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As the U.S. federal reserve raises interest rates again to stem inflation, many economists are looking on worriedly as the global economy begins its slide into a downturn, with some claiming that we are already in a recession. This downturn is making many potential entrepreneurs consider whether to start their business now or wait for the recession to end.
The world was similar when I started my business in 2009. There was a lot of panic, anxiety and uncertainty as to what the future would hold. However, I forged ahead with my business, and by the time I sold my agency nine years later, I had become the firm of record for 70 startups. I faced many of the same challenges today’s entrepreneurs face and saw how the startups I represented were able to succeed despite the recession. Based on this experience, here are five tips that will help your business thrive during a recession.
1. Have an evolving business model
One of the most challenging things about starting a business during a recession is competing against the legacy players in your industry. Clients during a recession are more risk averse and are less likely to try out the “new kid on the block.” Therefore, you need to understand your potential clients’ mindset and come up with a business strategy that is flexible enough to accommodate them.
As a new entrant in an industry, you are in a better position to identify the structural pain points and you can mold your strategy around these points to make customers realize you’re the best fit for them. Being flexible in how you operate might create a paradigm shift in the industry that will enable you to weather the market downturn.
2. Undercut your competitor’s pricing
The biggest thing on people’s minds during an economic downturn is money and how to spend less of it. Understanding that most potential customers look out for their bottom line is essential. To take advantage of this mindset, make yourself cheaper than the competitors in your industry.
While being cheaper means fewer profits in the short term, you can prove yourself to your clients and improve your reputation. Over time, you’ll be able to build a strong and sustainable customer base. This means you’ll initially have to be extremely careful with the profits you do make. Make sure you don’t spend more than you have and make every paid penny count.
3. Create value by innovating
If your company is going to survive, it needs to bring real value to your industry. Like 2009, anxiety and panic are beginning to set in and many sectors will start to “trim the fat” of low-value companies. Low value doesn’t mean they have low valuations, but it means they don’t bring anything new or innovative to their industries, and their industry won’t be affected by their demise.
They are companies that consumers realize aren’t vital to their needs, and they’ll likely be some of the first to go as the economy fails. If you can start a business with real substance, innovation and value in your industry, you’ll be much more likely to succeed in a recession.
4. Position yourself strategically
Everyone is going through struggles during this time of uncertainty. Companies will fall, budgets will contract and the short-term outlook might seem terrifying. However, as an entrepreneur, you should view this time as a “leveling of the playing field” as companies across industries begin to fall or reduce their market share. Try to be optimistic and see the glass as half-full, as this is an excellent opportunity to find the perfect niche in your industry to grow your business.
Entrepreneurs should look for cracks beginning to appear in their industries. Which companies are likely to fall and why? Where are there to be openings in the market? And how can you insert your company into that opening? This is an exciting time full of industry reshuffling, and if you play your cards right, you can come out of the downturn with a winning hand.
5. Never give up
While starting a business at any time requires persistence, you’ll need perseverance during an economic downturn, as the challenges and rejection you’ll face will only be amplified. Combine your persistence with grit and an ability to adapt to constantly changing market conditions and you’ll be able to soar higher than you ever thought possible.