Ready for the Rebound

Preparing for a post-recession business start-up

Get relevant experience before starting up. Work in a family member’s or friend’s business that’s related to the one you want to start.  If you can’t do that, get experience as an employee in a similar industry.  You don’t have to work there a long time, but enough to gather some idea of what it’s all about and if it’s right for you.

“It’s a huge mistake to just leap into business ownership where really you have no knowledge of that industry,” says Robert W. Fairlie, Ph.D., professor and director of the Master’s program in applied economics and finance at the University of California, Santa Cruz.  In the research for his book, Race and Entrepreneurial Success,  Fairlie found that companies started by entrepreneurs who had prior experience working in businesses owned by a parent or family member did 10% to 40% better than companies started by persons lacking such experience.

Capture a market niche. Boston suggests studying the best-selling book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, by W. Chan Kim and Renée Mauborgne.

Make sure you have adequate startup capital. Because it is very unlikely you can generate revenue immediately, ask yourself if you have enough money to rent your location for six months to a year.  To make a new product, do you have funds to rent equipment for however long it takes to produce and sell the goods?  “Don’t try to run something where you’re really going to struggle to be able to pay for renting the building and machines or hiring employees.  Make sure you start it when you have enough capital to do it right,” Fairlie says.

Concentrate on customer satisfaction and controlling costs. “This is less about a given sector coming back or charging ahead and more about individual firms who have focused on keeping their existing customers happy and keeping their costs under control.  It is the firm who realizes this is a test of survival and understands that they can broaden their marketing via the Internet, etc., that will make it through this,” says Alan L. Carsrud, Ph.D., professor of entrepreneurship and strategy at Ryerson University in Toronto, Canada.

Anticipate differences between what were the most reliable opportunities for small businesses during the recession and what will be solid during the recovery. Non-construction businesses supplying government suffered less of a negative impact from the recession than businesses tied to the private sector. Federal and state economic stimulus measures prevented extreme cutbacks in government expenditures.  “Still, I am very cautious about advising business owners to focus on government-related procurement opportunities, because as soon as the economy recovers its robustness, we can expect drastic reductions in government spending in an attempt to reduce federal, state and local budget deficits,” says Boston.

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