Should You Launch or Expand Your Small Business During a Recession?

While some economic indicators indicate that the economy is still relatively strong, others indicate it is in or about to enter a recession. As a result, some new entrepreneurs have put their plans on hold while they wait to see which direction the economy will take.

If that describes you, then you could be making the wrong move, according to Jake Flomenberg, an investing partner at Wing Venture Capital, a VC firm that invests in early-stage start-ups.

According to Market Watch data, more than half of Fortune 500 companies, including HP, were founded during a recession. Moreover, companies such as Uber, Slack, Warby Parker, and Airbnb all began during the 2007-2009 recession.

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According to Flomenberg, starting a business in the next 12 months is a wise decision because:

Franchise Path | Small Business During a Recession

There is much less competition

Cutting marketing, advertising, and public relations budgets is a common recession strategy for businesses. In addition, because fewer companies are actively promoting themselves, business owners who enter the market and invest in promotion strategies will have less competition and a higher chance of surviving the current market conditions.

VCs are looking for deal flow and still have money to invest

With less competition, the chances of obtaining capital increase. In the first half of 2022, North American venture firms have raised $88 billion for seed funding for new start-ups. This indicates that the market for this type of financing is still robust.

Availability of top talent

Because the world has grown accustomed to remote and hybrid work environments, entrepreneurs can now more easily hire top talent and build global start-up teams. Furthermore, over 21,000 workers in the US technology sector have been laid off in mass layoffs, leaving top-tier talent looking for new opportunities.

Customer acquisition is simplified

Recessions are known to disrupt and alter consumer trends, causing additional problems. Companies that can solve these issues will gain a significant competitive advantage. According to Flomenberg, entrepreneurs can use the current economic turmoil to innovate and streamline operations cost-effectively.

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Many business owners are wary of taking risks during recessions. They play it safe. So why is that the wrong approach?

Flomenberg: Simply put, the best time to act is when others won’t or can’t. For example, there are some companies that, during times of recession, will pull back on marketing. If you’re one of their competitors, now would be a great time to lean in.

Increase your marketing budget and expand your market share; invest in your business and continue to grow while the competitor is at a standstill. Thus, in reality, you might think that pulling back on marketing is safe when in reality, it is the exact opposite.

Do you look for entrepreneurs with specific characteristics that you believe are especially suited to growing a business during a recession?

Flomenberg: One of the most important characteristics we look for in entrepreneurs is what I would call tenacity, the type of entrepreneur that we invest in is tenacious. This entrepreneur will do whatever it takes to succeed.

If we’re in a recession, those tenacious entrepreneurs will do whatever it takes to keep the business alive, take funding on less than ideal terms, reduce headcount, etc. Building a company from nothing is a tremendously difficult endeavor. In good and bad times, people with tenacity will fare far better than those who don’t have it.

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