The world is full of challenges and opportunities. When the economy is on the rise, businesses thrive. But when it’s in a recession, they can struggle to find their place.
In this article, we will explore what start-up businesses can do to thrive in tough markets. We will also see what happens when the economy takes a turn for the worse and how businesses prepare.
1. Apply your Existing Skills and Knowledge
It’s important to know what you are good at and what you enjoy doing. If you have a skill that is in demand, then it is probably a good idea to stick with it. You will be more confident and successful if you focus on what you know best.
By staying focused on the market, you know you already understand the latest trends and developments that may affect your business. This will help you make better decisions when it comes to running your company or making investments.
Applying your, or your teams, skills will give you a greater likelihood of finding a problem in the marketplace that needs a solution. This means ensuring your core competencies are always a focus no matter what direction your company is pointed.
2. Decide on a Niche
Reduce competition for your intended target customer’s hard-earned dollars by doing something differently than the competition. Your point of difference needs to be relevant, so determine if your target customer would pay for it, even better if they will pay a premium. Also, to decide on a niche, you need to consider the demand for your service; you do not want to have a niche that cannot support your sales objectives.
Also, being able to deliver a point of differentiation from the competition that customers will pay extra for helps improve the likelihood of success as the latter can give a company higher gross margins and cashflow to weather any unforeseen storms.
3. Choose the Right Industry for Your First Business
Choosing the right industry for your first business is one of the most important decisions you will make. It can be tricky because there are many factors that you need to consider.
A benefit of starting a business in a recession is it will remind you to look-before-they-leap, conducting market analysis to ensure you are entering an industry or segment of the market that is ready for another competitor. More market analysis rather than less is normally a good mindset for any new business.
The right industry should be one that has proven performance, is growing, and has high margins. You want to choose an industry that will allow you to grow with it; this will allow the coexistence of competitors and may provide greater price elasticity and higher margins.
4. The Pros & Cons of Starting a Business in a Recession
This is a difficult question to answer. And the answer depends on whether you are an entrepreneur or not.
If you are an entrepreneur, then the recession will probably be a good time for you to start your business because there is less competition in the market. Also, because you are starting a business in potentially the toughest conditions you are going to make sure there are strategies to ensure risks are addressed right from the start, making your business more capable to face tough conditions in the future. Another benefit is a recession will remind you to look-before-they-leap, meaning the need market analysis to ensure they are entering an industry or segment of the market that is ready for another competitor. More market analysis rather than less is a normally a good mindset for any new business.
5. How to Weather the Storm
Cash is king. It’s a phrase that has been repeated to entrepreneurs for years, but it’s never been truer than during a recession. With the constant changes in the economy, it can be hard to know where your next dollar is coming from, and how you’re going to make ends meet.
The key to weathering the storm is financial management. This means knowing how much money you have coming in and how much you need to spend each month. It also means knowing when you can afford to take on, or cut back on expenses so that your cash flow is still healthy.
Another key factor in recession proofing any business is by offering recurring payment options to customers. Businesses develop recurring revenue streams by offering a product or service that is paid for monthly, that customers want to use over a mid to long-term basis. Companies that offer recurring revenue to clients have found a balance between services that clients need on an on-going basis and are ready to sign-up for recurring monthly payments to make sure they receive it.
Starting a business in a recession is possible. It’s not easy, but it can be done. Prepare for success by doing your homework, and include the above points when you write a business plan that should includes detailed financials, marketing plans, and customer acquisition strategies. Also, do not do this alone, surround yourself with trusted individuals or even a third-party advisor to make sure you are considering all aspects of what it takes to be successful in a recession.
Steve Williams CExP™, CMMA is a Partner at Incentica Business Plans in Calgary. He is a certified exit planner and mergers & acquisitions advisor with 30 years of senior management and executive experience. Steve has written over 130 business plans, and succession/exit plans for some of the biggest best companies. Steve is a Business School grad and Harvard educated.
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