Should You Start a Business in a Recession?

Buy a franchise in a recession

There Are Compelling Reasons to Become a Business Owner During a Downturn

Why on earth would anyone be so brazen, so foolish, and just so careless with their money and time to start a business during a downturn? Shouldn’t we all hide in the basement when the economy turns sour? The data and history of entrepreneurship during a downturn would say otherwise.  In fact, the number of successful businesses born out of recessions is pretty staggering for making the case to start a business during a downturn: Burger King, Apple, NetFlix, AirBnB, Disney, Sports Illustrated, Mailchimp, Slack, WhatsApp, Microsoft, Pinterest, General Motors, CNN, IBM, Uber, Groupon, Instagram all started during recessions.

WTH! How can this be? In my opinion, many factors would make a recession a great time to start a business, including the magic of necessity. When people are comfortable making the money they want to make and living the life they want, there isn’t much motivation to do something new and risky. When times are tougher, there’s more motivation to push the envelope and venture into something new. For example, do you think the people who jumped aboard the Mayflower to come to America were happy in England?  Probably not. Religious persecution, big wealth divides, and the promise of a better life justified the risk of a seriously dangerous voyage. Now entrepreneurship isn’t usually a life or death decision, but it can seem like it. I suppose I personally would be one example of this as I started my firm, Franchise Marketing Systems, in 2009 after losing my job in the recession. A looming mortgage payment and a young family were staring me in the face, and the risk of doing something on my own just didn’t seem as scary any longer.  

Recessions Create Opportunities

Recessions also create opportunities. Nathan Rothschild, a 19th-century British financier, said, “the time to buy is when there’s blood in the streets.” The cost of getting into business during a downturn can be much lower when you account for real estate, equipment, marketing expenses, inventory, and the cost of hiring good people. A downturn also offers the benefit of working with less competition. A bad market can clear out some of the weaker companies you would have to face otherwise.  

All of this doesn’t mean that you should blindly jump into a business or franchise just because of a recession. You should make sure to understand not only that the business you intend to start has merit and makes financial sense, but that the new business works in the recessionary market as well.  If you do, in fact, decide to leap into entrepreneurship during a downturn, there are some factors to consider which may help your odds of success:

  1. Financial resources are harder to come by. Banks and lending institutions will generally tighten up lending requirements for businesses and individuals during a downturn. This was insanely apparent in 2007-2009 when credit was basically shut off. Be ready to have less access to capital when the market is in a slump.
  2. Gaining customers may take longer. As a new firm, building a customer base can be challenging during a downturn. After all, people are going through tougher times and have less to spend and maybe are less willing to try something new. Make sure your brand is memorable, and make sure you are memorable. Put everything you have into every engagement. Use grassroots marketing and networking to build a solid reputation and do everything you can to maintain that reputation with your customer base.  
  3. Discretionary spending can slow down during a recession. Make sure that your product or service has high enough demand to support your new business and sustain through the recession. For example, I would think carefully before launching a new business selling luxury pens in a slower economic period. 

There is a case for franchising if you haven’t started a business before and are launching your first voyage into entrepreneurship. The franchise model could provide you with the support, guidance, and a proven business model to help avoid some of the pitfalls associated with a new business launch. Franchises typically have a higher success rate than new business startups. With the added pressures of a recession, this could be the difference maker for a business launch in a recession. Of course, choosing the right brand and the right franchise business will be just as important if you chose to do it on your own. Ensure the product or service is relevant, and the business model has merit given the market circumstances.  

My advice ultimately is that almost everyone should consider owning their own business. I believe there is a business owner in us all, and until you find your path and let out that passion, you are holding back so much of your potential. There are so many shapes and sizes to entrepreneurship, so finding the right path is the tricky part. Still, when you do, it’s like opening up the ceiling to your potential, talent, and excitement for your professional journey. A recession for me was that kick in the butt I needed to make the move and just do it; maybe it could be your moment also?

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Chris Conner has been a franchise consultant working with business owners and brands to support growth through franchising since 2001. His experience in the franchise development industry started with a Chicago-based franchise consulting firm where Chris had the opportunity to work with a variety of successful franchise systems including Jimmy John's, European Wax Center, 911 Restoration, Smash Burger, Marco’s Pizza, Mad Science Group and other franchise systems where he was able to learn the franchise development process and see firsthand the success that could be had in franchising when the right business model and right systems were put into place.

In 2009, Chris founded Franchise Marketing Systems (FMS), a company that provides strategic planning, development and sales for emerging franchise brands. FMS was developed in order to provide a full-service franchise development solution to new and existing franchisors. FMS provides strategic planning, FDD and Franchise Agreement development, Operations and Training Program development and Marketing Development to bring new brands to market as a franchise, then supports the franchise sales and marketing of the franchise. Chris oversees the FMS team and works directly with clients to execute the franchise development process, supporting planning, development work, franchise sales and franchise operations implementation work.

Since 2009, FMS has developed over 700 franchise brands globally and has a team of over 38 franchise consultants. FMS has developed successful franchise brands including Anytime Fitness, Baxter Healthcare, Blimpie, Hungry Howie’s Pizza, Restoration 1, Smash My Trash, Two Men and a Truck, Medifast Weight Loss, Matco Tools along with others. The FMS Team has been able to align with brands and franchise systems with a unified, consistent approach focused on growth, systems and transitioning from company-owned businesses to a scalable franchise system. Chris holds a Bachelor’s Degree in Marketing and Management Information Systems from Miami of Ohio University and an MBA in Finance from DePaul University in Chicago. He is married to Dr. Alaina Conner and has two children, Ashton and Jameson who make every day exciting, full of adventure and sometimes stress.
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