Starting a business in a crisis: Entrepreneurial opportunities

Multiple crises have fully transformed many businesses and presented them with significant challenges — regardless of whether they are established companies or newly founded start-ups. What made a company successful in the past may no longer be so during or after the crisis. Competitive advantages change dynamically as business models adapt to new market realities, and the core capabilities that made a company distinctive may suddenly become less differentiating.

For start-up founders, the economic climate during a crisis is often unfavourable. Crises threaten the potential for innovation that could have proven viable in normal times. Reduced revenues, while fixed costs remain the same, are a combination that threatens the long-term survival of start-ups. In addition, partners, customers and investors are fully occupied with reacting to the crisis. There is widespread uncertainty about how businesses will develop and a mood that deprives many players of the courage to experiment.

Although economic uncertainty is never a desirable situation, some of the world’s largest companies started during a crisis or recession. A look back at history shows us that crises can also be favourable moments for new ideas, innovations and systems. Some of today’s most famous companies were founded right after the 2008 economic crisis: WhatsApp, Uber, Slack and Airbnb are only notable examples. Crises and changes also always mean tremendous potential for unprecedented opportunities. The environment associated with these entrepreneurial opportunities for start-ups is discussed in the points below.

Nothing uncovers pain points, new needs and problems like crises. Consumers and businesses are looking for solutions, while entrepreneurs are problem solvers at heart. It is about recognizing and quickly addressing the changing needs of the market and consumers. In the short term, a new opportunity arises to address unique niches by adapting the original idea or by entirely new ideas and to help people as well as companies to overcome the downturn. Where others see dead ends, unique opportunities can be exploited to develop sustainable business models for the future.

Start-ups are used to responding to challenges and changes with adapted actions and behaviours. It is in their motivation to stick to ambitious visions with big plans despite crises and hurdles. Nonetheless, this means focusing on the essentials and acting as efficiently as possible during crises. Companies born in times of crisis operate a lean business model from day one while creating and maximizing value for their customers. In such times, start-ups are even more compelled to get business off the ground through innovative and cost-effective ways. When the economy recovers, the start-ups will benefit from these innovative approaches and realize higher profit margins.

Another reason why crises may boost new start-up ideas is that a broader range of highly qualified talents is available than in good times. Many companies are struggling and, in a crisis or downturn, where layoffs are commonplace, experienced professionals or graduates are more likely to join newly founded start-ups.

More conservative and cautious investors who pause their investments in times of crisis can make it more difficult for start-ups to raise capital. However, this does not apply to all investors. Some more adventurous investors are looking for big opportunities and possibilities right then and want to invest in a downturn, especially in early-stage rounds. It embodies an opportunity to get motivated and the right investors who are passionate about the start-up’s idea on their side.

To conclude, the economic crises and possible future downturns can feel challenging and scary for soon-to-be entrepreneurs. However, the opportunities highlighted above indicate an exciting environment and ambitious time for young entrepreneurs to launch the start-up of their dreams.

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This article is a repost of an article written for the Nova Venture Capital and Private Equity Student Club. Feel free to check out their medium page for interesting articles around Venture Capital and Private Equity.