Starting a business in today's recession
As the woes of the global economy have deepened and it's clear that we're in for some tough times that will likely be prolonged, there's still no shortage of people encouraging entrepreneurs to start businesses.
"Many great businesses were started in bad economies!" they proclaim. And they're right. Great businesses have been started in the toughest of times.
There absolutely is a lot of opportunity out there and one of the great things about times like these is that the weak hands are often forced to fold, giving the strong hands the ability to clean up.
But the mere existence of opportunity in today's market doesn't necessarily mean that it's your opportunity.
Make no doubt about it: starting a new business successfully during a recession isn't easy. It's usually downright difficult.
Since I agree with the notion that there's still plenty of opportunity out there but disagree with the notion that now is the perfect time for every entrepreneur to be jumping into the market head first, I thought it'd be worthwhile to provide a checklist that helps entrepreneurs answer the question - should I even consider starting a new business right now?
Here are the criteria that I think should be met for those looking to start a new business today:
* You know how you're going to make money. If you don't know how you're going to make money at a time when businesses that make money are under pressure, you're playing the wrong game.
Some new businesses survive without a revenue model during good times because capital is plentiful and markets are far more forgiving. Don't be fooled into believing that this same dynamic can be maintained in down times.
* You've spoken with prospective customers and stakeholders. I'm always amazed at how many entrepreneurs seem to launch a new business without talking to prospective customers and stakeholders (i.e. users, partners, etc.) right from the start.
Talking with the people who you believe will have an interest in what your business offers serves many purposes. It validates that you have something that they're interested in, it gives them an opportunity to provide valuable feedback as you build and it often provides you with that elusive first customer, user or partner.
In tough economic times, maximizing how you use and allocate resources can mean the difference between success (or survival) and failure. If you're getting feedback from prospective customers and stakeholders at every stage of your development, you have a much better chance of avoiding costly mistakes that will result in waste and misallocation of resources.
* You don't need outside funding. If you don't personally have the money required to launch and operate your venture until the point at which you anticipate that you'll be taking in more than you're spending, keep your day job. This is a BYOF (bring your own funding) affair.
In my opinion, now is not the time to be starting a new business if you are not prepared to back it 100% on your own. Period.
Even if you have investors who say they're "committed" to funding you, what are you going to do when one of them receives a margin call and pulls out of the deal, leaving you with less than you anticipate you'll need?
In this economic environment, where so much is out of your control and a lack of reliable access to capital is perhaps the most common liability facing many businesses, knowing that you personally have what it takes to do what you are setting out to do is not something you should devalue.
Of course, the question then becomes, how do you know if you have enough to execute? That brings us to my final point.
* You have a business plan. There are a lot of people who don't like business plans and frankly, I don't blame them. The average business plan in the tech industry is probably written more to secure investment than it is to serve as a useful guide. It's just one of the hoops that entrepreneurs looking for funding need to jump through.
A business plan's real value, however, is derived from the fact that it is an entrepreneur's road map to success. Forget 40 pages of hogwash and pro forma financials that you know are unrealistic. When you write a business plan for yourself, you're plotting a practical map that's going to get you from point A to point Z.
What does my vehicle look like? How much fuel do I need? Where am I going to get it? What are the paths I can take? What stops are there going to be along the way? What happens when I get to point Z? What happens if I get lost?
The bottom line is that an entrepreneur who can't invest the time to sit down and put his thoughts into writing in a practical fashion shouldn't be investing his own money (or somebody else's) trying to build a business.
Unfortunately, it happens. When the weather is sunny, getting from point A to point Z isn't all that important. You can meander and pretend that the trip is going well, even when you're lost. It's about the journey, not the destination.
But when there's an economic storm and you're caught between point A and point Z with a flat tire, you'll probably find that the destination is far more appealing than the journey.
At the end of the day, serious entrepreneurs should be looking at the opportunities that exist today. While the downturn has taken away some opportunities, plenty of new ones are being created as we speak.
Before you make the decision to try to exploit them, however, make sure that you have the right clothing to weather today's economic environment. Anybody who tells you that you should wear shorts and a t-shirt hasn't looked outside. Wear a winter coat and bring an umbrella and you're less likely to get frost bite.
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