Starting a Business in a Downturn

Tag : Furniture Companies

To many people, the idea of starting a new business right nowsounds about as attractive as going all in on the stock market. ButPeter Justen, a serial entrepreneur and founder of MyBizHomepage,which provides online financial tools to small companies, says itjust might make sense. He spoke recently to Smart Answers columnistKaren E. Klein about the advantages of lessened competition, great deals on real estate (BusinessWeek.com, 8/22/08) and office furniture, and a readylabor supply. Edited excerpts of their conversation follow.
Conventional wisdom these days advises entrepreneurs—all ofus, really—to hunker down and wait out the financial storm.Why isn't that good advice?
It's always a matter of perspective, and there's always a way toprosper during a downturn. Years ago, I went to my first boss andcomplained that the market was bad and I couldn't sell anything. Hetold me: "Successful people joke and laugh it off, andunsuccessful people complain about how bad the market is."I've never forgotten that.
Isn't this a terrible time to try to get funding for a startup?
Risky startups have never gotten funding, so what's changed? Thereare 27 million businesses in the U.S. and the vast majority of themare not credit dependent. Their credit line is a Visa card,savings, and friends and family. Good credit will get good loansand that's how it should be. Those who don't have good credit needto be more creative.
What are some of advantages of starting up in a downturn?
The real estate market is slowing in most regions of the country,which allows for small businesses to get retail, office, andwarehouse space at reduced costs. It's also easier to negotiate forlandlord build-outs, signage, and parking.
When it comes to setting up a business, you can find great deals onnearly new furniture, copiers, fax machines, computers, and officefixtures at auctions where companies who ramped up too fast areselling for a fraction of what they paid. We're growing and we justgot new office space. We bought furniture at auction for about10¢ on the dollar.
Unemployment rates continue to rise. Is this a good time to attractemployees?
I think there's a flight to safety, and there's a certain comfortlevel with small companies. There isn't the job security in the bigcompanies that there once was. In tough times, businesses lay offgood employees who are willing to accept pay cuts for employmentwith a company that offers other benefits, like a shorter commute,an improved lifestyle, or more interesting work. There used to be astigma about going to a small company, then it [had] cachet duringthe technology boom, and then it became a stigma again, and now Ithink it's more attractive.
Isn't it tough to go it alone and be a business starting up when noone else is trying it?
We're Americans. Entrepreneurship is in our DNA. You're right thatwhen the economy tightens, fewer people are likely to startbusinesses. But what that means is that you can do a competitiveregional analysis and know that your niche is protected, for awhile at least. Grand openings, ribbon cuttings, andgroundbreakings are likely to get a lot more media and generalattention in your community.
What about marketing?
There's going to be some softening in ad rates, and again, you cantake advantage of that. There's also less advertising competition,so you'll get greater visibility. And, in a down economy, writers,designers, and ad agencies are looking for work and may offerreduced rates.
The other thing we recommend is partnership marketing, where youco-market your products through someone else's database. We have alocal pizza parlor owner who goes to the high school and hands outcoupons to all the kids. For every coupon that's cashed in, hemakes a donation to the school band. So he gets tons of kids comingin from the band, and their parents, and their friends.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship andsmall-business issues.