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It has been said by economists that at the time the economy is taking a dive, it most people normally turn to their inner entrepreneur in the process of making their own work. This is much true because, the issue of finding another job is much daunting, and in the process, many entrepreneurs are encouraged to make work just by themselves. Even when the market is good, entrepreneurs tend to have a disheartening failure rate. During recession, entrepreneurship is designed in a manner that it captures the best practices for a business launch under that recession times. The phrase entrepreneurship in recession is just an idea of exchange of business, which was suggested by kyleen, (Kedrosky, 2009).
Kauffman Foundation in their research entitled Economic Crisis Survey showed that, in general, most people believe that, during economic crisis, it has been very much difficult to venture into entrepreneurship in America and other countries. On the other hand, there are many anecdotes that show real success during recession. The history of entrepreneurship has proved that, an engine that drives job creation is entrepreneurship. In addition, entrepreneurship drives economic growth, even during economic down turn. Different studies like for instance the Economic Future Just Happened, has shown that, more than even half of 2009, more than 500 companies were formed during the recession or just a bear market. This trend also happened in 2008. Some companies formed during recession include; Texas instruments and Revlon were both launched during the great depression. During oil crisis, Apple and Microsoft were formed. Concerning product launch, pampers were launched in 1961 and the iPod in 2001. As an effect, recession does not in any case hinder innovation. It has been proved that on the list of fastest growing companies in the U.S, were formed at the time the market was bear, or recession. Researchers have also indicated that, policies that are used give support to the entrepreneurship also supports recovery at the same time. Studies have also indicated that, creation of jobs from start up firms; in most cases tend to be less volatile and very sensitive to downturns when comparison is made with other companies that were made when the market is full, (Barney, 2006).
Major Mistakes made By Entrepreneurs during Recession
There exist four major mistakes that most entrepreneurs do when recession is approaching. One of them is intending to take the advantage of declining costs. Most cases, most entrepreneurs are at the same time are suppliers and customers. For the provision of its products or services, businesses need to buy materials and inputs that the business use in most cases, at the same time; people have to be hired, to ensure production of goods and services. At the time demand slackens, suppliers come hurting too. As an effect, in most cases, people ends up striking better deals, to cut down their costs by paying less to suppliers, or in other cases hiring better workers at a lower costs. This at the end reduces the purchasing power.
Most individuals think that, price reduction is the only away of increasing demand. The reality is, price cutting is not the only way of stimulating demand. This method is not the best way to entrepreneurs. On average, the truth is that, entrepreneurs in most cases become much successful when competing for similar service, good, quality, or something else other than price. So turning to price cutting during recession, is a strategy that will lead to failure if implemented by the entrepreneurs. Entrepreneurs need to use creativity in the market, not just using pricing strategy.
Most entrepreneurs do not notice the increased competition. During recession, in most cases competition becomes more and more tuff. This is based on the fact that, all business there existed before recession is all chasing less total demand. To add on this, the rise of an employment during recession period, make people to start their own businesses. This is on the reason that, their opportunity cost of opening businesses goes down, as an effect, increasing competition. Due to these facts, the need to have a competitive advantage is even more significant during recession period than in an economy that is booming, (Stangler. 2009).
Research has shown that, most people tend to forget that certain products, or even in other circumstances the businesses as a whole, are counter cyclical. When customers start spending less, they in most cases substitute one product or service to the other. For example, during recession, individuals might end up cutting back the number of steak dinners that they used to eat out before recession. On the other hand, since they still like treating themselves, they might end up increasing the frequency of purchasing cheaper foods, like pasta, as an effect, pasta is made a counter cyclical good. As a matter of fact, entrepreneurs have to avoid making assumptions that during recession demand for everything goes down.
Factors Affecting Company Formation during Recession
At higher levels individuals are just concerned with the link between birth of firms by the periods in which they were founded, and the achieved outcome by those date-based founding cohorts over a period of time. In dealing with this concept of supply very few broad questions might be made. The first comment is what best name that scarcity argument might be called and the reasons for fewer companies during recession period and vice versa.
Factors helping entrepreneurs initiate and thrive during recession
There have been some successes in company formation during recession. Some factors that have led to these include;
The resources during these periods are much cheap. Counting everything from office suppliers, coming to rents then to machinery, all are available at lower prices, far much lower as compared to even some years back. At such like times, most equipment might even be bought at liquidation prices. This is because; most businesses existing downsize or might even be eliminated from the market completely. During the periods, there are also guts of commercial freedom in much location of businesses. This effect shows that, rents are also softening. (Arohan, 2009).
The second reason is that, the cost of the payroll is lower. With the issue of unemployment reaching levels that are higher day by day, there are a lot and a lot of workers coming on the market. Most of them might even be willing to take jobs at a very lower salary as compared to what they were getting previously. In most cases for entrepreneurs, recessions are good and much favourable for companies that want to succeed, to start employing good workers at a price that is far much reasonable. At the same time, it makes much sense for the companies that that still exist in recession, to begin planning the growth strategies and invest in human resource while they are still cheap.
The third factor favouring the formation of businesses during recession is lowered job opportunities. Many people in their lives dream of one day owning their businesses. However, as the grind of life gets them, for instance raising kids, in many people, the dream is left to rest before being accomplished. During recession, although a job loss or a career that is stalled, might present the best opportunity towards the attainment of such like dreams, since white collar jobs that might be considered good, might be too hard for one to get. Most of entrepreneurs take this chance to re-evaluate their entrepreneurial skills and knowledge, ready to go for the option. At times, entrepreneurs require just a push and a nudge to take a step finally, that would have been taken time back, (Arohan, 2009).
Factors Hindering Entrepreneurs From Coming Up With Businesses during Recession
There are some other reasons that might also hinder entrepreneurs from coming up with businesses during recession. Sometimes, entrepreneurs are not willing just by themselves t quite their current places of work at the weaker economic times. In addition, there might be other more compelling obstacles to the formation of businesses during economic downturn. Such like obstacles might be the unavailability of risk capital in such like periods. This may go to an extent that it is far much difficult to raise capital for an entrepreneurial venture that is new, (Covin & Slevin, 1988).
Sometimes, such like conditions are due to the fact that, entrepreneurs might just themselves make decisions of delaying the launch of a company till the economy into which they look forward selling their services or products has recovered and the market is full. In a more strong way, this argument applies to entrepreneurs wanting to invest in service industries. This is because in service industries have very little time of lag, this means that time from business opening till the sale of first service or product. If the lag time is too long, as from business opening to first product launching, entrepreneurs might not be expected, or else being the same as, hesitating as much as in initiating their venture that is still new. This is based on the fact that initial revenues may be anticipated to more likely concur with the economy that is resurgent, (Chaston, 2009).
Other reasons deal mainly with the issues of supply. On the other hand, these issues might increase or at the same time reduce the number of companies during recession period. Another issue deals with demand. By making an assumption that, same number of companies is formed. It will then be as a matter of fact, most companies will fail, because the company might not achieve financial and material success because of poor economy during their formation. This to some extent might lead to longer poor outcomes for cohort of firms founded during periods that were suffering recession, (Kedrosky 2009).
Entrepreneurship by Default
This is the new type of entrepreneur that is only introduced by recession. By looking at the face value of unemployment statistics, one might end up being mislead. The issue of unemployment during recession is just part of the story that is needed to be talked of during recession. The real story of recession is never talked by the media, and that is the number of people who have created their own employment. This in other terms is what is referred to as being a new group of entrepreneurs, while the entrepreneurial process itself is entrepreneurial by default, (allbusiness.com. 2010).
During recession, there is a complete realignment of the economy. People in most cases are fed up with the fight against the traditional career path, moving from one job to the other opportunity. They are even tired of seeing unethical corporate greed-mongers avoiding the impacts of their practices as an effect, they are much ready to turn their back on a world that is filled with broken promises, and come up with a world, which has a future that relay on their own individual integrity and fortitude.
In place of joining back the ranks of W-2 workforce, individuals who tend to be much spirited, make a choice of controlling their own destiny and as a result, they become their own bosses. In most cases, they usually end up starting as independent consultancy, some ends up with the identification of business opportunities that are much unique and purchases franchises. In this new era of recession, employees come to notice the significance of learning the methods of finding themselves. On the other hand, it is never an easy way but it is the one that most individuals are dealing with.
The issue of loosing confident does not only come appear to the employees alone, even owners of businesses who are already in operation never count on the promises made by the government, in trying to assist them get out of the plight they face during recession. As an effect, they end up understanding the significance of being independent. As a point of being independent, circumstances do force them to be much innovative and creative, to ensure that they have the capability of bootstrapping their way to the top. After all, to their honesty and hard work, there are no thanks; this is true because the government in most cases has no bailout funds for them as an incentive. In future recessions, this kind of economy will be one in which, survival for the fitness will be noticed. These who have the capability of adjusting and do a lot with little that they have, will end up winning the day. Those who will be having a notion that they are entitled and keep on waiting for recession to end will just end up being disappointed sorely, (allbusiness.com. 2010).
This kind of business paradigm is also one of collaboration. People, who take themselves to different classes away from others, will be punishing themselves, as they will find the business environment too difficult to move on or adapt. In a world that people are all defined by technology and global interdependence, individuals have to be ready to work in harmony with others and give support to one another. When looking at the foundation of most countries, for instance America, they were built on the basis of individualism this is what small businesses are all about. As an effect individualism is the only way of getting out of recession mess in most countries. Business economies that are built on the roots of individualism, in most cases take risks and build many dreams, American dream included.
Recession entrepreneurship opportunities
In the minds of many entrepreneurs, any thought of economic recession is a prospect that frightens much. In place of making lamentation on the end of the world, or making similar apocalyptic fears in an entertaining manner, that just thinks of business opportunities that might come up during that recession periods. When considering business opportunities that might operate during recession times, entrepreneurs first of all think of the needs that might emerge in the period. In its real meaning, recession mean lower levels of employment, companies facing difficulties in paying bills, lower demand, foreclosures of businesses and homes and also a trend of cutting down operating capital costs. All these scenarios in one way or the other present businesses opportunities that entrepreneurs might invest in. There is no way they can just be considered as profits from preying on hardship, (Freel, 2006).
Unemployed individuals need much assistance in getting new jobs. Some might consider setting up employment agency, personal image consultancy, training job skills, among other opportunities. The process of assisting individuals to get jobs is just a public service, just as one helps another company get staff people who are talented. The best social program that is in existence is the job, on top of a potential life server the individual getting the new position, (Blogbusinessworld, 2007).
The issue of lengthening the customer list of a company, and at the same time, increasing the companyââ‚¬â„¢s sales success, forms one of the powerful consulting service. Dealing with the owners of businesses, and the staff for the exchange of sales and marketing decisions, improving public relations among other company services improvement; tend to boost the bottom line of organizations. Such like sharing in one way or the other maintain employed people, and even in one way or the other add more staff members. Together with the sales and marketing ideas, one may also engage in brainstorming new ideas to companies that need creative minds, (Wan & Lo, 2009).
Businesses and homes during recession tent to fall into the problems of clearing available areas, and in one way or the other are faced with foreclosure. Entrepreneurs might see the opportunity of buying troubled properties in the name of saving the credits of the former homes, and the provision of business in the industry of contracting. Simultaneously, businesses that are not profitable, forms the prime candidates for the turnarounds. Company acquisition is not the only way of saving organizations from being extinct, but the preservation of most jobs linked to it as well. The issue of lowering operating and overhead expenses, on top of improving receivable and payable accounts are also business opportunities during recession, (Hamal & Prahalad, 1996).
In most circumstances, most companies outsource most of their departments, starting with the accounting, coming to law, and then to marketing and personnel. In such conditions, entrepreneurs pick up such like contracts. It is good to maintain an eye as the whole department might be spun off from the corporations that are major as a business that stands on its own. Such like chances spin off acquisition from the corporation, in conjunction with the accompanying brand recognitions as well as the existing reputation; will also take place, (Blogbusinessworld, 2007).
Lipstick Theory of Recession
The consultants of direct sales might see dramatic increase in team member coming in and inquiring about joining their institutions. Many individuals will be looking forward to replace the income that was lost by investing in home business, while others on the other hand will be thinking on the ways they might use to add home businesses as an insurance against the possibilities of job loss. The addition of team members on the other hand is in most cases worthwhile and can temporarily increase income due to the sales made to the new consultants. It is good to remember that, the driver of direct sales income is sales. On the other hand, when individuals need more sales, their clients, on top of their new recruits customers might be in a process of cutting back extra expenses, hence they might end up spend just on these products that are necessary. When it reaches such like time, it is good to identify and concentrate on marketing goods and services that will be sold, in spite of the shrinking budgets of customers, (Linda, 2010).
The lipstick theory, or in other words the lipstick effect, give an idea that, in any market, there are categories of products that that will tend to depict an increase in their sales volume, in the times of economic recession or depression. For instance after the 2001 terrorist attack, the chairperson of Estee Lauder, Mr. Leonard Lauder, noticed that, the sales volume of lipstick was increasing. As an effect, he came up with a theory stating that women were just engaging themselves in buying indulgences that are too much cheap, for instance they were buying lipsticks for their own treatment, in place of buying luxuries that are just more extravagant, like for instance designer clothing or jewelleries that are much expensive. Though the lipstick theory has remained unproved, and by the matter of fact the recent figures of sales volume for lipsticks, suggests that the theory might not be accurate. On the other hand, there has been some merits when the theory is taken into consideration, in the process of deciding what ought to be sold during recession times.
During tough economic moments, it holds more water by reasoning that individuals at some point must cut down their expenditures for the products that seem to be not essential. During this time, before buying, individuals tend to look for lower priced alternatives for he most of their purchases. At the time of either recession or depression, the companies or firms that are positioned well, tend to sell what economists term as inferior products. This are products that most individuals during normal times tend to substitute for their favourites, that they are not able to purchases during due to budget cut down. As an effect, the lipstick effect might come into play when considering inferior products, as being substitutes for other products that have been given up, or have become the opportunity cost, (Linda, 2010).
When the company concentrate on promoting products and services that are expensive, it might be in a position that sustains volumes of direct sales income. For instance, the promotion of lipstick in place of spa treatments; costume jewellery in place of metals and stones that are precious; toys and games for the kids to entertain themselves at home; the focus on budget meals and meal stretching foods like for instance, rice and pasta. The firm should teach its customers on how they can accessorize, to ensure that they have made an outfit, which looks new without in real sense buying expensive new dresses for instance.
The things that are linked to frugal living and do it by your selves need to be made popular during recession times. The process of recycling household items in one way or the other saves both time and money. Individuals tend to look for coupons, money back guarantees, as well as discounts. By considering the manner through which individuals spend, on top of what they engage in, so that they can save during hard economic times, it teaches one to concentrate his promotions, marketing on cheap things.
In conclusion, it is true that entrepreneurs even during recession are too many to count. Due to this, it will not be right to let economic downturn effects impact individuals negatively to an extent of not adding new ventures of business to their own companies. As well as the cash flow though.
Research has shown that, there is still a jury on whether recessions are good times for business starting. The fact has remained that, recession in most cases result to entrepreneurship as during such times, there is less to get lost. After loosing a job, the best way of getting one is starting oneââ‚¬â„¢s own business. In addition recession times give rise to limited availability of capital risk and the unwillingness to sell goods and services when the economy is too weak, (Alexandra, 2009).
Entrepreneurship is all about innovation and creativity, though on the other hand, it also deals with scarcity. This has been explained that, both depression and recession are the only better ways of weeding out the wimps. The study analyzing the number of companies that went to public in every year, across all the recessionary and expansionary times of the year, depicts that it is much difficult to explain whether the entrepreneurial spirits are sparked by the economic recession. The given data does not in any way indicate when such companies were founded in real sense. This shows that, companies that were found during recession have higher chances of being economically significant; however, there is more than much work to do to ensure that such companies survive in their young stages.
Despite the ambiguity that recession is not always bad news to entrepreneurs, there are much expectations of seeing the most interesting firms of the coming decade, as most of them are emerging now. This is particularly in the automobile, media industries, and finance.
Recommendations on What to Do When Starting Businesses during Recession
People need to know that, days are gone for getting ready made businesses, bank funding and well wishers. If one starts a new business, then the person is supposed to monitor every cost and really to more or to less. The business owner need not to have a luxury of hiring names that are well known names, who then in turn large volumes of salaries, for them to be executive. Budget advertisements, are supposed to be barebones also. Many business entities that get formed during recession times are moving on well are made up of sweat equity. Working within, most successful companies that were formed during the recession periods, working within means and growth helps in instilling discipline, and good fiscal behaviours of management, (Hisrich & Peters, 1992).
During economic recession, entrepreneurs have to embrace the new technologies, if not; they have to create one. It usually sounds like clichÃÂ©s, but the increase that comes after recession, in most cases piggy backs on the formation or launch of new industries. The prime example under the context is the Bio-tech and software. It is good to know that, the stage of present technology makes it much possible for an entrepreneur to think advertising and marketing in the modern ways. The internet has in the recent past acted as the word of mouth for the whole world. It has been increasing day after day that, till now; it seems that individuals are just leaving in a single village. It has reached a time where ideas matter as compared to the shear amount of money that due to it, it can be thrown.
During recession, entrepreneurs need to think positive. They should not let the gloom and doom get them out. They need to think in the direction of just being in the adventure that at the end will make their life better. They ought to remain positive since, this times call for starting their own businesses, which has never been simple. It calls for hard work. Since recession periods are never good for those in business, they ought to have good solid business plan. They need to do more research, for them to prepare detailed market research. By doing this, more data available should be tailored towards methods to be used during recession times,( Lee, 2011).
During these times, entrepreneurs need to either borrow or lease some money. It is not advisable for them to buy. This in one way or the other helps in expenses and risks down. They should not engage in buying anything that is not of any use or is not necessary. Home offices should be used in place of rental houses. It is much encouraging knowing that, most of these successful companies started shed or even some with kitchen tables,( Lee, 2011).
Scaling of both prices and products need to be done basing on the recession budget. Products and prices need to review to reflect the ability of the market to buy and pay. These scales should show reduced budgets and declined will to purchase. This means offering tasters of big products and then build upward product funnel, for the times that are better.