How do start-ups thrive during economic downturns?

Tuesday 30 July 2013

The UK economy finally appears to be showing signs of a recovery, after more than half a decade in the doldrums. With the Office for National Statistics reporting 0.6 per cent economic growth for the second quarter of 2013, hopes of a sustained rebound are rising.

It has been a long six years since the start of the credit crunch, and many businesses failing to survive the crisis and ensuing downturn. Trading has been difficult, particularly for those companies which carried significant debts into the recession, and those which have been unable to respond to new ways of trading such as ecommerce.

But despite all this, start-up rates have continued to increase in the UK in recent years. How can this be? Part of the reason may the more attractive rates of corporation tax offered by the UK government, but to the uninitiated observer, new company founders still appear to be taking something of a risk. If established companies have failed to survive the downturn, what chance does a new business have?

The reality is, periods of slow economic growth - or even contraction - can be ideal for starting a company. History has showed that many of the world's top companies were founded during recessions, including Burger King, FedEx, CNN and even Microsoft.

Alec Lynch, chief executive at DesignCrowd.com, made this point in a recent article for Forbes. He noted that start-ups, with their inherent agility, can take advantage of a weaker economy and come out on top. He said that from day one, they operate a lean business model, and focus on maximising value for customers.

Mr Lynch noted that during periods of recession, customers are looking for innovation - answers to the problems they are faced with. And this creates a significant opportunity for new companies looking to establish a foothold in a particular sector or industry. If they have a unique selling proposition and can offer value to the customer, there are always opportunities to drive revenue.

"As a nimble start-up with few expenses, you should be able to undercut your competitors," Mr Lynch told Forbes. "Their clients will be watching their wallets and looking for cheaper alternatives, so it’s the perfect time to make a sales pitch to win them over. Do a good job, and you’ll keep those clients when the economy recovers."

Mr Lynch claimed that large businesses can be vulnerable during periods of downturn. And while many companies look to scale back and hibernate through the downturn, start-ups can pursue aggressive growth strategies. "As long as you can support yourself with your minimal overheads, it’ll be hard for the economy to chew you up and spit you out," he stated.

Microsoft solutions can offer essential support for people starting a business.

Posted by Steve Williams