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Is Now Really a Good Time to Test the Upstart Waters?

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The pandemic of 2020 continues to attract victims and turn their lives upside down. For the millions who have lost jobs and the thousands of entrepreneurs who have experienced the loss of a lifelong dream, it is hard to believe that there are those who espouse that now, amidst all the wreckage of businesses gone forever, is the best time to start a new business venture. While it may sound just a little crazy there is precedent for this seemingly misplaced optimism. Iconic companies like General Motors, IBM, Disney and HP had their start during serious recessionary periods in history. Airbnb’s founder and CEO Brian Chesky says of the company’s beginning in 2008, “We were literally born in a crisis.”

According to a 2009 study by the Ewing Marion Kauffman Foundation, 57% of Fortune 500 companies have been founded in a recession or bear market. The thought is that by starting at the very bottom there is only one way to go, and that is up. During times of economic challenge, an entrepreneur can focus on product development, identifying the needs of a targeted market and building an efficient distribution model. Competition is generally wounded and more vulnerable to new market entrants. Given usually higher levels of unemployment, staffing up with qualified talent is easier.

Conventional wisdom, that this is a bad time to launch a new venture, rules when it comes to finding affordable financing however. While venture capital and angel funding remain viable during the COVID-19 era, calls to traditional sources of funding tend to go unanswered as may financial organizations are overwhelmed with propping up the current list of dormant clients. The face to face encounters that are so important to building solid relationships during early stage ventures are discouraged as controls are put in place to stem the spread of the virus. Uncertainty, a significant driver of risk, abounds.  However, even in the worst of economies, winners may arise from the ashes.

“Downturns or challenging times are seen as good times to start a business for two reasons,” said Rashmi Menon, entrepreneur in residence at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies. “One is, there is less competition for resources. The second reason is that whatever changes we face, positive or negative, bring up new customer needs. And customer needs are at the core of any business.” The key factor is to identify an unfulfilled need and quickly respond to that need. “There are going to be industries that are winners, and others that are going to be losers,” said David Brown, co-founded of Techstars. “I probably wouldn’t want to be in a business right now that caters to business travelers, but I’d love to be in a business that helps enable telemedicine.”

Life does go on. The Census Bureau is reporting that more than 500,000 applications for an employer identification number have been received since mid-March 2020. While this represents a 20 percent decrease from the previous year, the Small Business Administration issued nearly 300 start-up loans during this period. It is going to be interesting to see if these brave explorers manage to navigate the increased dangers to survival and sustainable growth.

Optimism is an important trait to have for those who want to become a successful business leader, but due diligence demands careful evaluation of all causes and effects on a declining economy. While it may be true that many large and iconic companies were born from challenging times, the effects of the COVID-19 pandemic on the marketplace has not been experienced in any of our lifetimes. Consumer concern, fear and uncertainty are at unprecedented levels as businesses across the spectrum of industry are not only impacted by a slowing of economic times, but a complete and total cessation of commerce. There is a certain truth to the saying that “None of us have been here before”, so all the positive proponents of venturing out on a new journey now may be drawing upon an untested quiver of advice.