Is a recession a good time to start a new business?

With tech layoffs in the news, it’s quite possible that 2023 won’t be the year it’s easy to find comfortable tech jobs. This is definitely a difficult time, but it is also a time of opportunity. The main threats and opportunities for start-ups during market downturns are:

1. Capital:

Capital availability is usually an issue during market downturns. Most startup funds become more conservative and, generally speaking, invest less in new projects. Worse for early-stage startups, investors’ risk tolerance may also decline. This means that the capital available for new projects will naturally be concentrated in a few ‘safe’ bets.

That said, governments’ usual policy during a recession is to increase spending to fight the recession. This means that business financing may become more readily available alongside other forms of fiscal stimulus (such as subsidies).

2. Cost:

Capital may be a little harder to find, but less capital may be needed to survive. During a recession, increased availability and reduced demand can lower the cost of hiring employees, renting office space, and other operating expenses. This allows startups to raise more funding and generate revenue faster.

3. Talent:

The biggest reason a recession is a good time to start a new project is because of the availability of good engineers.

During good times, the high salaries and other benefits that established companies can offer make it very difficult to compete with established tech giants for top talent. But layoffs make it exponentially easier to attract and retain quality talent.

But in an era of cost-cutting and headcount reductions for giant corporations, experienced talent suddenly appeared on the market. This is not just about finding and hiring people. Chances are you can find a very talented co-founder.

It’s not unheard of for former colleagues to become partners during layoffs and start their own projects related to the industry they used to work in. A boom period when large companies tend to be more inefficient.

This brings us to our last point.

4. Market:

Favorable market conditions and the availability of capital during boom times make inefficiencies less of a killer for large companies. But a recession will end this quickly. Consumers are becoming more cost-conscious and rapidly reducing spending on products and services they deem nonessential. Combined with the fact that access to capital becomes more difficult, this drives inefficient and rigid companies into bankruptcy rapidly.

This is both a threat and an opportunity for young startups. Such project agility presents an opportunity to adopt innovative practices and business models, thus applying the lessons previously discussed. Additionally, failures of old businesses open up space in the market for new companies that can offer better products and services.

Nevertheless, consumer cost consciousness and conservativeness make it difficult for less established brands to acquire new customers. You need to offer real value that people are actively seeking.

In conclusion, there are pros and cons to starting a business during a recession. However, all things considered, you are more likely to attract quality engineers to your project, so you might want to try something new.