General Motors in 1892. Hewlett-Packard in 1939. Microsoft in 1975.
What do these companies all have in common?
They all started in (or immediately after) a recession.
- General Motors: during the sovereign debt crisis.
- HP: in a one-car garage at the very peak of the Great Depression.
- Microsoft: hot on the heels of the oil crisis and stock market crash.
The Bank of England's new monetary report confirmed fears the country was slipping into a recession. Consumer price inflation is expected to peak at 13.3% in Q4 of 2022, and stay there much longer than first predicted.
And while it may seem counter-intuitive to consider launching a startup in this economic climate, the downturn actually provides conditions that can be hugely beneficial to a startup's chances of success.
Here are five reasons why the best time to launch a startup might just be now.
Five reasons to launch a startup today
1. In a recession - a startup's size becomes a strength
By their very nature, startups are quicker on their feet than bigger businesses, and this agility makes them better suited to navigate the rapid changes afoot in a recession.
They can respond much quicker to changes in the market and the needs of their client base, unencumbered by the bureaucracy and logistics of their larger, more entrenched competition.
This capacity to make dynamic decisions is the single biggest drawback for larger, more established organisations and an edge the best startups take full advantage of.
2. Downturns create new problems to be solved
Entrepreneurs are problem-solvers at heart, and there is nothing like a recession to uncover or exacerbate these problems.
In times of crisis, consumer behaviours are more susceptible and open to change. We’ve seen numerous examples in the wake of the pandemic, not least the online shopping boom.
There is often something of an innovation vacuum in a recession as bigger businesses, quite naturally, play it safe. And this can be the perfect time for you to bring your creative idea to market.
Technology-based businesses typically need to find their feet in the pre-revenue phase, with product development and their product-market fit. Economic adversity encourages a focus on the customer pain point, in readiness for scaling as the market upturns again.
3. You can save on costs
Costs for products and services tend to be lower in a recession, and this is an obvious opportunity for shrewd entrepreneurs to capitalise.
Retailers slash prices to move inventory or win precious business. Ad space can be cheaper as marketing budgets take a hit. While bigger businesses look to ride it out by cutting their fat, you can be cutting your costs.
4. It can be a good time to recruit top talent
Rising unemployment sees the market flooded with more qualified - not to mention highly-motivated minds - for hire.
This gives the startup a better choice of talent, at potentially much cheaper rates than if you were recruiting in a sunnier economic climate. In the cooler labour market, this talent pool could even be an opportunity for you to find the perfect co-founder to complement your skillset.
Just as a side note, one cost-effective way for startups to attract talent is to launch an employee share scheme - learn more.
5. Startups built in a recession are built to last
The habits picked up while weathering a recession are not only good for the company's culture and resilience but offer a more attractive proposition to prospective investors.
A lean startup that has bootstrapped through a recession will have an innate ability to preserve cash, with a focus on automation and reduced human costs often forced upon them.
These habits will not only stand them in good stead when the recession ends but provide reassurance to investors when they look to scale, further down the line.
Many founders naturally hesitate in the face of adverse economic conditions, such as a recession, but the defining factors in your success will always be your founding team and product/market fit.
And this, very often, has little or nothing to do with the prevailing macroeconomic trends.
As General Motors, Microsoft et al. proved, the state of a global economy does not directly impact the chances of a startup's success - if anything, they provide the rarest of opportunities.