Economic recessions create bursts of economic and cultural change. Did the buggy and coach business just fade away? Or did those companies die most quickly in the Panic of 1907-1908 and the Post-WWI Recession, only to be replaced by rapidly expanding businesses involved with motor vehicles, and a rising economic tide to lift them? What new inventions attained increasingly levels of acceptance and use as people struggled for every advantage to dig themselves out of the recessionary problems of the Great Depression? Were businesses developing lighter construction materials, alternative energy systems, and fuel conservation technologies some of the positive outcomes of the Oil Crisis and recession of 1973-1975?
Why is an economic recession a good time to start a new company? Economic recession, when many companies contract and spill out employees onto the street, is the perfect time for the emergence of new economic paradigms. The old companies don’t recover, or survive in greatly reduced size and importance, while some of those out-of-work people create new companies, developing new ideas for processes, products, and markets that didn’t exist before. Some of those new ideas will become the mainstays of the economy in the future. In this way, recession accelerates and enables change that was needed anyway. In fact, it may be possible that part of the reason for a recession was the failure of existing paradigms and businesses to address changing economic conditions and technologies.
Starting a new company in a recession may seem like the hard way to go. After all, why would anyone buy a new product when they can’t afford to buy anything?. Actually, a new product that provides value and cost savings that weren’t available before can be especially attractive during a recession, and may spawn an entirely new market. It would be interesting to research the major inventions we use daily to see how many of them emerged or achieved big increases in popularity in conjunction with economic recessions.
There are other characteristics of recessions that favor new business startups. When unemployment is high, there are many good candidates not only ready to fill your company’s requirements on an immediate basis, but they are not expecting especially high pay, and are grateful to have a job. If the recession is accompanied by a real estate value decline and/or a lot of commercial vacancy, space for your company can be had at a discount, thus keeping your costs low. Suppliers in almost any industry will be hungry for business and willing to give discounts, especially for any long term agreement you might want to make with them.
Recession weakens the ability of established corporations to suppress competitors. During good times, corporations naturally take anti-competitive measures to prevent new companies and ideas from eating into their market shares and profits. Large corporations buy up smaller competitors, sometimes to acquire new technologies, but sometimes just to hold off the adoption of newer and cheaper substitutes for their mainstream products. When recession cuts their financial power, however, they have less ability to stifle competition, and smaller, more agile and creative companies can step in and provide us new products and services we otherwise might not have had for years more.
While recession may be tough, it presents a great opportunity for rapid progress. The conversion of the economy from one primary base to another, such as from horse-drawn buggy and wagon manufacturing to automobile and truck manufacturing, or from internet email to the World Wide Web, is enabled and helped along by recession. Indeed, recession and shifts in economic activity, actual advancements in society, may be inextricably intertwined. Recession may be a sign that times are changing more quickly, and may represent a more efficient way for an economy to advance.
Individuals can come out ahead by capitalizing on the more rapid changes brought about by recessions. During recessions I always find myself encouraging my friends and family to think ahead and aim their careers and investments at emerging technologies. Recession, tough as it may be, is the ideal time to seek new education, especially if one is out of work, and new employment opportunities in new and growing industries. In all of my careers, the most fun I had was when working for startup companies, though those assignments tended to be shorter than my jobs with big corporations. I will always be looking for involvement with startup companies, both in employment and investment, as they are the future. The many and striking changes, along with the economic volatility and recessions, we can expect as population hits an unsustainable peak in the next fifty years, will provide some amazing opportunities.
Post note: A technology fund I invested in the Fall of 2008, as that particular recession was hitting hardest, doubled in the following 12 months. Some smart fund managers obviously share my love of recessions as big opportunities for new business development and improved profits.
History of U.S. Recessions,