The U.S. economy has already hit the bottom. That’s the consensus among economists. They expect businesses to gradually begin expanding in a few months. Signs of a recovery should appear by the end of summer, and the rebound’s mounting momentum should become obvious in the fourth quarter.
Now is the time for people starting small businesses to get ready to make the most out of the recovery.
Winners can exist in all industries, says Georgia Tech professor Thomas “Danny” Boston, CEO of the Atlanta-based economics research firm, EuQuant, and a member of the B.E. Board of Economists. Potential entrepreneurs should look at where emerging growth opportunities are occurring. Even in the out-of-gas motor vehicle industry, hybrid technologies are reinventing the automobile. Digital formats are revolutionizing publishing.
Some industries, however, are chart toppers. Despite the recession, services related to healthcare and to education have kept expanding slowly. “The health sector and educational sector will continue to remain strong and vibrant and are likely to experience the highest rates of growth during the recovery,” says Boston. Expect demand to increase for a wide range of both direct health services, such as physical therapy, and health products. Within that industry, elder care is rising quickly. Healthcare and computer-related job categories take the top four spots on the Bureau of Labor Statistics list of the 30 fastest-growing occupations. Small businesses providing services in those industries have a good shot at rapid growth.
Tips for Scoring on the Rebound
Read, read, read. Study market and industry trends. Read literature on the successes and failures of businesses. “There are some things that an entrepreneur cannot control; ignorance of business and market conditions is not one of those,” says Boston. “You should not fail because you have not informed yourself. Business magazines, websites and industry literature are indispensable tools to the successful entrepreneur. Economic conditions are changing at an incredibly rapid pace, and successful business owners in the future will be those whose knowledge of business and market conditions allows them to stay ahead of the rapidly changing trends,” he says.
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.