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Yes, I am very much aware of what's going on in the economy and the stock market. Yes, I know credit is tight, customers are cautious, the equity in your home is plummeting, and your 401(k) is more like a 201(k). Doesn't seem promising for starting a business, does it? But it is.
History bears me out. When times are bad for the economy, it can be a great time to start a business. In fact, 16 of the 30 companies that make up the Dow industrial average were started during a recession or depression. These include Procter & Gamble, Disney, Alcoa, McDonald's, General Electric and Johnson & Johnson.
Let's take a look at the years 1973-1975. At the time, the United States had an unpopular president, was in the midst of the Watergate scandal and was at the tail end of an extremely costly war that had divided the country. Gas prices jumped by nearly 50% in two years. Consumer confidence dropped to an all-time low.
It was a terrible time to start a business, right? Well, here are just a few of the companies started in those awful years of the early 1970's: Supercuts, Chilis, Cablevision, Industrial Light & Magic, Famous Amos cookies, Oakley and, oh, yes, a small company called Microsoft.
Why? What makes it possible for new companies to thrive when times are so bad? Why can it be a good time to launch out on your own?
First, there's a lower "opportunity cost." In good times, if you already have a safe job or the company down the street is hiring, starting your own business means giving up the opportunity of a good job. There's a cost to that: a salary, health insurance, other benefits.
Of course, if you have a good job or are offered a good job, I'm not telling you to quit to start your business now. But what happens if you lose your job or you're just finishing school and no one's hiring? There's little opportunity cost in hanging up your own shingle rather than staying home and watching a rerun of "The Simpsons" or Oprah.
OK, but that might just mean creating some income for yourself until you find a job. What actually makes it a good time to start the next Intuit, Whole Foods, J.Crew, Costco, or Applebee's (all launched during recessions)?
Here's what happens in bad times — disruption. Disruption means things change. And things often change quickly and dramatically. When things change, there are opportunities. And entrepreneurs seize opportunities — that's what makes them entrepreneurs.
Some of the things that are changing:
•Weakened competitors. It's likely that many of your competitors are facing tough times, tightening their belts, perhaps retiring or selling out. Hey, even many of the biggest companies are closing up shop.
•Customers seek cheaper alternatives. When times are good, customers are likely to stick with the suppliers they're used to — even if they're a more expensive alternative. Now, however, customers are looking around for cheaper alternatives to get the products and services they need.
•Big corporations cut back. They slash their marketing and reduce their services, especially to "smaller" customers who might be great customers for you.
•Loyalties loosen. As competitors reduce services to customers, and as customers look around for cheaper alternatives, it means they're less likely to be loyal even to longtime suppliers.
That means opportunities for you. Specifically, what you can do:
•Be the inexpensive alternative. Target customers who use more expensive options now.
•Market aggressively. As loyalties loosen, your competitors' customers are more willing to jump ship.
•Innovate. Come up with new solutions, especially less expensive ones, for customers' problems; they'll be in a more receptive mood.
•Present yourself as an outsource source for big corporations. You'll be less expensive than the in-house staff they're laying off.
•Hedge your offerings by also having products and services that are counter-cyclical.
•Expand. See if you can acquire some of your weakened competitors.
In a world of good times, customers are happy, with the attitude that "if it ain't broke, why fix it?" But suddenly, things are broke — and they need fixing. You can be the fixer. Rhonda Abrams USATODAY
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