On the 1st July 2020 I hosted one of our Survive & Thrive webinars on the subject of “Starting a business in a recession“. We were in what would turn out to be the early days of the pandemic and it was predicted that we were on the brink of the biggest recession of the past century. In reality, Britain’s economy experienced its biggest annual decline in 300 years but by 2021 it was believed that we had avoided a double-dip recession, things were on the up.
Almost exactly two years on, coronavirus restrictions have lifted but once again we find ourselves in economic crisis. Economic growth has slowed whilst inflation has been heightened and now there is a risk of ‘stagflation’. It feels like an appropriate time to look again at why economic downturns can present business opportunities.
Starting a business during a recession may seem crazy but business creation often increases during such times. Robert W. Fairlie and Frank M. Fossen from Stanford University argue that this is due to two distinct motivations: ‘opportunity’ and ‘necessity’. Necessity entrepreneurship occurs when lack of employment options force people to start their own businesses. Opportunity entrepreneurship, in contrast, is about exploiting opportunities and is focussed on growth rather than survival. Recessions cause problems, problems that innovative thinkers can try to solve.
Uber, AirBnB and Groupon all formed during the last recession and have gone on to become billion-dollar businesses; proof that if you can start and scale a business during times of adversity, the chances are that you have built a robust business that will go from strength to strength. The AirBnB story is seemingly one of necessity entrepreneurship; the founders, both unemployed and struggling to pay rent, decided to earn some extra cash by renting out a few airbeds in their flat, thus the idea for AirBnB was formed. However, the timing of their launch may have also worked in their favour. In 2009, many other people were struggling financially, the idea of renting out a spare room through the AirBnB platform probably seemed more appealing than it ever would have done before. Although formed out of necessity, the recession created an opportunity for AirBnB to attract hosts to their platform.
Recessions can also create opportunities for businesses that are already up and running. However, it is small, agile businesses that tend to be able to take advantage of these opportunities such as changes in consumer behaviour and the opening of new markets. The more agile a business, the easier it is for it to adapt and pivot; in larger organisations change is a much slower process. Whilst it can be hard at times to see positives in a crisis, it is important for small businesses (which may at first seem to be most vulnerable) to be aware that there are opportunities out there for those who are ready to grab them.