Experts suggest economic disaster could be a great starting point for new businesses

Could an economic disaster be the ultimate time to start a business? According to reports from experts and past history it certainly could be. Indeed, numerous businesses have found these starts in difficult economic situations.

Through March many businesses were shutting down, unable to keep their doors open as the COVID-19 global health pandemic grew increasingly worse. However, many more were opening up shop. This was the case for new business owners like Shanel Fields, as reported in the New York Times.

The concept behind the company perfectly matched the challenges that people were facing at that moment. Her business known as MD Ally provides a way for emergency services to reroute non-emergency calls to other service providers. In doing so, the service ensures that individuals can still get the support they need.

The business was based around the fact that more than half the calls to emergency service providers are not actually an emergency. Sally Fields based the company around the ideas of her father who worked in the emergency sector.

One might assume that this is an exception that provides the rule as a wave of businesses leave the market. However, based on the evidence this does not seem to be the case. In the US alone, there have been more than 500,000 applications to get an employer identification number since March of this year. This is based on a report from the Census Bureau.

It’s worth noting that while this is a 20% decline from last year it is also one of the key parts of the stages of the lifecycle for new businesses entering the market. As well as this, there have been nearly 300 million start-up loans processed by the Small Business Administration worth about $153 million.

Of course, it’s not just about starting new businesses. Other companies are evolving throughout the UK. For instance, as the food shortages in supermarkets began, restaurants that were forced to close repositioned themselves as wholesale companies selling products like pasta. Other businesses began selling fruit and veg door to door while bars started to deliver craved drinks straight to the doors of their customers.

It is important to understand here that there is a precedent for the success of starting a business in a time of economic crisis. An example of this would be Groupon, the website that promotes companies products and offers. This company started with 5 employees back in 2008 right in the middle of the financial crisis but grew because it offered a solution that people were interested in. Groupon is now worth $726 million.

Uber is another success story back from 2009. Now one of the most successful rideshare companies in the world, it is now worth $47 billion. An idea that started because two friends couldn’t find a taxi in Paris on a cold night quickly became one of the most popular companies in the world. Uber then managed to expand their services even further, breaking into the food delivery service a couple of years later. From these two accounts alone, you can see that just because there is a financial crisis, doesn’t mean that new business won’t flourish under the right circumstances.

Aside from past success stories, there are numerous reasons why experts predict that companies could see fantastic benefits from starting their business during an economic crisis. In the case of Sally Fields, the new business owner found it easy to access the best talent for her company. Indeed, from the day she began recruiting, she received more than 200 resumes from qualified applicants. That’s understandable, particularly when you consider how quickly the level of unemployment has risen over the past few months. Sally Field’s investment has already reached a tremendous one million from just one client.

There are financial benefits too. For instance, many new companies are benefiting from the new low or frozen interest rates. This makes it easier to pay the expenses that are required when setting up a new startup company. Currently, landlords are desperate to fill in empty buildings and re-establish sources of profit.

Furthermore, the latest research suggests that 20% of businesses that open on the market in a healthy economy will not survive their first year. This could be due to the fact that there is more demand and potential business owners who open in a healthy situation are not prepared for the worst-case scenario. A company that begins during an economic crisis is already facing key challenges. They have to be frugal, efficient and flexible from the business. They could potentially be stronger than businesses that were born when it was easier to get started.

Which businesses will succeed? 

Despite the benefits, analysts and former tech startup owners such as David Brown warn that not every business will succeed. It is absolutely vital that new business owners are exploring whether there is a demand right now for their product or service. For instance, the travel industry is facing severe difficulties right now. Even the best business model would struggle to find their footing when people are unable to travel. Companies offering luxury goods and services will also not find an audience right now. Indeed, during an economic crisis, luxury businesses are always the first to feel the strain. Consumers immediately stop purchasing products like this and become more frugal or careful of money. They even stop borrowing and reducing their reliance on credit.

The basic necessities such as food delivery services and clothing stores should fare well in a financial crisis. People still need to eat and buy new clothes, so companies like this are more than likely to be safe, even if they do end up taking a small hit. Telecom companies will also be okay during this time thanks to the inelastic demand of the service.

The key here will be identifying challenges that consumers are facing and providing the solution. For instance, a business based around educating children at home could be ideal for this climate and thrive with the right approach.

In the wake of the COVID-19 pandemic, the world is changing rapidly. It’s clear that the business success stories of tomorrow will be different from those of today. While many potential entrepreneurs will be adopting a ‘wait and see’ approach, the evidence strongly suggests that the best time to get started could be right now.

 

 

 

15/09/2020