Business Insights
How—and why—you should launch your business during a downturn

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A down economy doesn’t mean you need to scrap your business plan. Here’s how to use it to your advantage.

When it comes to the economy, there’s always a cloud of uncertainty. Are we in a bull market, or is a recession just around the corner? Is inflation tamed, or is it stubbornly persisting? Ask two economists, and you may get two different answers.

So what does this uncertainty mean for entrepreneurs? The number of applications for new businesses, which has remained high since the end of the pandemic, suggests that business owners are not afraid of facing economic headwinds. It turns out they may have good reason to be fearless.

Launching your business in times of economic uncertainty—or even in a downright challenging economic environment—can actually be to your advantage, some experts say. Here are three reasons why starting a business during a downturn can be beneficial.

Benefit 1: You can begin to build a track record

Many financial advisors tell their investors to build a solid long-term financial plan instead of trying to time the market for big gains. The same goes for starting a small business.

With the economy in a continual state of flux, it can be challenging to time a business launch with a period of economic prosperity or avoid a downturn. While you may be waiting for the perfect time to start your business, for some, “the right time to start a business is sooner rather than later,” says Rokki Coleman, small business strategy manager at Regions Bank. Because many lenders require a two-year business track record, starting your business as soon as possible may set you up for funding at a pivotal time in the future.

Even if you’re not ready to commit to your business full time, “I don’t think people should discount the element of starting their business as a side business,” Coleman says. Plus, if you’ve developed a thorough business plan ahead of your launch, you’ve likely included some contingencies for dealing with different market conditions.

Benefit 2: Resources may be more widely available

When the economy is down, a tight labor market may create a larger pool of talent to draw from if you are looking for new hires. Workers who wouldn’t otherwise be available may be eager for a new opportunity. Plus, if your company operates partially or fully remote, you might not need to worry about geographic restrictions when hiring.

Down economies might also offer other opportunities. For example, digital ad prices might be down, businesses that have shut down may be interested in offloading supplies they no longer need, or you might be able to get a better deal on commercial real estate.

Economic headwinds can also facilitate favorable rates with vendors. “In a challenging environment, business owners may have an opportunity to lock in longer terms with a lower cost,” Coleman says. “Business owners can prioritize the vendors that they know are longer-term vendors and try to capitalize on longer-term agreements because when the economy turns, those prices for new vendor contracts may go up.”

Benefit 3: Tough times can force you to be more strategic

If you open during a downturn, you are likely to build a leaner business than you would if you had opened in a booming economy. By launching and looking for initial growth under tough circumstances, you can build up your flexibility to withstand unstable periods or future downturns. Learning from challenges or setbacks can help you make adjustments you may not have had to make during a stronger economy.

“Challenging economic climates birth high levels of intentionality and efficiencies,” Coleman says. “Margins are going to be thin, and resources come at a higher cost, so when you consider adding resources like human capital or supplies, the owner really has to do a sharp appraisal.”

Tips for launching in a downturn

If your business idea won’t wait for the next flourishing economy, consider these suggestions to optimize your chances of success.

  1. Consider different options for financing.

    Some lenders may have stricter lending guidelines during down periods, making it more difficult to borrow money. While you may be able to turn to personal savings or credit cards, make sure you know the implications. Having less access to capital can also teach new business owners not to overextend themselves, Coleman says. “When limitations to funding are amplified during downturns, it offers entrepreneurs opportunities to learn from reducing overages,” he says.

  2. Clearly define your niche.

    In a tighter economy, consumers might be spending less, and individuals and companies might be pickier about who they do business with. Make sure your value proposition is clearly defined and you are targeting your services to the right audience. “Business owners launching during a downturn can identify the parts of their business that are vital, and they should take notes when coming out of the downturn because those are the pieces they want to protect as they continue to grow or scale,” says Coleman.

  3. Plan for other bumps in the road.

    A down economy is just one scenario a business plan should address. What if interest rates change or you lose a primary client? Make sure your plan has accounted for other down scenarios.

Don’t let a down market stop you from pursuing your business dreams. Instead, think about how an uncertain or challenging economy can teach foundational lessons that will keep your business strong for the long haul.

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