Over the next few months, we are going to see a few businesses contract and reduce their workforce.  This is happening at the moment in the US.  The news that car firms in Detroit say their sales are down 20% on last year, and Starbucks is closing 600 of its 7000-odd company-owned coffee bars is almost to be expected.  Luxury goods and high ticket goods always suffer in a recession.

However, if you are looking to start a business, would a recession be a bad time to do so?

The basic answer is that a recession is the best time to start a business for a number of reasons.

Firstly, if you can sell your product or service when cash is tight, it will be easier to sell during better times.  These tight conditions are also a great way of ensuring that your management system is tightly controlled.  Wasting money by duplicating processes or through inefficient policies are cruelly punished by low profit figures.

Finally, great ideas flourish when you can’t afford to throw money at problems.  Advertising is a great example.  Whatever your budget is, half it, and see how you would still have the same return.  This requires creative juices, and not everyone can do it – but those who can – do very well.

For instance, the best form of advertising is word of mouth.  So, how do you make the most of it?  How about giving people who recommend your services to others, a nominal commission?  Sky do this.  The benefit to you is that you are only paying for a leaflet and when a sale is done.  Normal advertising would have you spending before getting a sale.

Recessions are not always bad news for the most effecient businesses.  Start your business with this mindset and you will be rewarded with a much higher rate of success if you stick to the rules!

Originally posted 2008-07-07 10:48:56.