Amended at close: 10/22/2008
Whether it is optimal to start a business in this uncertain climate has been a topic of discussion all over the web. In the forum, we haven’t discussed starting up an enterprise as much because so many there already have. Our conversations have been along the lines of refining strategies amid the increasingly challenging marketplace. I’ve been hanging back, hoping to crib source material on whether recessions are a good time to start businesses from other members since there’s a lot more of them than there are of me but nothing much has popped up. Rats. So, I guess I have to stake my position by saying I think economic downturns can be good opportunities to develop projects. I’m not the only one to think that trying times can be opportunities, consider:
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.
Thus spake Warren E. Buffett (unarguably the most successful investor ever) in his NYT op-ed piece entitled Buy American. I Am.
I think those who are optimally suited for this are those who can do a lot of their own product development while keeping their belts tightly fastened. The Toilet Paper Entrepreneur leads the cheer mentioning there’s fewer startups to compete with you, get rich quick types flee the field (not that this industry falls in this category), higher caliber talent is displaced and available for hire and lastly, luxury goods sales expand. The latter has nearly always been the case but it seems that luxury apparel related goods aren’t doing as well as they typically have. Among buyers and sellers, the pattern is clear in the short term; orders have slowed with buyers assuring vendors they’re interested in more immediates. The latter is a hint by the way. Economic downturns should also be a time to realign competencies and capacity. Perhaps it’s time to more seriously consider lean manufacturing?
So, do you think this is a good time to start a clothing line? Why or why not? Thanks for all your input.
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Amended: 10/22/08
Somebody sent me this link, forgot who and I apologize.
Amended with Paul Graham’s commentary on why to start a startup in a bad economy:
…a recession may not be such a bad time to start a startup. I’m not claiming it’s a particularly good time either. The truth is more boring: the state of the economy doesn’t matter much either way.
Regarding investment, he says
Startups generally need to raise some amount of external funding, and investors tend to be less willing to invest in bad times. They shouldn’t be. Everyone knows you’re supposed to buy when times are bad and sell when times are good.
The problem is, investors –founders are investing with work– are supposed to buy low and sell high, meaning they should invest at precisely the worst time and sell when times are good again. Unfortunately, most investors and entrepreneurs sit out the low cycle, sit on their money or go back to grad school, rather than taking advantage to buy in at rock bottom.
I close with this:
Fortunately the way to make a startup recession-proof is to do exactly what you should do anyway: run it as cheaply as possible. For years I’ve been telling founders that the surest route to success is to be the cockroaches of the corporate world. The immediate cause of death in a startup is always running out of money. The cheaper your company is to operate, the harder it is to kill. Fortunately it has gotten very cheap to run a startup, and a recession will if anything make it cheaper still.
I think now is a good time if one can do it. The market thins out and opportunities open up. If one is financially able, they should do it.
You have to do it now! There is almost never a right time! There will always be something standing in the way. I say if you can plan it and execute it, do it! People will see that once they decide to do something for sure and they act on it, God will get that ball rolling so fast, they won’t know what hit them! They key is to be smart about it!
I think now is the right time for someone who is very self-sufficient and on top of things to get started. Low overhead, few-to-no employees and efficient operations and designs are the keys.
I don’t think it’s the right time for a huge operation headed by anyone who doesn’t at least have a working knowledge of all of the different aspects of production and marketing. If things start to slip, or contractors flake, you don’t have your own skills to fall back on.
I completely agree with Carla, be smart!
I see opportunities in this economy. When people have less money to spend, they take extra care to make sure that the things they do spend money on are really worth it. In the fashion industry, this means a consumer will purchase a single “wow” dress instead of 5 just “okay” garments. I want my line to be the “wow” that consumers are willing to spend their money on.
Hmmm….
This reminds me of the time I went to have a hamburger at a fast food chain the first day of business after a huge e-coli scare…
My logic was that with so many people getting sick, they would double and tripple check every piece of food being served :-0
I’m starting a line. Factories are more willing to work with small companies at times like this. It’s only good if you’re willing to do everything yourself and have your factory connections to barter with.
Generally start-ups should have less product competition right now because many product lines have scaled back their marketing budgets and the economy has scared away potential newbies.
I do have to say, do not plan on starting a business unless you have some solid funding. Most banks won’t even go near a new business loan application right now. You have to be creative and resourceful to secure financing. I just had a meeting with my banker and she says I was lucky to have secured a business line of credit last year, because I wouldn’t have been able to get it if I asked for one now.
If you have read everything on this blog and Kathleen’s book, have some type of financial resources, and are ready to work your tail off for a very long time (without pay of course) – then maybe, just maybe you are ready to take the next step.
I’d like to preface this with I am fiscally conservative, and nearing retirement age so Im not going to take a risk I would have to pay back over 20 years
DH being the card he is- joked with the local BofA vice president yesterday -‘ hey, how about a personal loan’ – she asked if he was serious? (Thankfully, we do not need one right now). He has an excellent credit rating and was told “maybe in 4-6 months, right now we are granting NO personal loans, not even to those with excellent credit”.
I believe that we as a nation tend to take a more internalized or even downright isolationist view when in crisis. We turn to local, American made goods and services. Buy American is not a cry it is just a quiet murmur. Go shopping and watch people look at the hangtags and watch their reaction to price, where made, and what their comments are. Yesterday, I spent an hour at a local mall doing just that as my best friend shopped. I heard people commenting on garment quality and I cannot remember the last time I heard that. They used to say either Wow or Ow, decid to buy or not on the emotion they felt when looking at the garment. Now they look more carefully.
I picked up a beautiful pair of hand made shoes made off shore at a Zappos outlet for $57.00 that I know I will wear more than 1 season. The shoes were originally over 250 bucks.
Can or should a start up – start? Maybe, arrange your contacts, prepare your designs, get your patterns made, and find and price your supplies. Make a budget and a business plan. Work this out as if you were going to start dumping your money in tomorrow- But, don’t spend one penny you do not have on hand above and beyond the cost of housing, food, and basic necessities like utilities and ugh… insurance.
IF you have cash on hand, use that budget and fit your spending to what is available. You cannot expect some angel to drop out of the sky with bushel baskets of money and credit cards are OUT as they are excessively expensive to consider as an LOC.
The reason I brought up the shoes is so you also consider if you can afford to eat a return on a significant portion of your “sale” or bite back a big discount if you are lucky enough to place a big order. The merchants are going to want “better terms” where you carry more risk than ever. Zappos was cutting their loss on unsold inventory- not just making me a good deal.
Follow Kathleen’s GREAT advice – produce what you sell not what you hope to sell. Line your ducks up for next season or the year after, but really take the time to know how deep the water is before diving in.
Kaaren
I had been going back and forth on this topic, in fact I even wrote a blog about it on StartUp Nation. I finally made the decision to go for it based on a number of reasons, including those stated above. Here’s the list…
Between company’s that are going out of business and those not launching you will have less competition starting in rough times.
You have an advantage over larger companies because your overhead is much, much lower.
Vendors and manufacturer’s have more time to work with you and actually want your business.
Consumers are shopping for that special item, therefore buyers want newness. In fact, as I’m sure everyone knows, the main lament about NY Fashion Week was lack of innovation.
Speaking with industry people in NYC, they suggested to go for it, just be very careful and get credit card numbers when buyers place orders.
Kristin