From using the slowdown to innovate to seizing the opportunity to recruit talent cheaper, here are 10 answers to the question, “What are some effective ways a startup can benefit from a recession?”
- Innovating Through Recessions
- Filling Up White Space
- Recruiting Great and Grateful Talent
- Diversifying Your Offering
- Generating Greater Interest from Venture Capital Firms
- Taking Advantage of Reduced Competition
- Exercising Perseverance
- Staying Lean
- Adapting in the Face of Adversity
- Finding More Cheap and Accessible Talent
Innovating Through Recessions
Startups can profit from a recession in several ways, and one of them is through innovation, which stimulates creation when there is a sense of urgency.
During tougher times, customers become even more price-conscious, and this can be a boon for startups that can create novel products that can provide stellar value or save them money.
Thus, startups can differentiate themselves from their rivals and draw in clients who are eager for fresh ideas and enhanced products by constantly evolving their products or services.
Furthermore, startups can use the newest tools and methods to organize their businesses more efficiently and cut expenses, increasing their ability to compete in the market.
Overall, the success of startups during a recession can, in general, be significantly influenced by innovation. Startups can not only survive but also grow in a difficult economic environment by creating products and solutions that address the shifting needs of their target audience.
Peter Bryla, Community Manager, ResumeLab
Filling Up White Space
Startups often have lower overhead and higher flexibility than their larger, more established competitors. This means that, during a recession, they are well-positioned to take advantage of opportunities and fill up the white space in the market.
Startups can source labor for cheaper rates; access debt for low-interest costs and benefit from unprecedented deals on services and products. By wisely navigating a rough economic climate, startups can often achieve success quickly, outgrowing some of their traditional competitors to establish themselves as significant players in their respective industries.
Lorien Strydom, Executive Country Manager, Financer.com
Recruiting Great and Grateful Talent
If your startup has decent working capital and a business model less affected by the current recession, it’s a great time to recruit.
Candidates recently laid off by other businesses may be looking for something different. They may also be willing to work for different terms that make previously unaffordable candidates easier for a startup to hire. Whatever the case, the people you hire in a poor economy are more likely to be grateful for the opportunity than when everything is moving up and to the right.
Trevor Ewen, COO, QBench
Diversifying Your Offering
In times of recession, startups can benefit from diversifying their product or service offerings. By expanding into new markets or developing new products, startups can reduce their reliance on a single revenue stream and increase their chances of survival. This can also help them stay ahead of competitors who may struggle to adapt to changing market conditions.
Additionally, diversification can provide startups with valuable insights into new customer needs and preferences, which can inform future business decisions and help them stay relevant in the long term.
Basana Saha, Founder and Editor, KidsCareIdeas
Generating Greater Interest from Venture Capital Firms
During a recession, publicly traded equities typically suffer, and investors look elsewhere for potential returns. This makes venture capital a more attractive option, as start-ups operate outside the wider market and their performance is less correlated with overall market movements.
Consequently, venture capital firms may be on the lookout for exciting opportunities, making a recession the ideal time to raise an additional round of funding. Additionally, because of the economic downturn itself, investors will be more lenient with expectations, giving you more wiggle room regarding revenue and traction.
Although recessions can make things difficult for everyone, there are opportunities to be had during an economic downturn, and successful startup leaders must play every card available to them.
Oliver Savill, CEO and Founder, AssessmentDay
Taking Advantage of Reduced Competition
As someone who recently managed a startup company, I know that one way a startup can benefit from a recession is by taking advantage of reduced competition. During a recession, many companies may face financial difficulties and could even go out of business. This means that there are fewer players in the market, giving startups an opportunity to gain more market share.
With less competition, startups can focus on building their brand, innovating, and developing new products or services to meet the needs of their customers. They can also negotiate better deals with suppliers and landlords, helping to reduce costs and increase profitability. This can ultimately position the startup for long-term success.
However, it’s important for startups to be cautious during a recession and to manage their finances carefully. They should be prepared to weather the economic downturn and have a solid plan in place to come out stronger on the other side.
Ben Basic, Editor-in-Chief, Router IP Net
The market is like an ocean. When a wave crashes, it will rise again.
A recession may not be bad for a startup. Establishing a business during a recession is considered wise. Once the market changes its tide, you can prepare to reap the benefits of your groundwork. For existing startups, lower competition allows you to zero in on your customers’ needs and master your business.
Marco Genaro Palma, Co-founder, TechNews180
One of the biggest advantages startups have over more established companies is that they are lean and nimble. Without large teams and complicated corporate structures, startups are better positioned to adapt to a recession.
By staying lean, a startup can insulate itself somewhat from an economic downturn. It also helps that they pay startup employees less while they have greater equity in the company. That means a startup can maintain its existing compensation structure without having to give significant cash bonuses.
Temmo Kinoshita, Co-founder, Lindenwood Marketing
Adapting in the Face of Adversity
During a recession, startups can uncover many benefits, one of which is capitalizing on the wealth of untapped talent. Economic downturns frequently lead to job losses and displaced professionals seeking new opportunities. This situation presents startups with a golden chance to recruit experienced, skilled individuals who can contribute to the company’s growth and innovation.
Moreover, a recession often sparks a shift in consumer behavior, opening the door for startups to identify emerging market needs and develop innovative solutions. By staying agile and adapting their offerings to cater to these evolving demands, startups can establish themselves as industry leaders, positioning themselves for success when the economy recovers.
A recession may also present opportunities for cost savings. Reduced competition for resources, such as office space and equipment, can lead to lower operational costs, allowing startups to allocate resources more strategically.
Robert Wolski, Co-founder, Halftone Digital
Finding More Cheap and Accessible Talent
Most people view recessions as a terrible time, but recessions create opportunity. It’s similar to burning down a forest so that it can regrow with fresh vegetation. In bull markets, generally unemployment is low, salaries are high, and GDP is growing through consumption. That said, when times are good, the high-salary secure jobs are in high demand, as are the technical talents to fill them.
In a recession, companies will run leaner; therefore, letting go of tech talent that is nice to have in a bull market. The opportunity for startup founders is that in bull markets, tech talent is scarce and expensive, but in a recession, the supply and demand levers pulled release more tech talent into the market that might be more receptive to lower salaries and higher equity compensation. For early-stage tech startups, the most important aspect of your business is the people.
Brett Calhoun, Managing Director and Partner, Scale