If history is any indication, times of economic downturn lead to opportunities for new entrepreneurs
It’s pretty hard to miss news headlines about the coronavirus. In the course of a few months, the virus has managed to bring the world to its knees. Countries across the globe are struggling to get a grip on the deadly disease.
World governments are rushing to implement measures to tackle the outbreak, by closing borders, imposing mandatory lockdowns, encouraging self-quarantine and social distancing. While at the same time struggling to source desperately needed medical supplies and ramp up testing.
But the virus not only presents a public health crisis, it is wreaking havoc on the world economy and at home in the U.S.
Unemployment on the rise
Schools have closed, workplaces have shuttered, and many small businesses have been forced to close their doors, including restaurants, and many travel-related companies.
The U.S. Department of Labor reported a record 3.3 million Americans applied for unemployment benefits in the week ending March 21, as bars, restaurants, gyms, daycares, hotels, salons, and more shut their doors to prevent the spread of the virus.
Industries hardest hit include the travel industry, which is expected to lose 4.6 million travel-related jobs due to the coronavirus outbreak, according to the U.S. Travel Association.
The far-reaching effects of the virus have many worried and unsettled with no end in sight, while a growing number of experts argue that the U.S. is already in a recession.
Amid every crisis, lies great opportunity
But somewhere buried amid the uncertainty and doubt, is there a light at the end of the tunnel? Is there an opportunity for new entrepreneurs? History suggests there is.
According to research conducted by Robert W. Fairlie, professor, Department of Economics, University of California, Santa Cruz, “the Great Recession saw the largest increase in entrepreneurship of any period between 1996 and 2009.”
The Kauffman Index of Entrepreneurial Activity, the leading indicator of new business creation in the United States, showed an uptick of new businesses in 2008 a full year after the 2007 recession began. “An average of 320 Americans out of 100,000 formed a business each month.”
A launchpad for startups
In the midst of adversity and economic downturn, many entrepreneurs and businesses were born from the ashes. Some of the biggest names in the tech industry got their start during recessions, including Groupon, which launched in November 2008 and Facebook, which started just before the recession in 2004.
But not just the big dogs carved out a name for themselves during tough economic times, many small businesses got their start and were able to find success during tough economic times.
Nellie Akalp, CEO and founder of CorpNet, an online legal document filing service based in Southern California, had to adapt quickly to the economic challenges presented in the Great Recession. Still, her company was also able to take advantage of opportunities that arose from the recession.
“We launched CorpNet in 2009 at the height of the last recession. We did this because we truly felt and still do feel that a recession is the best time for people to start the business of their dreams, and we wanted to be there to help them do that, ” shared Nellie.
Funky Buddha, a South Florida based brewery, got its start in 2007 after owner Ryan Sentz purchased a tea bar in a strip mall.
The business grew steadily over the years following the recession and later expanded into one of the largest craft breweries in the state.
Although Ryan had no grand schemes of entrepreneurial success, he certainly wasn’t discouraged by the recession.
“There was no grand scheme,” Ryan admits. “I am really incredibly humbled to have had this happen.”
Opportunity in crisis
Starting a business during an economic downturn isn’t the first thing many would think to do. After all, it would be considered a risky move, given the uncertainty and economic instability presented by the coronavirus.
Plus, data from the Small Business Administration reveal only two-thirds of new small businesses survive at least two years. Falling to 44 percent at four years, and 31 percent at seven.
But when there aren’t many options and survival is imperative many accidental or necessity entrepreneurs are born.
“When people are forced into the marketplace through layoffs or economic disruption, that is, when you tend to see an entrepreneurial spirit emerge,” says Raheem Shefiu of the Centre For Entrepreneurship Development, Yaba College of Technology. “Entrepreneurs are, by nature, innovative. So during recessions, you see more entrepreneurship and more innovation.”
Higher unemployment rates lead to higher rates of entrepreneurship
During the Great Recession, the rapid rise in unemployment drove an increase in entrepreneurship. For many people across the U.S., the potential opportunities from opening a new business outweighed the alternatives.
“When you get laid off, you have the time to really sit and think about what you want to do in life. Something to lift everyone up is turning dreams into a reality, and starting a business is just that. We were right because we’re still in business ten plus years later, and we’re flourishing,” said Nellie.
Creativity and ingenuity increase
Indeed some people become more resilient when faced with adversity and move quickly to adapt to new situations. Starting a business during a recession can foster creativity and resourcefulness, key qualities that help small businesses do more with less.
Starting a business during tough economic times allows new up and coming entrepreneurs to focus on the details and to build real connections with their customers in order to stand out.
During a recession, new entrepreneurs can also take advantage of certain side effects, including less competition, government funding to stimulate the economy and lower real estate prices.
There are usually many resources available. Getting loans and financial aid can be easier, with lower interest rates. You also have more time to focus on developing a strong business plan that can lead to a higher success rate.
If you’ve been thinking about starting your own business, this could be your opportunity. Despite the impact of the coronavirus, entrepreneurs are encouraged to start businesses with the help of free resources and tools to simplify the process.
And while this might not seem like the best time to start a business, studies and experience from startups who have weathered recessions and crises suggest otherwise.