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Why starting a business in a recession is good, actually

BY John Mullins

12th Jan 2023 Life

Why starting a business in a recession is good, actually

With a recession on the way, you may be wondering if starting a new business right now is a good idea. Business expert John Mullins explains why you should go for it

Is a looming recession a good time to become an entrepreneur? Many think not, but if you’d asked Bill Hewlett or David Packard, they might have told you otherwise. Their eponymous company got its start during the Great Depression in 1939. 

Or ask Bill Gates and Paul Allen, who started Microsoft in the teeth of the 1975 oil embargo. Or Brian Chesky and Joe Gebbia, who founded Airbnb in 2008 because they needed some cash to pay their rent.

Why downturns are a good time to start a new venture

Actually, there are many good reasons why economic downturns provide opportunities that only entrepreneurs are likely to pursue. Why? First, most big companies pull in their horns, cutting costs in efforts to keep their earnings on track. That means less competition for you, and less innovation, too.

Second, as demand across the economy falls, resources become cheaper and more easily available. That includes people, facilities and most other inputs too.

"Most big companies cut costs in efforts to keep their earnings on track. That means less competition for you"

Third, those who want to get ahead in life soon realise that they’re not likely to get promoted where they are working now, at least not any time soon.

So might the looming recession—or is it already upon us?—be a good time to strike out on your own?

How to think more like an entrepreneur

White Nike high top basketball trainers with red logo decorationNike's founders solved a specific problem for a small demographic before turning their attention to other sports footwear

The first thing you’re going to have to do if you’re going to become an entrepreneur is to unlearn some of the conventional habits and practices that have turned so many companies into slow-growth sloths in recent years. 

Two of the most pernicious such practices are the “rules” that companies should only start new initiatives when the markets to be served are “large” enough; and that the first step in doing do is to come up with an “idea” of something, whether a product or a service, to sell.

Consider Philip Knight and Bill Bowerman, who in 1964 identified a problem that elite distance runners had: a visceral problem, in their minds. Running shoes at that time, they believed, weren’t designed with the needs of distance runners in mind.

Distance runners, especially elite ones who ran competitively and some of whom could run a four-minute mile, spent countless hours and many miles training on rough country paths.

"History tells us that difficult economic times are propitious for starting new ventures"

Ankle sprains were all too common because of the uneven terrain and the rocks and sticks they couldn’t avoid. Shin splints and stress fractures too, caused by the repetitive impact day after day.

Distance runners needed shoes with a wider footbed, to reduce the likelihood of injuries, and more cushioning, too. And lighter weight for faster race times, a bonus!

Their start-up, Blue Ribbon Sports, which they renamed Nike in 1978, has gone on to become the global leader in athletic footwear and more.

Rather than targeting a large market that could “move the needle” as so many big companies do, Knight and Bowerman thought narrowly, instead of broadly, about their target market. And they focused all their efforts on solving the very real problems that elite distance runners had.

Once they’d learned how to design shoes that elite distance runners loved—and won medals with!—other runners followed. Once they learned how to design shoes that elite athletes would endorse, and get them manufactured in Asia, they were well placed to move on to other sports: tennis, basketball, and more.

Problem-first, not product-first logic

An entrepreneur standing in his hair salon businessEntrepreneurs tend to exhibit similar traits that help them navigate obstacles and uncertainty

As it turns out, “Think narrow, not broad,” and “Problem-first, not product-first logic” are but two of the six counter-conventional, break-the-rules mindsets that enable many entrepreneurs to achieve their dreams and, in so doing, sometimes change the world.

After conducting more than 20 years of research into what makes entrepreneurs “entrepreneurial”, and how they differ from other successful businesspeople, I’ve learned that many successful entrepreneurs exhibit one or more of six such mindsets.

These six mindsets connect what entrepreneurs observe and encounter with the actions they take. They help them challenge assumptions, overcome obstacles, and mitigate risk.

Perhaps not surprisingly, the six mindsets run counter to the conventional wisdom that’s typically found in large and well-established companies and gets taught in most business schools about strategy, financing and target marketing.

So why not you? Why not now?

History tells us that difficult economic times are propitious for starting new ventures. If you’re the kind of person who wants to make the world—or your small corner thereof—a better place, in one way or another, as Philip Knight and Bill Bowerman did so well, what are you waiting for?

"History tells us that difficult economic times are propitious for starting new ventures"

Learning, adopting, and mastering a break-the-rules mindset and making it your own will give you and your start-up a fighting chance to change the world.

John Mullins is Associate Professor of Management Practice at London Business School and author of Break the Rules! The 6 Counter–Conventional Mindsets of Entrepreneurs That Can Help Anyone Change the World (Wiley, £21.99).

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