Businesses that thrive during a recession

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Businesses that thrive during a recession
July 15, 2022

When we navigate uncertain times, the word recession becomes ever more present. Right now, people like you and me want to find other ways to overcome the adversity and stress inherent in dire financial times. 

Many want to know how to survive a recession. Well, one crazy idea is to create a business. Yes, as crazy as it sounds, launching a startup during a recession can be a success. In fact, some even thrive during a recession. So, in this article, we'll be diving deep into how startups can be a hit in trying times. 

So, if you're thinking about starting a business in a recession, this article is for you. Moreover, if you haven't considered it, it could inspire you to think outside the box, and who knows? You might even create your own business. 

What is a recession?

The term recession appears on the news daily in recent times. It's a scary word, but we struggle to understand it. A recession is a decline in the general economic activity of a country or region for an extended time. There have been many opinions on how long a drop has to last to be a recession. The predominant view was that the economic decline had to endure for two consecutive quarters or more. 

Though this idea still persists, the defining traits have changed over time. So, to better understand a recession, it's also essential to understand what economic decline means. One main factor is the Gross Domestic Product (GDP). This is how much a region or country produces. So, if there's a decline in this variable, then it's one of the driving factors in determining whether there's a recession or not. 

Other factors, such as the employment rate, real income, production, and sales, play a crucial role. If one or more than one starts dropping, it can contribute to an economic downturn, be it a recession or worse. Having said that, is there a proper definition of a recession? Let's use the United States as an example. 

In the United States, the National Bureau of Economic Research (NBER) states that a recession consists of two consecutive quarters of a decline in economic activity, including all the above mentioned variables. At the same time, it's visible in the GDP and lasts for over a few months. 

What happens during a recession? 

No two recessions are equal. Having said that, they share many common symptoms and signals. For example, considering NBER's definition, a country is "selling" less of its products if the GDP drops. This can be due to several reasons, including global inflation, a lack of raw materials, or geopolitical tension. 

Since the country "sells" less, it has less money to pay for other goods and services. In a slow economy, people lose their jobs, which in turn causes them to buy less. With less money moving around, businesses close down, people lose their jobs, and so on.  

These indicators tell us what happens at the national or regional levels, but what about you? As a consumer, one of the ways you feel a recession is through the loss of acquisitive power. Be it because inflation has driven up prices, product scarcity, or we've lost our job, in simple words, we can buy less. 

The same applies during recovery. In time, recessions tend to let off some of the pressure, and the economy first recoups strength at a macroeconomic level. This means that the country's indicators are improving first. There's only then improvement at a microeconomic level, with regular folks perceiving the world as more accessible. 

Recessions are cyclical, and they will continue to happen. They are predictable, to a degree, but convey significant complexity. Thus, as you'll read in this article, there are some things you can do to cope with them. One of which is starting a business, as crazy as it sounds. 

Thinking about starting a business during a recession?

At first, starting a business during a recession seems contradictory. There's less cash to pass around, with people worrying about their finances and dreading the future. Still, there's a point to make here: it's then that creativity comes into play.

Starting a business during a recession can be a great idea. Many factors can help a business thrive during and after a recession, and here are some of them. Let's start with the biggest one: a big problem. 

Is a recession a good time to start a business?

In recessions, plenty of problems arise, and they need solutions. So, while investment decreases, people still are looking for those solutions that make their lives easier. Plus, they're willing to pay for them. So, the trick is finding that solution, and the question becomes: how? 

Validate your business idea

One overarching story in recessions is that people want to save money, regardless of whether they have liquidity or not. So a cheaper, better solution will always have a significant following. Startups can provide this, and that's a major part of their appeal. 

The idea of a startup is ideal for a recession because of this exact reason. Usually, a startup's operating cost is usually much lower than any other company. So you can outperform others and draw in the few investors out there. Even excellent employees could be easier to come by in a startup. Unfortunately, layoffs happen plenty during recessions, so there's talent on the streets. Many want to work for a startup that brings solutions to the world's problems. 

At the same time, few dare come up with a business during a recession. So, those who do, be it due to necessity or the will to provide solutions to the world, will likely face less competition. Moreover, a recession isn't kind to companies. So most of them are taking a safer approach to operate and might not want to commit their finances to the idea of a startup. 

Still, that's not to say there won't be any money to pass around. In fact, many intelligent investors love putting their money on companies that come up during the recession. These feisty startups are attractive for one reason. A recession causes the stock market to drop, so investors might want to put their money down on a startup that could show much more promise. 

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What type of businesses thrives during a recession?

We've seen that several factors can contribute to success in difficult times. Also, some businesses will fair better during a recession. While luxury and excess aren't priorities, other services are the key to their likely success. 

These are the businesses that thrive during a recession.

Groceries

The first business to fair well during a recession is groceries, especially those that offer discount products. When times are tough, many people stop going to restaurants and instead opt to cook at home. So, groceries have become ever more critical. Companies such as Walmart, which offer lower costs, have proven to be successful in recessions. Now, it's not easy to create a supermarket, so the key lies in creating technology around these services. 

Health care

People need healthcare, and a recession doesn't change that. So, when times are tough, you will find that people will still be willing to pay for health care, but there's a behavior change. More and more people might look for a cheaper alternative or a better service for the same price. At the same time, with an increase in digitalization, medical services can solve even more problems. Therein lies the opportunity. 

Financial services

When we're against the wall, we want to know how to improve our financial situation, and financial advice becomes essential. We don't need to be in the same state or country to provide these solutions. So a startup that can come up with excellent financial solutions has a high chance of success. 

Kid products

Anything that makes parents' lives easier is bound to be a hit. So startups that aim to provide solutions for parents when stress is high have considerable potential. Even more so if their product or service is long-term, not only during recessions. 

Debt management and collection

As there's a need for financial services, there's also an unfortunate side to recessions. Some people will end up in debt, and their need to manage it will increase. At the same time, the need for people to collect money from outstanding debts will be ever more pressing. Becoming a player in this game is a potential success for any startup. 

These are a few possible endeavors you can consider when in a recession. In fact, many companies fared very well during the 2008 Recession, which rattled the global economy. 

These are some of the companies that survived and grew during the 2008 recession: 

  • Dollar Tree (discount stores)
  • Walmart (discount stores)
  • Hasbro (leisure and kids products)
  • Amgen (health)
  • Edwards Lifesciences (health)
  • H&R Block (personal services)

As you can see, these sectors can thrive during the recession, but you have to play it right. It won't be easy for a startup during a recession, but if an idea survives tough times with a reputation to boot. This is valuable as recessions can last for a long time. 

How Long Do Recessions Tend to Last?

The fact is that many factors can contribute to a recession taking longer or shorter. First of all, there are global factors. For example, geopolitical conflict, a surge in oil prices, or changing diplomatic conditions extend a recession's duration. 

As these economic phenomena are cyclic, history has given us many lessons. For example, some of the most significant recessions (and far worse depressions) have lasted for a year and a half or more. As for those that aren't as big, they should last from eight to 18 months at a macroeconomic level. 

Then, the microeconomic indicators will improve. Some research shows that people begin to feel like they've overcome the recession after 12 to 18 months. Since a recession can take a long time, people need to have a plan to navigate the trying months. 

How to Survive a Recession and Thrive Afterward

At first, the idea of a recession can seem overwhelming. There are so many factors at play that you can feel as though there's little control, but this isn't the case. If you want to survive a recession, you can act on the things within your grasp and use them to your advantage. There are four significant steps that you can take. 

First, you can have extra income by partaking in other activities outside your primary job. These "side hustles" can demand time, but if you manage to dominate them, you will earn some extra bucks that could go a long way. One way to do so is by mastering new skills. With the advent of digital training, new skills are easier to find daily. 

You can also live within your means. This sounds logical, but for most, it isn't. It's until you take control of your finances that you realize that you've been spending more than you should. Understanding your financial reality is essential for overcoming a recession. 

Create an emergency fund, and you'll have more peace of mind. By saving up for six months, you can rest assured that you can rely on that emergency fund if you're without income for a long time. A vital part of overcoming a recession has some cash to fall back on. 

Finally, you can invest. A drop in the market doesn't mean the end of the world. In fact, it means an opportunity. At the same time, since the market is cyclical, it could mean that some options will show dividends. All investments carry a risk, so understanding them is vital. 

Also, keep your eyes open. Not all investments are in stock; some are in startups, which might become huge. In adverse times, those who dare come up with something that breaks the norm could have great success in their hands.  

These aren't the only steps you can take; the more prepared you are for trying times, the better. Additionally, if you're thinking about creating a business during a recession, congratulations! You're one of the few who wants to take on the trying times and come up with a solution that helps others and could provide great success for you in the future. 

If you are considering starting a business, we can help you. Slidebean is a powerful platform that can help you build your business from scratch or take it to the next level. With our step-by-step guide and easy to use tools, you will be able to grow your business. 

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Businesses that thrive during a recession
Bernardo Montes de Oca
Content creator in love with writing in all its forms, from scripts to short stories to investigative journalism, and about almost every topic imaginable. From start-ups to nature, from literature to aviation. Hearing impaired, so let’s talk loud and clear.
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