The world has experienced four major recessions in recent times. They happened in 1975, 1982, 1991, and in 2009. During these recessions, the gross domestic product (GDPs) of many economies fell drastically. Industrial production was hit, interest rates jumped, and unemployment reached new heights. A less impactful case of this is happening as we speak. But a recession is not always something to be scared of. In fact, businesses like Airbnb, General Motors, and Uber which have been thriving from day one, came into existence during an economic downtime. So how did these startups benefit from a recession? This article reveals much about that. 

How Startups can Benefit from The Recession

How can startups ride the tide in a recession? It’s as simple as taking note of the following market conditions and making smart use of the opportunities they present. 

Recession Reduces Market Competition

Running any business during a recession requires good tactics. It involves tightly managing expenditures (for instance, having a rethink about advertisements), optimizing production processes to eliminate waste, and improving customer relations. This might sound straightforward, but it really isn’t. A slight mismanagement could make a business run low. 

In a more serious case, the business could fold up, especially if it does not have cash reserves. Bearing this in mind, startups can benefit from the recession by keeping a close eye on their competitors. Once they notice that a competitor is performing poorly, or is out of business, they can work to fill its place in the market. 

Recession Provides an Opportunity to Launch a Business

A recession impacts everyone. Typically, it creates the challenge of sourcing cheap raw materials for producers of goods and services. On the other hand, recessions make it difficult for consumers to access finance for goods and services. The exact opposite of these two conditions could also take effect. When this happens, founders become open to a perfect opportunity to launch their businesses. Here’s what we mean by that. 

During recessions, banks and money lenders sometimes lower the interest on their loans. The reason why they do this is to save struggling businesses. Founders could utilize the opportunity to obtain capital for their startup. It would mean that they get to pay a less painful amount on interest. Additionally, loan offers like this may feature longer loan maturity periods so the new startup has enough time to gather revenue before servicing its debts. 

The second opposing trend to what generally happens during a recession goes further in giving new startups a chance. The usual occurrence is that - when the economy takes a hit - prices go up to compensate for higher production costs. However, in some instances, businesses reduce the price of their products or services. 

This strategy attracts customers looking for cheaper alternatives to their favorite products. It could also be a move to keep a struggling business from folding up. Whatever the reason, founders could make the most of less-priced materials and services in gathering all the resources they need to get their business off the ground.

Startups which have been in existence before the recession are not left out on making good of the situation. They can scale their business using the same cheap loans and low-budget products we talked about. 

Recession Creates Opportunity for New Products

As we’ve mentioned, economic activities are difficult to carry out during a recession. This takes a toll on businesses. It causes many of them to grind to a halt. And what happens when many businesses are out of operation? Simple. Products and services become scarce. Businesses which can still afford to provide their products or services at such times typically raise their prices. 

For startups, this would mean a good opportunity to take over the market. They can choose to provide the services or products that are completely out of the market. Alternatively, they can provide scarce or highly priced products and services at a reduced price. Startups can also go further to create entirely new products that perform better than existing products yet bear a competitive price. 

Recession Makes Skilled Labor Available 

The need to cut costs and manage resources during a recession pushes many companies to take steps like laying off workers. In doing this, some businesses retain skilled workers and let go of other employees while others lay off skilled workers and retain less-skilled employees. The first approach here is used by companies that are more stable but want to watch their expenses. 

On the other hand, businesses that lay off skilled workers do it because they are on a low budget. Whatever the reason, laying off of workers leads to unemployment. And since some companies would rather keep low-skilled workers to save on budget, startups, therefore, have access to skilled labor. This skilled labor could offer valuable input to drive business growth and scalability. 

Conclusion

The recession puts businesses head to head with scarce raw materials, diversified customer interests, heavy expenditures, and their competitors. Be that as it may, startups can also benefit from the lingering economic crisis. They could do it by exploring all the points we’ve mentioned in this article. And there’s much more to learn about building a successful startup. Here, take a cue from our blog. 

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