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Starting a Business in a Down Economy
Posted: February 12, 2009
No one has to be told how grim the employment scene is these days. The fact that we are in a full-blown recession makes it pretty clear that jobs aren't falling from the sky like manna. Factor in the company closings and downsizings that have pushed jobless claims to the highest they've been in 26 years, and the picture becomes even grimmer. But don't despair. If you find yourself out of work, you're not doomed to a depressing and ultimately fruitless search in a decimated job market. Ed Hess, professor of business administration and Batten executive-in-residence at the Darden School of Business at the University of Virginia and coauthor of the new book So, You Want to Start a Business? 8 Steps to Take Before Making the Leap (FT Press, 2008) suggests you take your destiny into your own hands—and start your own business.
If you have a business idea you think could work, take the following advice to heart:
- First, forget the idea that you're giving up "security." "The benefit of being a small business owner is that, in times like these, you control your fate," says Hess. "You don't have to worry that you'll come in to work one day and get the ax. You don't have to live with someone else—perhaps someone less competent or hardworking than you—in charge of your future. You can make changes in your business as you see fit. There is a definite sense of comfort in knowing that you are the one making the decisions that will affect your life."
- Start small without risking a lot of money. This is good advice for any worried entrepreneur, but it makes even more sense in a sluggish economy. Starting small gives you the ability to test the job market while you get your business off the ground. It also means you can test drive your idea without making a full financial commitment. If business starts to pick up, you can make the decision to transition into a full-scale spa—or, if you find a job while you're testing the entrepreneurial waters, you can keep your new enterprise small and use it to make some extra money on the side.
- Find out exactly what your clients want. Before you pour a lot of money into getting your business off the ground, do your due diligence by talking to as many potential clients as possible. Clients know what they are willing to pay for. Ask them what they want out of your spa and find out how your would-be competition is missing the market in delivering it to them. In fact, Hess suggests that you go to your competition as a potential client so that you can see firsthand what their real customers experience.
- Seek the advice of experienced entrepreneurs. No one provides better mistake-dodging advice than small business owners who have already weathered their share of economic ups and downs. Seek out entrepreneurs in other cities or those who serve a slightly different market segment than the one you're planning to target. Ask them what obstacles they ran into when they were getting started and find out what they are doing to keep their doors open during the down economy.
- Finance your business yourself. It's true ... lenders are no longer handing out small business loans like candy. But if the inability to get a small business loan is keeping you from going out on your own, know that there are other options out there. One alternative to financing is to take a look at your savings to see what you can put toward the business without incurring too much financial risk—typically, around 20% of your net worth.
- Take advantage of the flooded market. These days you can get better things cheaper. If you are a small business owner looking for employees, you'll likely be able to hire more skilled workers for less money than they might normally accept. Maybe they desperately need the work, or maybe they just understand that slow economic times mean lower salaries (and they trust you'll make it up to them when the recession is over). When you want to expand your spa, you may also be able to get a good deal on a space. The real estate market is suffering right now, so more and more property owners are looking to make money on their properties any way they can.
- Provide unbeatable customer service. One area in which a small business should always excel is customer service—good economy or bad. But when things are down and clients have less money to spend, they really care that they're getting a lot of bang for their buck. They'll also be looking to cut out those businesses that aren't meeting their needs. As a smaller company, you'll have an advantage over larger competitors because you are better positioned to provide consistent, outstanding service. Small businesses just tend to be more flexible and can turn on a dime to meet client needs as they arise.