How to start a successful business during a recession

Starting a business during a recession may sound like madness, but some big success stories exist. Before the end of 2022, we expect a recession in the UK as the Bank of England predicts inflation rates may reach 13%. Economic downturn is not usually something which inspires business people. However, starting a business during a recession can be an extremely clever and effective move with the right approach.

Below we’re going to explore this idea in more depth, covering:

• Why start a business during a recession?
• Industries that thrive in uncertain economic times
• Recession-born businesses still thriving today
• Tips for launching your recession business

Starting a business during a recession may feel like giving yourself even more challenges to face. However, there are also upsides to these times for growing or expanding your venture, including:

You may find significantly less competition during a recession, as other businesses are more cautious or slow down their growth strategies. This gives new ventures the chance to take some of their customers and capitalise on their slowing down. Similarly, customers who associate your business with providing a great product or service during a difficult time are likelier to remain loyal and stick with your brand.

Large and established businesses often limit their research and development during recession times. This allows newer businesses to step into gaps larger companies have left. The lack of competition can be a real boost.

Furthermore, you may be able to get products and services cheaper. A weak economy decreases pricing as businesses try to remain competitive and keep their customers. You may be able to access amenities and items for your business, such as office space and supplies, at a more competitive rate than in better financial times.

While the natural urge during a recession is to be cautious and not make any big decisions, if you have a burgeoning business idea and the means to test it, it could prove to be a perfect time.

Certain industries have a reputation for being recession-proof. While no sector can be considered safe, the healthcare, IT and education sectors have a strong reputation for thriving despite the economic downturn. This could include companies that specialise in specific niches such as app development or private tutoring, as well as larger organisations like private healthcare providers. Businesses that sell essentials can weather the storm of a recession as people require their goods regardless of the economic climate.

Evidence also shows discount retailers often profit from economic downturns, as The Independent reported in June 2008. They found Lidl’s sales grew by 12.8%, considerably higher than the growth rate of Sainsbury’s, Asda, Tesco and Morrisons. Aldi also boosted its income by 21% in just three months.

Researching your niche and exploring previous business successes in your industry can help paint a better picture of whether it’s the right kind of enterprise for recession times.

Economic recessions are not a new thing and have been present throughout history. When recession hits, entrepreneurs looking to triumph from difficult times have found their niche and carved out serious business success. Here are just some examples:

In 1953 there was a 2.6% decline in GDP in the USA. Despite this, Burger King, originally named Insta-Burger King, still opened its doors in Florida. The company was born in 1954 when James McLamore and David Edgerton opened their first Burger King restaurant in Miami. During another recession, in 1957, Burger King took the initiative again and launched its signature burger, the Whopper. Today they have over 17,000 locations worldwide and are valued at around £6.1 million.

The collapse of Lehman Brothers in September 2008 triggered a recession that saw companies close their doors or cut back. In the same month, PureGym launched in Leeds and offered a new brand of no-frills health and fitness. Expensive gym memberships were no longer necessary as people could pay as they went. The company’s model has been copied by others and remains hugely popular, with their 24/7 gyms and manageable monthly membership attracting over 1.1 million members in the UK alone. They have also branched out into Europe with sites in Denmark, Switzerland and Poland.

With the simple idea of renting out an air mattress on their living room floor, Californian entrepreneurs Brian Chesky and Joe Gebbia saw their gap in the market as the recession hit at the end of 2008. The international recession made their product even more appealing as the short-term living market allowed them to offer an affordable alternative to hotels and similar venues. In 2021, Airbnb was valued at $113 billion and continues to thrive.

Launching a business in a recession comes with plenty of challenges, but they can be overcome with the right approach and keeping these tips in mind:

Competing with legacy businesses is always one of the biggest challenges for new starters. This is especially true in a recession as customers are more risk averse. They may not want to give newer companies their time. However, you can view the sector from a new perspective and build your business with customers’ existing issues and pain points in mind, convincing them you are the best fit for their needs.

Bringing value to your industry has to be central to any new business. Existing companies will be looking to trim the excess and find ways to make savings. However, newer companies need to innovate to stand out. Companies that customers realise don’t bring anything special or offer something unique will soon fall to the wayside, so an innovative approach to adding value to the industry is vital.

No one wants to under-price and leave themselves short or unable to balance the books. However, newcomers to any market need to consider their price points’ competitiveness. Customers will focus more on the bottom line in times of economic crisis. Therefore, making yourself cheaper than your competitors will be welcomed. Cheaper may mean lower profits, but you can build up a solid customer base, and with careful cash flow management, you should reap the rewards in the long term.

Starting a business at any time relies on a commitment to never giving up. This is even more important in times of recession. You need persistence during an economic downturn as there will be challenges and rejections. Combining persistence with adaptability and a strong business idea and you should have all you need to succeed.

Countingup is a business current account and accounting software in one convenient app. You can monitor incoming funds and outgoing expenses with ease. You can also generate cash flow and profit and loss insights to keep track of your business’ success. Keeping a close eye on the finances is vital in a recession, especially if you’re starting out, so download our app and learn more about how we can help.