It may seem contradictory, but difficult economic times can actually be a good time to start a business. Past downturns created some high-profile American companies: Airbnb, Disney, General Motors, Hewlett-Packard, Microsoft, Slack, Uber, and Venmo.
According to Rashmi Menon, an entrepreneur-in-residence at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies, “downturns or challenging times are seen as good times to start a business for two reasons. One is, there is less competition for resources. The second reason is that whatever changes we face, positive or negative, bring up new customer needs. And customer needs are at the core of any business.”
Americans are starting new businesses at the fastest rate in over a decade, according to government data, taking advantage of both pent-up demand and new opportunities created as the pandemic shut down and reshaped the economy. According to the U.S. Census Bureau, over 3.2 million applications for employer identification numbers were needed by entrepreneurs to start a new business by September of last year. That compares with 2.7 million applications at the same point in 2019.
As the pandemic continues, opportunities exist in creating solutions to the challenges we now face, such as: educating our children, working from home, managing supply chains, seeing doctors or therapists, accessing entertainment, or even getting a haircut or our houses cleaned. Even opening a restaurant could be successful if innovative food delivery methods and safety precautions are implemented, versus recreating old systems.
“There are going to be industries that are winners, and others that are going to be losers,” said David Brown, co-founder of the startup accelerator Techstars during the 2008 recession. “I probably wouldn’t want to be in a business right now that caters to business travelers, but I’d love to be in a business that helps enable telemedicine.”
In the article, “Adapt Your Business to the New Reality,” the Harvard Business Review recommends, “to survive and thrive in a crisis, begin by examining how people are spending their time and money. Challenge traditional ideas and use data to seek out anomalies and surprises actively. Next, adjust your business model to reflect behavioral changes, considering what the new trends might mean for how you create and deliver value, whom you need to partner with, and who your customers should be.”
Many talented people are being furloughed and are likely re-examining what they really want out of their lives and careers. On a positive note, recent research shows that more people are now actively seeking to become entrepreneurs. A new report from the Global Entrepreneurship Monitor (GEM), sponsored by Babson College and Baruch College, finds that 27 million working-age Americans, nearly 14%, are starting or running new businesses.
And Millennials and Gen-Z are driving higher interest in entrepreneurship as 51% of the working population now believes that there are good opportunities to start companies.
As states eased restrictions in May and June last year, entrepreneurs began to move ahead with new endeavors previously delayed due to uncertainty. The Wall Street Journal noted that “the jump may be one sign that the pandemic is speeding up ‘creative destruction,’ the concept popularized by Joseph Schumpeter in the 1940s to describe how new, innovative businesses often displace older, less-efficient ones, buoying long-term prosperity.”
Many were concerned that venture capital investment would dry up in 2020. However, deal activity fell just 6% in the first half of 2020, compared with the same period of 2019, according to an analysis by Ian Hathaway, a senior fellow at the Brookings Institute.
For all the reasons discussed above – if you are an entrepreneur with an appetite for innovation, now could be the perfect time to start a new business.