A “silver lining” for entrepreneurs?
A new study shows that bear markets and recessions can actually be good times to start a new company.
The report, produced by U.S.-based entrepreneurial think-tank the Kauffman Foundation, suggests that despite the widespread pain felt during tough economic times, an “entrepreneurial silver lining” can encourage long-term business growth and job creation.
In fact, the authors of the report found that more than 50 percent of the companies on this year’s Fortune 500 list and just under half of those on Inc.’s 2008 list of fastest-growing companies were started during a recession or bear market.
But why do startups appear to fare better during tough economic times?
One explanation is that recessions and bear markets actually present valuable business opportunities for entrepreneurs, who tend to be influenced more by their own instincts than by the economic climate at large.
“A downturn might actually act as an extra spur to founding a new company, if the founders perceive that their prospective competition might be weakened,” the report states.
Rising unemployment during a recession also frees up a bigger portion of the workforce, leaving more people (some with generous severance payments) to start new businesses and more potential employees to be snapped up by new companies.
I think this is very true and we’ve been experiencing this ourselves. Whilst no-one likes a recession we’ve managed solid growth throughout it, small businesses can be very agile and tend to be more resource conscious anyway so can survive very well.