Small Business

Starting a Business in a Downturn


It might go against your instincts, but starting a business in a soft economy has advantages. MyBizHomepage founder Peter Justen explains

To many people, the idea of starting a new business right now sounds about as attractive as going all in on the stock market. But Peter Justen, a serial entrepreneur and founder of MyBizHomepage, which provides online financial tools to small companies, says it just might make sense. He spoke recently to Smart Answers columnist Karen E. Klein about the advantages of lessened competition, great deals on real estate (BusinessWeek.com, 8/22/08) and office furniture, and a ready labor supply. Edited excerpts of their conversation follow.

Conventional wisdom these days advises entrepreneurs—all of us, 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 to prosper during a downturn. Years ago, I went to my first boss and complained that the market was bad and I couldn't sell anything. He told me: "Successful people joke and laugh it off, and unsuccessful 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? There are 27 million businesses in the U.S. and the vast majority of them are not credit dependent. Their credit line is a Visa card, savings, and friends and family. Good credit will get good loans and that's how it should be. Those who don't have good credit need to 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, and warehouse space at reduced costs. It's also easier to negotiate for landlord build-outs, signage, and parking.

When it comes to setting up a business, you can find great deals on nearly new furniture, copiers, fax machines, computers, and office fixtures at auctions where companies who ramped up too fast are selling for a fraction of what they paid. We're growing and we just got new office space. We bought furniture at auction for about 10¢ on the dollar.

Unemployment rates continue to rise. Is this a good time to attract employees?

I think there's a flight to safety, and there's a certain comfort level with small companies. There isn't the job security in the big companies that there once was. In tough times, businesses lay off good employees who are willing to accept pay cuts for employment with a company that offers other benefits, like a shorter commute, an improved lifestyle, or more interesting work. There used to be a stigma about going to a small company, then it [had] cachet during the technology boom, and then it became a stigma again, and now I think it's more attractive.

Isn't it tough to go it alone and be a business starting up when no one else is trying it?

We're Americans. Entrepreneurship is in our DNA. You're right that when the economy tightens, fewer people are likely to start businesses. But what that means is that you can do a competitive regional analysis and know that your niche is protected, for a while at least. Grand openings, ribbon cuttings, and groundbreakings are likely to get a lot more media and general attention in your community.

What about marketing?

There's going to be some softening in ad rates, and again, you can take 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 offer reduced rates.

The other thing we recommend is partnership marketing, where you co-market your products through someone else's database. We have a local pizza parlor owner who goes to the high school and hands out coupons to all the kids. For every coupon that's cashed in, he makes a donation to the school band. So he gets tons of kids coming in from the band, and their parents, and their friends.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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