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Starting up in a recession

With double-dip recession looming in the UK (and downright depression or even complete financial implosion hovering about the rest of Europe), it's worth reviewing that old chestnut of "starting up in a recession", particularly when focusing on B2B startups.

Wisdom passed down from our Wise Elders suggests that:

So maybe a recession is a good time to start a startup. It's hard to say whether advantages like lack of competition outweigh disadvantages like reluctant investors. But it doesn't matter much either way. It's the people that matter. And for a given set of people working on a given technology, the time to act is always now.

Ah, lack of competition. What a boon. With no competition, or even shrinking competition, surely this pulls the bar for success lower, and means that you're more likely to make money, achieve success, reach the sky and pull the moon down to earth! Another idea that I often repeated to myself, as Woobius struggled through its first couple of years, was that the construction industry's implosion meant they would be more willing to consider innovative, different solutions, like ours. They were under pressure, so surely they'd be more willing to try new things.

Wishful thinking? You bet.

I'm on my third business now. The first one was definitely not recession-proof, though it never got a chance to prove it. The second one was not recession-proof either, or at least, its first two products weren't. Woobius is still alive (and in fact doing great), having pivoted to a recession-proof product, but more on that later. My third business is definitely recession-proof, thriving in an environment where not a day goes by without talk of recessions and financial cataclisms.

My conclusions, based on my experience, is as follows:

  1. A rising tide floats all boats. Given the choice of starting a business in a booming market or in a shrinking market, always pick the former.
  2. Some products are more recession-proof than others. If you're starting up in a recession, be sure to sell something utterly tangible. Like money. Or sales. If your customers can't directly see how it impacts the bottom line, they won't buy.
  3. There are booming markets even in a recession. For example, the "mobile / tablet" space has been booming throughout this last recession. If you can deliver tangible value in a booming market, great.
  4. There are small and/or shrinking markets even in a boom (for example, audio publishing in 2006, when I started my first startup around audio publishing). Pick one of these, and you'll get to feel as if you were in a recession, even while the rest of the world is bubbling away. If you're targeting one of these, well, why? Life's too short.

So, before you start your B2B business in a recession, ask yourself if that business model is suited for a recession. Can you directly measure the value it provides, in pounds, dollars, or euros (until they split that up into 20 currencies again, at least)? If not, maybe it's worth finding another business idea.

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