Economic downturns, recessions and the volatile market we’re experiencing as a result of the COVID-19 pandemic are challenging times for all small business owners. South Africa and the rest of the world face unprecedented levels of uncertainty, many businesses have had to cease operations, and others have had to implement work-from-home systems to keep their heads above water. 

Many businesses have had to find new methods to pivot their current business models, revisit their budgets and define new forecasts to minimise their burn rate and maximise their available cash flows. 

While many business owners find new ways to thrive, those who are seeking to start a business might have the perfect opportunity to do so, even during this time of crisis.

By utilising a lean planning system, starting your business during a recession can potentially help you capitalise on a weaker economy as well as avoid many of the challenges faced by current business owners. 

In this article, we explore eight factors to keep in mind to start a business during a recession successfully.

1. Find the answers to new problems. 

Challenging economic times often lead to new problems. These problems come from a current need or pain point which customers might be facing, which often don’t have a solution readily available. By understanding how consumers are handling an issue now, and who provides the best possible solution, will help you define how they will decide to switch to your offering. 

Start by focusing on the positioning of your business, product or service as a new and better solution. Of course, there are many competitors out there, so it’s vital to show that your solution is more affordable, more reliable and/or more readily available than the competition. In the case of the current pandemic, the best possible way to approach a new business idea is looking at a remote solution, delivery, or an “as a Services” (SaaS/PaaS/BaaS) variation of products or services which have not effectively pivoted. 

2. Reduce costs, provide faster and better service. 

Chances are, due to lockdown restrictions, you’ll be starting out from home, with minimal or no employees and notably low overheads to maintain right now. The above factors, in combination, puts you in an ideal position to provide cost-effective solutions to win-over potential customers. During times of economic crisis, businesses and consumers alike are cutting costs wherever possible, which allows you to step in with an answer. 

If your potential business offering can help consumers save and provide excellent customer service, or quicker turn-around times, you have a good chance at turning potential customers into long-term clients. By providing them with a solution to their needs and wants during this time, they’ll likely remember your brand as the business that aided them during a crisis and potentially turn them into advocates of your business. As the economy starts recovering, you’ll have the option to increase your price points and/or add additional services which these customers will more than likely be willing to accept, due to customer satisfaction they received during a downturn. 

3. There’s room for competition. 

So you’ve thought about starting a business before, but perhaps have been reluctant to due to fear of the market being too crowded? Now is the perfect time to enter the market. Larger entities and smaller businesses alike are struggling to adjust and survive in different ways during a crisis, which means your competitors and market are vulnerable to new entrants. 

The same applies when acquiring new customers from your competitors, if you’re able to leverage your lean position and start by working remotely from home, you’ll have a higher chance of weathering the current economic storm.

Another excellent approach to aggressively taking on the current competition is to remotely reach out to potential prospects and ask them: “How do you feel company X is serving you during this crisis?” and “What do you feel that could do differently?” 

The answers to these two questions will help you better position yourself and business to effectively avoid the blunders of any current incumbents as well as provide a better solution. 

4. Supplies and materials are inexpensive. 

Continuing along with the narrative about things being cheaper, during a recession, businesses often sell off products, equipment, and assets at a vastly lower cost. As a company starting out, you can minimise overheads such as office rent, software, and one-off business purchases such as laptops, printers etc. 

We recommend finding vendors, business partners and suppliers who are seeking to move inventory or sign-up new clients at reduced rates. It will potentially aid in saving you costs up front as well as possibly negotiating long-term payment agreements which will remain in place once the economy recovers. 

5. Credit options are better. 

As many businesses look to relief from government grants and funds to help them navigate losses and improve cash flow, business owners should opt for approaching more traditional lines of credit. Many major banking institutions are offering lower interest rates which encourage spending. Of course, this is excellent news for those wanting to start a business, as loans and credit cards now boast lesser penalties, as well as higher credit limits. 

Of course, if you’re considering taking out a loan, you’ll need to have a robust business plan, which includes financial documents and forecasts to approach most lenders. Not only will this help your application’s success, but it also ensures that you’re thinking of the long-term and will know how to manage your funds effectively. 

6. Investment funds opportunities. 

One thing which doesn’t usually cease during financial crises are investors seeking to fund small businesses. In fact, angel investors often seek out promising prospects which allow them to move funds out of the stock markets and into potential money-making enterprises. Not only does this provide better security for them, even if your business is risky, but it also offers additional opportunities for you and your business to acquire additional funding. 

A vital thing to keep in a mind when pitching to potential investors is having a solid executive summary for them to review. We recommend focusing on how your company will work during economic downturns such as the current pandemic as well as how you plan to action the earlier points in this article, i.e. costs, delivery, better customer service, etc. 

Ensure that you clearly define your market position, your competitive edge, as well as any proof that your potential target market is indeed searching for alternative options. In addition to this, we recommend outlining how your company will operate following the crisis as this will show investors that you’ve considered long-term methods for multiple scenarios. It will help your business appear less risky and will assure any potential investors that you’re not just looking for a quick money grab during a downturn. 

7. There are fewer competitors entering the market. 

A stable economy commonly attracts more competitors. Established businesses are thriving, and many companies take chances at starting out or scaling. However, during times of crisis, this evaporates, but also provides room for fledgeling business owners willing to risk. 

One of the core benefits of starting a business during a downturn is that you will inherently have less competition entering a market. You need not worry about any new entrants leveraging the same position as your business offering, instead, take the time to focus on your established competitors. 

Of course, in the long-run you will need to consider the new entrants to your market, so use this time wisely to prepare your company to take on more competitors as the markets see a turn-around. 

8. Plan for long-term success.

It’s essential to find a balance between the short-term benefits of launching your business during a recession and the long-term post-crisis planning for the success of your company. That being said, it’s not as challenging to do this as you’d think since you’re already building a business during tough economic times. Furthermore, it will help your lean planning efforts and aid in the regular adjustment of your strategies and tactics, based on the market, your performance and of course, customer behaviours. 

Remember, you will be actively crafting and growing a business during times when consumers are less likely to spend frivolously. However, you are effectively cementing your brand as a trustworthy one which has stability in an environment rife with uncertainty. 

By starting a business now, you’ll ensure that you know how to function when times are lean, and it will aid in all of your long-term business planning methods. 

Conclusion.

There are many benefits to starting a business during a recession, but this doesn’t mean it’s an easy feat. You’ll still need to develop a solid business plan, test your business idea and develop a sound financial plan which ensures that your business is viable. It’s of utmost importance in a volatile economy that you take the time to properly plan as well as ensure that you take advantage of the reasons listed in this article as opposed to falling prey to the challenges faced by established businesses.