I have been asked this question dozens of times over the past several months. My answer is always the same: “it depends…”
Given the substantial number of people out of work and the length of the time they have been unemployed, many are thinking about starting a new business. Hence the question, “Is now a good time to start a new business?”
Let me begin by saying that if the only reason you want to start a new business is because you cannot find a job, now is definitely not a good time. Furthermore, it may never be a good time for you. Anyone who has owned their own business knows that to succeed it has to be a burning passion for you, almost like a religion. You wake up thinking about it, put in 12-14 hours a day (maybe 6-7 days a week), then go to bed thinking about it. To succeed at a business you have to want it more than anything and must be willing to do whatever is required to get it done.
The most common reason that new businesses fail is a lack of substantial revenue. Many entrepreneurial “wannabes” think that if they build it the customers will come. Nothing is further from the truth. You need to go out and secure customers through good marketing and sales skills. And, you have to be good enough to compete with highly skilled sales and marketing people out there. This is where you will need to invest a good portion of your time and money. If you do not enjoy this type of work and do not possess sales and marketing skills, you ought to think long and hard before you invest money in a new venture because this is exactly what you are going to need to do very day that you are in business if you want to succeed.
Notwithstanding these words of caution let’s look at whether or not this is a good time to start a new business. There are two parts to the “positive cash flow” equation: revenue and expenses. Let’s begin by looking at the expense side.
From the standpoint of expenses now could be a great time to start a new business. Consider the following facts:
- The current available labor pool contains the largest quantity of high quality and skilled talent available in many years. Why? Because large companies are downsizing. This creates a perfect opportunity for you to find top talent at very competitive wages.
- Real estate vacancies due to the failure of other businesses are available in abundance at bargain prices whether you are buying or leasing.
- Vendors and suppliers are hungrier than ever and as a result, you can negotiate some very attracting pricing.
- If you have a good credit history, business loans are available from smaller community and regional banks at the lowest rate we have seen in years.
- A Small Business Administration (SBA) loan is now guaranteed at 90% and all of the normally high processing fees have been waived. This makes an SBA loan more attractive to both you and the bank.
- In addition, the SBA has grants available for businesses owned by women, veterans and other minorities.
- Used office and plant equipment in excellent condition is available due to downsizing by larger companies or failed companies. Here in Minneapolis, you can find local auctions like www.hoffhilk.com and www.minitbid.com. If you are located in other states you can search the web for equipment liquidation resources nearby.
So, when you consider these facts, now could be a fantastic time to get started with much lower than normal start-up expenses. Yet, that is only one side of the coin. Let’s look at the other side… the revenue side.
It is a different story on the revenue side. The good news is that 90% or more of the population are still employed and have some sort of expendable income. The bad news is that because revenue is down in most companies, they have cut prices in an attempt to hang onto customers and maintain revenue levels as long as they can and as high as possible.
If your plan is to start a “me too” company that will be competing with established businesses and brands, I would probably not recommend starting now in this economic climate even with a potential for substantial savings on the expense side. On the other hand, if your product/service is unique (little or no competition) and timely (something people want and will pay for today), I would certainly consider now a great time to start a new company. However, before I laid out my hard earned money to start a new company, I would conduct in depth research, perform thorough “due diligence” and seek expert advice wherever I could get it.
When it comes to research, most areas have access to a reference library. Here in the Twin Cities, we have the James J. Hill Reference Library which houses a wealth of information. They subscribe to data bases that cost thousands of dollars a year and contain valuable information about your target market. Most information is available to you free of charge. Many colleges and universities offer the same services. Chances are there is a reference library relatively close to you that you can use for research.
I would also suggest that you scour the SBA website for information and resources. The Recovery Act of 2009 (Stimulus Package) has allocated funds for many purposes. It may be possible for you to position your new business in such a way as to receive grants, government contracts or a guaranteed loan.
Finally, why would you attempt to start a business all by yourself and “reinvent the wheel” when there is a team of experienced business executives in your area who are willing to help you at no cost? SCORE is a not for profit organization comprised of business executives (retired and working) who donate their time, experience and talent to mentor small businesses and help them succeed. Simply visit the SCORE website and enter your zip to find a chapter close to you. You can then go to the local chapter website and request free counseling. Based upon your needs they will pair you with a counselor that has experience in that area.
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If you would like to contact me, you can do so by emailing me at mike.clough@bestbizpractices.org or visiting my LinkedIn page.
Posted by: Mike Clough
