A common mistake that young entrepreneurs make is unwittingly starting highly cyclical and highly risky businesses, when it hasn’t been all that long since the Great Recession in the U.S. was declared over by the National Bureau of Economic Research in June 2009.
These cyclical, risky businesses operate on the premise that we are going to experience an economic boom or that we are in the midst of one. Instead, the younger entrepreneur must be more traditional with his or her start-up plans.
This means that they can’t hope to base a business off of marketing cool, cutting-edge products, or towards the consumer market rather than the B2B market.
Or, just as bad, the prospective buyer can live without the product or service comfortably for a prolonged period of time. Sometimes, selling something that is not absolutely necessary is riskier than it was 20 years ago. When the economy turns, buyers may remember and still be scared by the economic hardship we saw in the past several years.
I would venture to guess that the Great Recession has forever changed at least this generation of consumer mentality on frivolous spending. Will our buying psyches remain unscathed or will we always be doubtful of the stock market and the volcano that is the U.S. economic system? John Steinbeck would argue the latter.
“The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.”
From The Grapes of Wrath (1939) by John Steinbeck, who won the Pulitzer Prize in 1940 and the Nobel Prize for Literature in 1962. The story, as many an AP English student can tell you, focuses on economic and familial hardship during the Great Depression told through a poor, victim-of-circumstance farming family from Oklahoma.
If the prior years of economic hardship have prolonged perverse effects on the buyer’s mentality, how does this affect the younger aspiring (or any age for that matter) entrepreneur choosing which business to start?
An entrepreneur searching for the “next huge thing,” or just looking for a business to start, must ask these 3 questions to help determine the right path.
How much do companies feel that they need my service right now?
You may feel as if everybody needs your product and you’re probably correct, however it makes the sale a lot easier when your target market feels that they can put you off for 60+ days and still not feel pressed to buy.
When choosing which business to start, remember that the more urgent your target market’s needs are (their perception), the higher your success probability will prove.
Through KAS Write I sell marketing outsourcing to small business to help them put off hiring a full-time employee who is just as expensive and half as effective.
Even though I think that in many situations this could help lower sales force costs, I wouldn’t swap the entire kaswrite.com businesses for the sales staffing aspect of KAS, because finding a new employee usually can’t wait, but the website and its marketing can hold off another day.
If you’re selling consumer services through the web, how set is that consumer on the “Big Guys?”
B2C marketing is done via repetition, repetition and more repetition. You have to have your product or service right in front of the buyers’ faces all day long or you’re not going to succeed in gaining their respect as a business and their trust in your ability to deliver.
For instance, if you open up an online travel company or a stock trading platform, you must now compete directly with Expedia and E-Trade. I would have gotten crushed years ago if I had to rely on stealing the clients of Heidrick and Struggles.
I don’t think a consumer services web-based start-up is the best idea for the aspiring entrepreneur for two reasons.
When Internet businesses can no longer afford PPC Google Adverting, that industry has become ironically crowded, and you’re going to find yourself drowned in expenses with no branding traction.
Also, Internet competitors never really go away, and they all have tremendously well programmed websites. Most Internet companies that have SEO real estate are not going anywhere. SEO real estate is forever, nobody just walks away from it, and you can only take up 10% – 20% of the front page of various Google results.
Are you starting this business for right now or for years from now?
A start-up is not like buying a U.S. Treasury bond. If you sit around waiting for certain economic conditions to happen before your idea can be really viable, you will go broke staring at your stopwatch.
Businesses have to be set up with a sense of urgency. You need to focus on businesses that you can somehow monetize right now. It’s too risky to base your company’s success on external economic conditions.
If you want, have a suite of products just like a hedge fund manager would have a portfolio of stocks, etc. World leaders have teams of the brightest, most educated economic advisors and still these individuals can’t predict what is going to happen.
After the economic hardship our country (and the majority of the world) has been through, it’s even more naive and egotistical to think that you have a particular market pinpointed at a future date in time.
Diversify and offer some services that may be low-hanging fruit until your economic prediction comes true. If you’re an entrepreneur, you can think of something.
Looking back ten years from now, will young entrepreneurs heed the above advice regarding sticking only to the necessities that can be monetized ASAP? Or will they see mirages of success in starting high-risk, high-reward cyclical business after the Great Recession?
After all, it was less than a year and a half ago when CNN Money’s Chris Isidore came out with the special report:
“The Great Recession: Economists generally agree this is the worst economic downturn since the Great Depression, but they say despite pain, another depression isn’t likely.”