Over the last few years, damage to world financial markets has negatively impacted the global economy. One area in particular which has felt the greatest impact has been the labor sector. Companies and in some cases entire industries (such as the US automotive industry) have been hit hard leaving many without jobs and a means to support themselves. Individual approaches to remedy the situation have varied greatly. Some have gone back to school or switched industries and others have resorted to defining their employment on their own terms- by starting a business.
Starting a business during an economic downturn can be a complex affair. By definition, economic and also consumer activity have slowed down considerably. There is less available for consumers to spend and the little that they do have is much more carefully guarded. With all this in mind, does it make sense to start a business during a recession? Entrepreneurs starting out during recessions face higher failure rates as consumers are less willing to spend overall and in particular on new products. Additionally, there is increased financial risk. If you sink what you have into the business, it fails and you are unable to find employment afterwards then you’ve dug yourself into a deep hole.
For entrepreneurs targeting specific niches however, a recession can be a perfect time to start a business. The professional networking site Linkedin for example has achieved enormous success during the recent recession. Social media is the new way in which professionals network and for those looking for jobs it has proven to be an invaluable and efficient tool. Do-it-yourself businesses catering to entrepreneurs (for example software) have also enjoyed positive results during the recession as businesses try to cut back on external costs.
Overall the stakes are higher, but the rewards can also be greater- is it worth starting a business when the economy is in bad shape?
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