One of the most frequent questions I’m asked of late is whether it’s a good time to start a business. I believe there are two answers to this question.
My first response is addressed from the perspective of the person asking the question. It’s actually about asking questions of that person that determines whether business ownership is right for them, regardless of what’s going on in the world at a particular time.
First, I ask about why they’re interested in starting a business. I ask them to share with me their goals, experience and skillset. The next set of questions have to do with the capital they have available, their ability to secure additional capital, their adversity to risk, and of course, whether they’re replacing their primary source of income. I also inquire if they’re going to have a partner.
These are all typical questions to help determine whether the person is right for business ownership and if current timing is right for them based upon their circumstances. This leads us into the current state of the economy and if timing is right to actually start a business today. With the personal aspects determined and understood, the person will be better prepared to comprehend business ownership amidst current financial challenges and economic uncertainty.
To start a business today, there are several things to consider and to keep in mind:
- In difficult times, it’s important to understand current problems of the day. Finding solutions to those problems will help identify the type of products and / or services that will help a business thrive. For instance, we’ve recently seen the increasing popularity of take-out and delivery of food, so the timing for a business that focuses accordingly is right. Even more so if the business model includes a twist to ways other businesses haven’t been successful in pivoting toward, or at all.
- Simple is best. Optimum efficiency is key. Businesses requiring minimal space with a small staff will go a long way toward profitability, even in the worst of times. A franchise brand I represent, Pepperoni’s in Houston, TX actually opened a location in an old Fotomat. For those not familiar with what I’m referring to, Fotomat was an American retail chain of photo development drive-through kiosks located primarily in shopping center parking lots. This location is all of 800 square feet and has been retrofitted for take-out and delivery only. The revenue and profits are significantly higher than for a full-service pizza business, having realized double-digit year-over-year increases for the past four years.
- Understanding the competition is essential in order to find a niche within an industry segment. Customers are already familiar with a particular product or service, so finding a way to produce and deliver the same in a more convenient manner helps to jumpstart the new business. As was the case for Pepperoni’s, as they’ve thrived among popular industry giants such as Pizza Hut, Domino’s and Papa John’s.
Next, let’s look at the current business environment as there are multiple benefits for starting a business when the market is seeing less business openings than during other times.
- Starting a business today could be more cost-effective if outfitted with used equipment and furnishings. With a number of businesses closing due to being ill-prepared, under-capitalized or just mismanaged, there are numerous opportunities to secure all that is necessary to start a business. Further, as many businesses have been abandoned or locked out for non-payment of rent, some landlords may lease space fully equipped and furnished. With only a cosmetic facelift required, a business could be up and running quicker and cost-effectively.
- Banks and other financial institutions are in the business of lending money and then earning interest off the money they’ve loaned. That means, despite credit criteria being tightened in challenging times, they still need to loan money. Maybe even more so in difficult times as the pool of potential borrowers has been reduced. So, it’s a good time to negotiate for the best of terms. This applies to all financial agreements including credit card processing fees and even equipment leasing. The same is true of investors that may be looking to move money out of the stock market and into business ventures.
- Through the popularity of reality TV shows about flipping houses, we’ve become enthralled with the possibilities of purchasing a fixer-upper for X, renovating it for Y, and flipping it for Z. Now, I’m not suggesting starting or buying a business just to flip it, but the likelihood of selling a business after three to five years at a significant return-on-investment is great if the business had been started with a lower-than-normal investment. Or at that point, possibly the business owner has a business that is free and clear, affording the opportunity to explore other possibilities.
Provided the person is right for business ownership, starting a business during challenging times and even during a recession is a good idea provided one proceeds with caution and with diligence.
Need proof that now is as good a time as ever to launch your business? How about this list of companies that were started during a recession? Microsoft. FedEx. Trader Joe’s. Hyatt. HP. Disney. IBM. And if that’s not enough of a motivator, how about these companies that launched right before very difficult economic times? Salesforce. Google. And Facebook that started just a few years before the Great Recession.
Have a great day. Make it happen. Make it count!