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Why the middle of a recession is a rather good time to start a business

Are new entrepreneurs brilliant or bonkers…

As we struggle through the worst recession in 50 years - with more dips than an Olympic gymnast can achieve - surely starting a business now is a very quick way for a fool to part with his money?

On the face of it, the odds do not look that promising. At the height of the financial tornado that ripped through our economy in 2008/9, almost 500,000 businesses folded. According to recent research, this caused a million people to lose their jobs.

But since then an entrepreneurial spirit has gripped the nation. The number of new businesses grew by 180,000 last year, bringing the total number of active companies in the UK to around 2.9million.

Research just out from Santander Business Banking suggests that the UK’s small and medium sized businesses are still glowing with optimism about the future.

The average company with a turnover of £20million or less expects to grow its revenue by 88% over the next five years – or around 13% a year.  This compares to the anaemic growth forecast in the economy of just 11% over the same period from the Office for Budget Responsibility.

One in 10 firms are looking to hire and almost one in five believe their business has never been in better shape - with nothing to stop them from growing.

And surveys show that up to three-quarters of us have, at one time or another, dreamt of working for ourselves.

[Related feature: How to give up your day job]

So is now really a good time to take the plunge and start a business?

Yes, as the economy and Europe continue to stutter, it's clear that the risks are high. But there are several reasons to think that starting up now is not a complete act of misguided madness.

1. Lack of competition

When I set up my online financial information business in 1999, the dotcom boom was in full swing. Months later the boom turned to bust and, at first, I thought our future looked bleak. But it turned out to be a blessing in disguise. We had built our business on solid principles, iebootstrap costs, chase revenues, get money through the door to pay the bills and invest what we could back into the business to build our product. In other words, we were in control of our own destiny. We didn’t rely on large and fickle investors.

A lot of our competition came from large and seemingly well-funded US start-ups. However, when the dotcom crisis hit, a lot of these businesses hit the wall, as investors pulled the plug. The result for us was less competition, so we could make a mark and build up a strong client base before new entrants came back into the marketplace.

2. Big doesn’t mean better

One of the reasons the economy is stalling is that large companies are sitting on cash and not willing to risk investing in new products or services, or upgrading what they have got. This creates an opportunity for nimbler small companies to win business from the slower-moving big boys.

If you can identify a strong niche that nobody is tapping into, then now could be a great time to carve out a business for yourself.

If you really want, or value, a product or service, but you can’t find it anywhere, then the chances are others are looking for it too. If you research it carefully you could be on to something that bigger companies have overlooked.

3. Necessity is the mother of invention

When the good times roll, it is easier to roll along with a secure job. But a recession brings into sharp perspective that a 'job for life' is a long-forgotten memory for most of us.

The heady combination of passion and, yes, fear, can help us acquire some of the core tenets of a successful entrepreneur - hard work, dedication, drive and a 'don’t give up' attitude.

Working for yourself brings both bigger ups and bigger downs. A real desire and need to succeed can help you traverse the sometimes difficult path ahead.

4. A helping hand

The Government is falling over itself to try and help entrepreneurs as it furiously tries to kick-start the ailing economy.

Numerous schemes and initiatives have been launched - from trying to force more banks to lend more money to businesses, through to start-up incentives and grants. Local authorities and Government-backed enterprise zones also offer generous tax breaks and incentives to help boost downtrodden regions, while the furore and buzz around London’s East End - now dubbed ‘Tech City’ - continues apace.

Business Link can help point you in the right direction.

At the same time, private enterprises have piled into the small business and start-up services space. Incubators (that mentor and nurture start-ups) and accelerators (that provide an intensive course of help) are popping up around the country. Big and small firms alike have created a range of discounted services for small businesses across a range of core needs, such as accountancy, legal and software - making it much more cost-effective to start and run a business.

And super-charged tax breaks for angel investors introduced over the last few years have made it more attractive for people to back small and growing businesses - attracting large numbers of new supporters.

In short, there has never been more help around to start a business.

[Related feature: Is London's Tech City the new Silicon Valley?]

5. A cut above

Public spending is often cut savagely in a recession - and this one is no exception. This means services that many people rely on can disappear in an instant.

This opens up new opportunities for entrepreneurs - who can often provide more efficient and more effective services than those provided by the public purse.

So, yes, if you are starting a business in a recession you need to go into it with your eyes wide open - but if you have an eye for an opportunity it can pay off.

In 1931, at the height of a major global depression, Noel Coward wrote a now-famous song containing the line “Mad Dogs and Englishman come out in the midday sun”. The fire of the current recession is still burning - but there are plenty of entrepreneurs willing to take on the heat. Are you one of them?

Andy Yates is an experienced entrepreneur, business mentor, advisor and angel investor and helps a portfolio of exciting growth businesses reach their potential. Follow Andy on Twitter: @smallbizhelp;Follow Huddlebuy on Twitter: @huddlebuy

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