Thomas Cooley writes about finding success during a downturn, and there couldn’t be a better time to refer to insider knowledge like his than right now.
Consider the following statement by the dean of New York University’s Stern School of Business:
“…it’s a time of opportunity because it’s a time when emerging businesses, firms that have a good business model can acquire talent, can find more people willing to take on some career risk in order to pursue an idea and really put in the sweat equity that’s required to succeed in an entrepreneurial venture.”
I think he’s right about the availability of good talent during a downturn. People get laid off or have difficulty finding jobs. In those circumstances, starting a business or going to work in a startup is more attractive than the alternative, i.e., unemployment.
However, there’s another factor that explains why some businesses started during or directly after a recession are so successful.
Very simply: the competition is distracted.
A void appears in the marketplace. That void is an opening that nimble innovative startups can exploit.
Consider this list of famous companies founded during recessions that are market leaders today. The list includes HP, Burger King, Revlon, Microsoft, FedEx, Lexis Nexis – to name a few.
What is it that made these companies take off? Well in each case they had an innovative new way of doing something.
But there’s another factor: large companies, reeling from the effects of the recession, make it easier for startups to drive in a wedge and get a toehold.
Think about the circumstances in which these new companies got started. We know what happens during recessions. Established businesses – especially large corporations – get distracted when their sales flag. They have to reduce staff and cut expenses. The leadership feels embattled – or just worn down. Many of them go into “crisis management” mode. Frequently there’s a change in senior leadership (someone has to pay the piper). The business then regroups. The best ones emerge a year, 2 or 3 later as stronger businesses. Others, though, are permanently wounded, filing bankruptcy, hacking off and selling parts of their companies, and exiting markets in order to save the core – only to become a shell of their former selves.
It’s the process of creative destruction and rebirth.
Under those circumstances, is it any wonder that a smaller upstart can get a toehold, and then turn that into sustainable competitive advantage?
That’s why a recession can be an excellent time to start a business. Take advantage of it. You may not get another opportunity when the market leader is on the ropes – or at least looking the other way.