NCET

There’s a perception out there that most small businesses today are spending their days struggling to “hang in there…”; “weather the storm…”; “ride out the economic turmoil…” until things calm down again. However, recessionary times also provide great opportunities for savvy entrepreneurs and small business owners. In fact, a recent report released by the Kauffman Foundation provides a historic overview of the numerous high-performing national companies that opened their doors for the first time during tough recessionary periods. Even more important, the study outlines the many benefits of starting or expanding a business during an economic slowdown.

The Kauffman Foundation study titled, “The Economic Future Just Happened,” (available at www.kauffman.org) starts with a look at firms founded during the Great Depression. Today’s economic conditions are being compared to the Great Depression more and more every day: growing unemployment figures, a scarcity of funding streams and mass lay-offs and company closures. What the two time periods also have in common is a spike in entrepreneurial activity driven my sheer necessity. A significant percentage of newly-minted small business owners I’ve met recently are starting their companies out of a drive for self-preservation, paired with an overwhelming desire to take control of their own professional futures.

In its research study, analyzing data from the U.S. Census, the Fortune 500, and the Inc. list of America’s fastest-growing companies, the Kauffman report presents three main findings:

1. Recessions and bear markets, while they bring pain and often lead to short-term declines in business formation, do not appear to have a significantly negative impact on the formation and survival of new businesses.

2. Well over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market.

3. Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.

The study goes on to note that while the findings are not necessarily conclusive, they do hint at broader trends while illustrating a more fundamental economic reality: each year, new firms steadily recreate the economy, generating jobs and driving innovation.

So what are the leading factors that encourage entrepreneurialism in a slow economy?

While start-up capital may not be as abundant as in a flush economy, that doesn’t necessarily deter would-be small business owners who have significant experience in a field, and perhaps, already have access to alternative financing in the form of retirement accounts and home equity. While unemployment is high, entrepreneurs may see that as a positive sign of access to a wider pool of potential employees. And, a wide variety of retail and office space is often available at attractive prices.

In addition to practical elements of start-ups during recession is the, “I don’t have anything to lose” factor. We’re seeing a growing number of individuals in their 40s, 50s and 60s jumping on the entrepreneurial bandwagon today. Many of these entrepreneurs are finding their “safe” corporate jobs don’t feel so “safe” any more, and are taking a proactive approach to defining their own professional futures.

Perhaps most interesting is the Kauffman study’s supposition that entrepreneurs are often “indifferent to prevailing economic winds,” considering, instead, their own abilities, intuition and even perceived weakness of competitors in a slow economy. While entrepreneurs often launch their own businesses with a goal of self-preservation and building their own futures, their innovative creations have historically ended up driving the nation’s economic growth.