Is a recession a good time to start a new business?

With tech layoffs in the news, 2023 likely won’t be the year it’s easy to find a comfortable tech job. This will undoubtedly be a time of hardship, but it will also be a time of opportunity. Here are the key threats and opportunities for new startups during the market downturn:

1. Funding:

Availability of funds is often an issue during market downturns. Most start-up funding has become more conservative, with less investment in new projects in general. Worse for early-stage startups – investors’ risk tolerance can also decline, meaning that available funding for new projects will naturally focus on some “safe” bets.

That is, during a recession, usual government policy is to increase spending to fight the recession. This means that business loans and other forms of fiscal stimulus (subsidies, etc.) may become more accessible.

2. Fees:

While funds may be harder to find, you may need less in order to survive. During a recession, the cost of hiring employees, renting office space, and other operating expenses may decrease due to increased availability and reduced demand. This can allow startups to further expand their funding and become profitable more quickly.

3. Talents:

By far the biggest reason a recession is a great time to start a new project is the availability of great technical talent.

In good times, it can be difficult to compete with established tech giants for top talent due to the level of compensation and other perks that established companies can offer. However, because of layoffs, it has suddenly become easier to attract and retain quality talent.

However, in a period of cost-cutting and layoffs by the giants, experienced people suddenly appeared in the market. Not only does this mean you can find and hire people more easily – you’re likely to find very high-quality co-founders.

During a layoff, it’s not unheard of for former colleagues to become partners and start projects related to the industry they previously worked in. A recession is a great time to apply the lessons you learned working for your former employer during the boom, when big business tends to become less and less effective.

Which leads us to our last point:

4. Market:

Favorable market conditions and the availability of capital in good times make inefficiencies less fatal to large companies. However, the recession quickly ended that. Consumers have become more cost-conscious and are rapidly cutting back on products and services they deem non-essential. Combined with capital becoming harder to come by, this can quickly drive inefficient and sclerotic businesses into bankruptcy.

This is both a threat and an opportunity for young start-ups. The agility of such projects gives them the opportunity to adopt innovative practices and business models—in other words, apply the lessons we mentioned. In addition, the failure of established firms opens up market space for new firms that can offer better products and services.

However, cost-conscious and conservative consumers make it harder for lesser-known brands to attract new customers, meaning it’s not enough to be the new shiny brand to be successful. You need to offer something of real value that people are actively looking for.

In summary, there are pros and cons to starting a business during a downturn. However, all things considered, the chances of attracting high-quality technical talent to your project are higher, so trying new things is a good idea.

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