How Recessions Can Help

A bad economy can create smarter entrepreneurs.

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Recessions usually mean more creation of start-up businesses.  When people get laid off, they often use their unemployment as an opportunity to start the business they always dreamed about—or, because the job market is so bad, they have no choice but to become entrepreneurs.

But more businesses doesn't necessarily mean better businesses. A Kauffman Foundation study found that more of the businesses being started last year are businesses with lower-income-potential—think more grocery stores rather than more software firms.

But this article in yesterday's New York Times gives the other side of the story. Sometimes recessions not only create entrepreneurs, but strengthen them:

But research on what is known as post-traumatic growth has found that some people become more resilient when faced with adversity, says Shawn Achor, a Harvard researcher. Creativity surges, he says, as they adapt to a new situation. “Their brain is actually learning at a faster pace than when they are not challenged,” Mr. Achor says. “As a result of this, some individuals, the accidental entrepreneurs, they are the ones who in the midst of crisis actually respond with growth.”

That's good news even for people who have no intention of ever starting a business. Many businesses that provide employment and growth for our economy were products of adversity. The article mentions that Starbucks, Intuit and PetSmart were all founded during recessions.