Risky Business

How Will Entrepreneurs Fare in a Recession?

October 21, 2008 RSS Feed Print

When something gets riskier, you get less of that thing. Just look at how the trend of a decline in venture capital activity has amplified as the economy has worsened.

So consider the following claim a blow against the conventional wisdom about small businesses and start-ups:

Turns out that even in a downturn, the number of business start-ups is pretty constant, hovering at around 640,000 a year. Economic slumps typically last six months, so they don't tend to affect entrepreneurial plans that have been years in the making. Nor is the start-up success rate hurt by the vagaries of the business cycle, says Brian Headd, economist at the Small Business Administration.

But really, this shouldn't be surprising. Do entrepreneurs consult the broad economic picture when trying to decide whether or not to start a business? No—if they have a great business idea, then they follow through with that idea regardless of the macro economy. In a poor economy, there are vast opportunities for new ideas simply because there are more economic problems that people need solved.

But when credit gets crunched in an economic downturn, shouldn't that make it harder for entrepreneurs to get started, so that we should be seeing fewer start-ups? The evidence that we don't see a significant change in the number of start-ups reinforces just how small a role lending plays in starting businesses—at least traditional bank lending. Money from friends and family as well as personal savings are more important.

So when we talk about a credit crunch, we don't necessarily mean fewer start-ups. But we do mean less growth among the small businesses that already do exist.

Tags:: small business,; economy,; recession,; entrepreneurship

« Previous Post Next Post »

Reader Comments Read all comments (3)

Add Your Thoughts Comment Name State Email

Please enter the two words below into the text field underneath the image.

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.

I saw a segment on this evening’s national news entitled, $tarting Over.
It was about people who were forced to start their own business after being laid off. The segment featured a woman who, after returning from maternity leave, was informed that her division was closing and everyone was getting laid off.
While the manner in which she was going about starting a business was not exactly the way I suggest in, How To Start A Business From Scratch…Without Having Any, it did point out what many people have overlooked about starting a business.
A lot of people, who are concerned about starting a business in an economic downturn because the business climate is bad or we are in a recession, fail to realize they may not have any choice. And, unfortunately, many do not prepare themselves for a day where they need to rely on their own skills to bring home the bacon.
Even if you think you have a sound and secure job, take the steps now to prepare yourself. Your house may never burn down or get hit by a tornado but you need home insurance. Consider this “Career Insurance.” At a minimum you will learn a lot about yourself, business and maybe decide to take the plunge regardless. Take the time now to do your homework so you will not be under pressure to rush through the process if you have to.
At least start by asking yourself what you are passionate about.
Close your eyes and ask yourself this question: If money were not an issue, and I could do any job I wanted, but I had to work, what would I do? There is a good chance this is what you are passionate about. When you are passionate about something, time and work do not matter. The price you pay in practicing and honing your skill is a labor of love, and time flies by.
You may say, “I am not passionate about anything.” I don’t buy it. You just might not want to admit out loud or to yourself because it just sounds like a hobby or an interest you have. That’s your source for your best ideas. When you have a strong interest in an area, you know it. You read the magazines and journals dedicated to that interest, and you could talk for hours about it. That’s passion. It will provide energy and motivation for your business.
I am not saying you have to be passionate to start a business. But it helps. You are going to spend a lot of your waking (and dreaming) hours in your business. It will much more enjoyable if those hours are spent doing something you like. And if you’re good at what you are passionate about, you are way ahead of the game.
There are a lot of other factors to consider when starting a business from scratch, but your passion will guide you through the tough choices.
At the conclusion of the TV news piece I was glad to see it was pointed out that Microsoft, Johnson and Johnson, Compaq, HP, and other successful companies were started during a recession. And they all started with one person’s passion.
www.LouieBernstein.com

Louie Bernstein of GA 5:58PM October 21, 2008

in record numbers as is happening again now, and you no longer work for a company with benefits, you do whatever you can to pay bills and support your family.
If that means starting your own business, you launch out.
You can use many skills learned working for somebody else to work for yourself.
Always in demand are jobs that nobody likes to do for themselves, but pay well.
Skilled trades and menial jobs; painting, lawn care, maintenance, general handyman and landscaping chores, baby sitting, animal sitting, maybe you're able to troubleshoot & repair or debug or program computers -- the list is endless and you can be self employed at these kind of things and whatever else your can imagine that people will pay for.
Been there--done that.
When the big firms are hiring again, you can choose to continue for yourself or go back to a job with benefits.

HillbillyBill of TN 4:10PM October 21, 2008

We could actually do well with fewer startups. Many, many fail, and many others are in socially unneeded industries. Both have downside costs that don't really help the economy. How many nail salons do you need? Fast food eateries? Massage parlors? Tattoo shops? Payday lenders?
Real estate agencies?

of 2:05PM October 21, 2008

How Will Entrepreneurs Fare in a Recession?

Related Articles

Reader Comments Read all comments (3)

Risky Business

Subscribe

Editor's Picks