- NYU professor Scott Galloway thinks a recession is an ideal time to launch your startup. That's partly because resources are cheaper and it's easier to attract talent.
- Research suggests entrepreneurship rates rise during periods of high unemployment, like during the Great Recession.
- Airbnb, Venmo, and Rent the Runway are just a few examples of successful businesses that came out of the Great Recession.
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The best time to launch your entrepreneurial career could be right now.
"The depths of a recession is a great time to start a business," Scott Galloway, a professor at NYU's Stern School of Business, told Business Insider's Sara Silverstein in an interview earlier this month.
Galloway predicted WeWork's failed IPO, as well as Amazon's purchase of Whole Foods. He's started nine businesses of his own. And he thinks the next six to 12 months — during which the global economy may hit bottom— will be the best time for business creation that we've seen in the last decade.
Other entrepreneurs and business experts agree with Galloway; their observations are backed up by some research and anecdotal evidence. This could be welcome news for professionals who have lost their jobs — in the eight weeks ending mid-May, more than 36 million people in the US filed for unemployment benefits — and are looking for a way both to reinvent themselves and to make some money.
If you can't get anyone to hire you, consider building something of your own.
Founders who start businesses during recessions get used to being scrappy
Galloway shared a few key reasons why a recession is an ideal time to start a business.
- It's easier and cheaper to hire top talent. Job candidates don't have the same leverage that they do in a tighter labor market, in which a dozen other employers might be trying to woo them.
- The resources you need to get started — Galloway cited real estate as an example — are less expensive.
- Coming out of a recession, the companies that might use your products and services are more willing to innovate and try new things. "You have the wind at your back," Galloway said.
- As a founder, you'll get used to being scrappy, which will serve you well going forward. That's instead of "wallpapering over your idea with consensual hallucination that it's working because you have access to cheap capital." (Galloway's referring to money from venture capital investors, which flows more freely in a strong economy.)
Successful businesses like Airbnb and Venmo came out of the Great Recession
The Great Recession is a prime example of what Galloway is talking about.
A 2013 paper published in the Journal of Economics and Management Strategy found that the unemployment rate increased by 100% from 2006 to 2009; in the same time period, the entrepreneurship rate increased by 16%. "Slack labor market conditions are a key determinant of business creation," writes Robert W. Fairlie, a professor of economics at the University of California, Santa Cruz.
Many household names came out of the Great Recession, among them Airbnb, Uber, Venmo, and Rent the Runway. Previous recessions yielded what are now major companies, including General Motors and Hewlett-Packard.
In a 2008 essay, Paul Graham, who founded the legendary startup accelerator Y Combinator (Airbnb was an early participant), wrote that the state of the economy doesn't have much to do with whether a startup succeeds or fails. In fact, Graham wrote, it's a great time to make something that helps people save money.
It can be harder for startups that launch during a tough economy to build a brand reputation
Galloway cautioned that maintaining a business that's already established during a recession can be challenging. "It's a terrible time to have a small business right now because we're having a shock and demand is strikingly down," he said.
Even if you're creating something new, it won't necessarily be easy to gain traction.
Sara Moreira, an assistant professor of strategy at Northwestern's Kellogg School of Management, found businesses born during economic downturns tend to stay smaller than businesses born during boom times — even though businesses that start during a recession tend to be more productive. Moreira's research suggests that's because businesses that start during downturns have a harder time establishing their brand reputation.
Galloway's experience tells a slightly different story.
He said the businesses he's started during tough economies (in 2010, right after the Great Recession, and in 1992, also right after a recession) were more likely to succeed than the businesses he started during stronger economies. "When I started businesses in a boom time, in 1999 or 2006," Galloway said, "those businesses almost always failed."
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