• Vinay Nair

Paradoxically, recession is an apt time to Startup

We are living in unprecedented times now. The coronavirus pandemic has wreaked havoc in our lives and completely changed our social, economic and political interactions. Many of us have lost our jobs, many have resigned and many are looking to restart our careers.


Robert Fairlie, an economics professor at the University of California Santa Cruz, says,

If someone doesn't have opportunities in a salaried job, that's part of the motivation [behind setting up their own company]...
With the shutdown, people have had more time to think and take time back from busy work schedules. So if there's a business idea they've had, they might think, let's try this out.

To the uninitiated it may sound like bad advice, seeing that recession is characterised by high unemployment and low real GDP rates. 


Dane Strangler, a fellow at the Bipartisan Policy Centre, in Washington DC says, 

There's this trial by fire idea... If you get started in a recession, you really have to scrape and scrimp to make that company successful.
You are trying to make it when you can't get financing and trying to get customers when there isn't any demand.

And we can see the economy in a downturn again due to the pandemic. With the economy currently in a tailspin and most major ones either in a recession or facing one in the near future, things apparently may not look too hopeful. 



The World Bank has predicted that 2020 will see a shrinkage of the global economy by 5.2%, which will mark the worst performance since the aftermath of World War II. The US has already declared a recession, and the Bank of England also has forecasted that the UK might see its sharpest downturn in more than 300 years. India too has recorded a whopping 23.9% GDP contraction in the first quarter. It can thus be said that the overall picture that this situation cuts is not a pretty one.


It can be really tough to figure out the best time to launch your business.


Several economic conditions create headwinds and tailwinds, but predicting and timing these exogenous factors can prove to be really difficult or at times even impossible. Ultimately, the success of a business often boils down to personal factors. 

But what does our history tell us?


History is witness to the fact that hugely successful companies have been born out of terribly tough times. There is one thing that Goliaths like General Motors, Uber, CNN, Burger King, Airbnb have in common. Yes, they were all founded when the economy was in recession. 


General Motors was founded in 1988 during the "Panic of 1907" financial crisis in the USA. Burger King came into being in 1953 when the United States was yet again in recession. CNN did their first broadcast in 1980 when the inflation rate in the USA had hit almost 15%. And it was during the latest wall Street crash of 2007-08 that Uber and Airbnb started functioning.

Here are a few things to keep in mind if you are looking towards launching your startup


1. Key is to survive.

While we may be wired to judge a business by its profits, just surviving is also beneficial sometimes. While institutional capital may help you gain greater profits faster,  if you can self-finance your venture or find investors willing to help you just gently ride the wave of recession, you will be in a much better position to reap the benefits of the next boom in the economy. 


Remember Ygritt from Game of Thrones, once said,

And if we die, we die. All men must die, Jon Snow. But first, we'll live.

2. You don't fail, you only learn.

If you can secure enough capital to even just break even and survive, you can use this time to understand how the market works better. Many entrepreneurs credit bearish phases than upward economic trends to help learn more about the industry. If nothing else it at least arms your problem-solving toolkit better and helps you figure out innovative and efficient ways to sustain yourself.


Alfred explains to a young Bruce Wayne,

Why do we fall? So we can learn to pick ourselves up.

3. Make sure your team is tight. 

You don't need a huge workforce right from the get-go. Make sure your team believes in your cause and is willing to stick with your company even through crises. A 1959 study conducted by  Aronson and Judson Mills said that the more problems that one overcomes, the more value they attach to that experience and the people they endured it with.


You can think of it like how Harry, Hermione and Ron became friends in Harry Potter and the Philosopher's Stone.

There are some things you can't share without ending up liking each other, and knocking out a twelve-foot mountain troll is one of them.

4. Higher unemployment? Use it.

There is one advantage of higher rates of unemployment. There is an increase in the total size and quality of a potential employee pool and in an economy that is going through recession people generally accept lower salaries in exchange of compensation in the form of equity or solid benefits.


Reminds me of an episode from Money Heist, where Tokyo says,

The most important moments are the ones that make you realize there’s no turning back. You’ve crossed a line, and you’re stuck on the other side now

5. Bargain Bargain Bargain.

An economic downturn is a perfect time to get hold of the resources you require. A bearish market forces many companies to provide services below their normal price lists, and even carve out lucrative deals. This thus may be the best time to fuel your business, while reducing costs and conserving your capital.


Push your odds the Harvey Specter way,

Win a No Win situation by rewriting the rules.

6. Steal the thunder.

As we all know there is an overall rise in activity during a recovery cycle. This makes it extremely difficult to get noticed by potential investors, clients, customers and journalists. Success stories in the recession are however rare. Startups can use recession time to gain meaning for exposure.

Being

Being mighty solves a lot of problems for Thor,

Fortunately, I am mighty!

7. Review, Reflect, Revise.

The market during the recession is slow. But that is not necessarily bathing as startups can use this time to critically deliberate over the most efficient ways to run and sustain themselves. This can be with regards to products, service and strategies. This will definitely help in reducing mistakes that might prove to be costly like expensive but bad hires, one-sided partnerships and inefficient marketing commitments.


It will also help startups in avoiding over-engineered solutions and in designing products and services in such a way that they are minimally viable, relevant, and future proof.


Rowan Atkinson, who plays Mr. Bean once said

The older you get, the more you realise how happenstance… has helped to determine your path through life.

8. You choose your time.

You have to decide when the right time to launch your startup is there are many factors that influence the right time. If you keep on waiting for exogenous factors like macroeconomic conditions to be ideal you may end up waiting till your personal situation no longer suits your venture. A crisis can be made into an opportunity if you have it in you to take the dive, and not wait till the tide turns.


The two most powerful warriors are patience and time

So, keep in mind that economies function in cycles, and a recession is bound to be followed by a recovery. Believe in yourself, your company, have a loyal team, and just go for it.

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