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Let the bad times roll

More ideas for recessionary times: start a business

In keeping with David’s blog entry yesterday here’s another suggestion about to how handle a recession: start a business.

This is not just wishful thinking. McKinsey, the global strategy consultants, recently published research that shows the majority of companies become hugely conservative in a bear market, divesting of companies when times are bad and acquiring companies only when times are good. Perfectly understandable, yet perhaps they should do the opposite. The research found that during a downturn “an effective acquisition strategy created significant value for shareholders. During an upturn, on the other hand, divestments created slightly more value than acquisitions did.”

Of course not all of us can afford to acquire, especially when cash is crunched. But replace ‘acquisition’ with ‘investment’ and the advice still holds. A recession is a great time to invest in improved systems and training; restructuring the company along more efficient lines; product development and tactical innovations. It might even a good time to launch.

It’s interesting that many of the world’s great magazine brands—Time, Fortune, Business Week, Playboy, Esquire and many more—were launched in recessions. Indeed, in an article titled ‘Let the Bad Times Roll’, the New Yorker magazine catalogues the many successes to have been launched in official recessions: Proctor&Gamble, 3M, General Motors, Chase, Bell Telephone, IBM, Texas Instruments, General Electric, Microsoft, Sun Microsystems, Sony and Honda.

“Despite all the bellyaching that accompanies a capital crunch, lean years are good for new companies …When the economy is hot, everyone's an entrepreneur. The more companies there are, the less likely it is that one of them will be able to sustain a lasting competitive advantage, no matter how flush the marketplace is. Starting a business is like investing in stock: you want to buy low and sell high.

“What’s more, the easier it is for start-ups to raise and make money, the harder they find it to manage that money wisely. Companies need discipline—an ingrained sense of the relationship between effort and reward, product and profit. That's where a nice, brutal slowdown can come in handy.”

Now’s a great time to discuss how you might work with your supportors to make the most of the recession. As the New Yorker so eloquently puts it, “hardscrabble beginnings beget hard-minded men”.