of the expansion.
4. Use Alternative Methods to Market Your Business
Building a business when the economy is down takes ingenuity and creativity. Even as a new business, you need to find ways to increase sales even if you are in recession. Therefore, you should think of new ways to get ahead of the game and your competitors.
In a difficult economy or recession, businesses that innovate and adapt usually perform better after and after the crisis is over. In your business, it’s important to be creative when marketing your business. Offline marketing and using a combination of social media and YouTube is the best and most economical way to reach customers.
Think of fun ways or campaigns to promote your product to your target customers. Go to Youtube, Twitter, TikTok, Instagram and start a campaign, or better yet, hop on one that is already in motion.
Once you’ve got some online speed, you’ll also have to go offline to stay visible. Go to local business meetups, give lectures and talks, and be an active part of your community to make sure people know who you are and what your business does. The important thing is to make sure that you are visible and active so that your brand can reach your target audience.
5. Manage Your Expectations
As I mentioned earlier, when the economy shrinks, money is tight. It is therefore important to manage your expectations and work on using your capital properly to handle business expenses. Eliminate useless steps, non-essential protocols, or procedures that add no value or waste time. Your employees can use those extra hours while focusing on your company’s core mission.
Your financial projections and key performance indicators need to be adjusted for current economic conditions. This doesn’t mean that you give up on the idea of evolution in exchange for survival. However, it does mean that you redefine what growth looks like for your company.
For example, you might have goals to grow your team from 25 to 50. But does your team need to be full-time employees or can you use sites like Upwork and Fiverr to get the job done? Remember that you must first learn how to survive before you can move on. It is important that you learn how successful companies survive recessions and follow the same principles.
6. Leverage Free and Low-Cost Technologies, Software and Tools
As a new business trying to find its way into a recession, it’s important to find the most economical way to do everything. When it comes to things like accounting, online marketing, customer management, etc., there are tons of free and low-cost options that you should be using when you’re just getting started.
Wave App and ZipBooks are good examples of capable accounting software that are free to get started. As your business grows, you can continue to use them with advanced features or move on to more heavy-handed tasks.
7. Choose the Right Product
Just as there are some businesses that perform better during a recession, there are also many products that sell better in a downturn. When starting a business in a recession, you must remember that some products you want to sell, no matter how well, may not sell well due to the economic environment. While innovation is important in any business, offering tried-and-true products will help keep your business moving forward until the economy improves.
Starting a business during a recession is not always ideal. But if you take the right steps and go into it with a game plan, you will increase your chances of success. Take the time to choose the right business for you and your financial situation. Then, grow that business by investing carefully in things and being innovative. Just because a recession is crippling the economy doesn’t mean you can’t be a winner. If you’re already in business and want to know how to weather the storm, check out our article How Strong Companies Survived the Recession: 7 Strategies You Should Incorporate into Your Business Today.
This article was first published on February 6, 2016 but has been updated and expanded.
Staff News Writer: Lance McHenry is a writer, tea lover, entrepreneur, lover of #tech and #startups. His idea of a triathlon is to develop an idea, build a prototype, and validate. He has been involved in the development of several startups and now shares his views on business and technology. Follow him on Twitter @Lanceexpress
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