The world economy is in a tough spot right now; according to the World Bank, a global recession is a distinct possibility, chiefly as a consequence of the Russia-Ukraine War. Developed economies will be among those affected due to their high reliance on trade in commodities affected by the conflict.
With high inflation, raised interest rates and falling investment, the overall world economic growth rate is likely to be only 1.7 per cent and the World Bank has warned that various risk factors such as political instability, a new Covid surge, ongoing inflation or excessive interest rates could tip the balance into recession.
Given this would be just the second time in 80 years two global recessions will have happened in the same decade, this may not seem to be a wonderful time to be starting a business. This may be especially so in the US, where projected growth for 2023 is just 0.5 per cent. That means only a slight downturn will tip the country into recession.
However, history has shown that startup coaching may yet have a considerable value in such a situation. Far from being commercial suicide, a smart startup that spots a gap in the market can perform particularly well in a recession.
The roll-call of such companies is a long one. General Motors was formed in the downturn of 1907. United Technologies started out in 1929 as the Great Depression was kicking in. Hyatt Hotels began in the recession of 1958. Fedex and Microsoft were both established during recessions in the 1970s, while CNN and MTV began at the start of the 1980s.
Even the great financial crisis of 2008-09 managed to produce two very notable companies in Uber and Airbnb, showing just what can be achieved.
The key with those companies was that they were able to fill a gap in the market with something new, more convenient and that met a consumer need. Ultimately, this is the route to success for any firm. When money is tight consumers look for good value, which, for instance, might come in the form of a cheaper stay in an Airbnb home than a hotel.
Of course, a great initial idea may get you off the ground, but the key is to nurture it and go on innovating. After all, if you have such a great product or service now that even a poor economic outlook cannot stand in your way, that does not mean you won’t be at risk of trouble in a future recession. You have to go on innovating.
As well as those companies that started and thrived in recessions were those that already existed but performed well.
In the outstanding case from the Great Depression, lipstick firms thrived because this was one of the few luxuries almost everyone could afford. This phenomenon became known as the ‘lipstick effect’ and has been highlighted as a means by which firms offering low-cost value can do very well in a recession.
To succeed, any new firm needs innovation and good management. But those are not things it can ever afford to let go of if it is to carry on through the economic ups and downs of the future.