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Starting a small business always seems like a gamble, even in good economic times. But right now, many people are worried about the economy, with 65% believing it is either not doing well or doing badly.
With so much uncertainty, you may be wondering if now is the right time to start a business. But the truth is that there is no right time and external forces will always threaten your idea.
Finding the “best” time to start a business takes strategy, research and the right mindset. So if your numbers are solid, don't let economic fears delay your plans. Let's look at five things to consider before starting a new business.
Related: Now is the best time to start your dream business. Here's why you shouldn't worry about timing.
1. Business plan
A business plan can help you decide whether starting a business is the right decision. It can also help you identify new opportunities, clarify your strategy, and assess whether your idea is viable.
If you have many different ideas, writing a business plan will help you assess which ones have the greatest chance of success. You also need to spend time researching your target audience and competitors.
Most importantly, a business plan can help you identify any weaknesses in your business model. It can help you identify potential problems and avoid costly mistakes in the future.
Most investors want to see a business plan before they will fund your venture. And you need a business plan to qualify for a loan. Writing a business plan also helps you communicate your vision to new employees, which can be helpful when recruiting.
2. Market demand
About 42% of startups fail because the founders have developed a product that nobody wants. This is an avoidable problem, but it's easy to get carried away by the excitement of a new business idea and forget to check whether the product-market fit is right.
Before starting a new business, you need to consider market demand. Market demand is the amount of a product or service that customers are willing to buy at a given price. It is determined by many different factors, including price, economic conditions, and customer preferences.
By identifying market demand, you can determine sales and revenue potential. It also helps you develop a pricing strategy, select your target customers, and identify growth opportunities.
When you conduct market analysis and identify market demand, you also need to consider the type of demand. For example, you might identify irregular demand – demand that is based on seasonality or short-term economic conditions.
Many companies experienced this during the Covid pandemic, finding that demand waned as economic conditions changed. Peloton serves as a cautionary tale here—the company's sales skyrocketed in 2020 and 2021, prompting the company to invest heavily in inventory. When demand waned, the company ended up with far too much inventory on hand. Rather than viewing the initial skyrocketing sales as a temporary change, the company acted as if that growth would continue indefinitely.
Related: Most people have no idea what they need to do to start a business. Here's what to consider before becoming an entrepreneur
3. Your industry
A market analysis involves studying the customers you will be selling your products or services to. An industry analysis involves studying the different companies within that industry. You should look at the state of your industry, its growth patterns and income projections.
For example, are you entering an emerging industry or an already established one? Both scenarios have advantages and disadvantages. For example, in emerging industries, competition is often lower and growth potential is higher.
However, you will need to spend more time educating your customers as they are unfamiliar with the product or service. Since the industry is new, it is impossible to predict the type of government regulations that may come their way in the future.
When an industry is already well established, it has a proven track record of success. However, it also tends to be more competitive and has higher barriers to entry.
4. Required resources
You can't start a business without resources, although your needs will vary depending on the type of business you're starting. When you're starting out, funding is your most important resource, as every business needs money to operate. There are ways to cut costs, but every startup has a variety of different expenses. In the next section, you'll learn how to get the capital you need.
You also need access to the right technical solutions, as technology makes your business more flexible and adaptable. Most startups need a responsive website, cloud storage solutions, cybersecurity tools, and a way to collect and analyze data.
Finally, at some point you will need to invest in people. You may be able to do things on your own, but if you want to build a scalable business, you need to find and build the right team.
5. Access to capital
Entrepreneurs can get capital in three ways: self-financing, seeking outside investors, or small business loans. Self-financing allows you to avoid debt or giving up equity, but it's harder to get off the ground this way. You may need to build your business for years before you can successfully grow it.
Outside investors can be a good choice, but this option is becoming less and less available to startups. VC funds fell by 60% from 2022 to 2023, and startup funding fell by a third. Interest rates are not expected to drop significantly in 2024, so this trend is likely to continue.
Another option startups can consider is taking out a small business loan. Banks often have strict lending criteria, so non-bank lenders are a great alternative. Online lenders and loan marketplaces offer a streamlined application process, less stringent lending requirements, and quick access to capital.
Related: Having trouble getting a bank loan for your small business? Try this flexible financing option instead.
Starting a business during economically uncertain times can be daunting, but with careful planning, strategic thinking, and the right mindset, you can set your new venture up for success. Remember, there will never be a perfect or “right” time to start a business, and economic challenges are part of the journey. By developing a strong business plan, understanding market demand, analyzing your industry, securing the necessary resources, and exploring various financing options, you can overcome these challenges and turn your entrepreneurial vision into a reality.
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