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Starting a small business always feels like a gamble, even in strong economic conditions. But right now, many people are concerned about the economy, and 65% believe it's either not going well or doing poorly.
With so much uncertainty, you may wonder whether now is the right time to start a business. But the truth is, there is no right time, and external forces will always threaten your idea.
Learning the "best" time to start a business comes with 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 you should consider before launching a new business venture.
Related: The Best Time to Start Your Dream Business Is Now. Here's Why You Shouldn't Worry About Timing.
1. Business plan
A business plan can help you determine whether starting a business is the right decision. It can also help you identify new opportunities, clarify your strategy and evaluate whether your idea is viable.
If you have many different ideas, writing a business plan will help you evaluate which ones have the highest chance of success. You'll also have 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 down the road.
Most investors want to see a business plan before they fund your venture, and you'll need a business plan to qualify for a loan. Writing out a business plan will also help you communicate your vision to new employees, which could help with recruiting.
2. Market demand
Roughly 42% of startups fail because the founders created a product no one wants. That's an avoidable problem, but it's easy to get swept up in the excitement of a new business idea and forget to determine whether there's a product-market fit.
Before you start a new business, you must consider the market demand. Market demand is the amount of a product or service customers are willing to purchase at a specific price. It's driven by many different factors, including the price, economic conditions and customer preferences.
Identifying market demand helps you determine sales and revenue potential. It can also help you develop a pricing strategy, choose your target customer and identify growth opportunities.
If you conduct a market analysis and determine a market demand, you also need to consider the type of demand. For example, you could identify an irregular demand — a demand based on seasonality or short-term economic conditions.
Many companies experienced this during Covid and found the demand waned once the economic conditions changed. Peloton serves as a cautionary tale of this — the company's revenue surged in 2020 and 2021, causing the company to invest heavily in inventory. When demand waned, the company had way too much stock on hand. Instead of seeing the initial skyrocketing sales as a temporary shift, the company acted as if this growth would continue indefinitely.
Related: Most People Have No Business Starting a Business. Here's What to Consider Before You Become an Entrepreneur
3. Your industry
A market analysis involves looking at the customers you will be selling your products or services to. An industry analysis looks at the different companies within that industry. You'll want to look at the state of your industry, its growth patterns and income projections.
For example, are you entering into an emerging industry or one that's well-established? There are pros and cons to both scenarios. For example, emerging industries often have less competition and high growth potential.
However, you'll have to spend more time educating your customers since they'll be unfamiliar with the product or service. Since the industry is new, it's impossible to anticipate the types of government regulations it could get hit with in the future.
If an industry is already well-established, it has a proven track record of success. However, there is usually also more competition and a higher barrier to entry.
4. Resources needed
You can't start a business without resources, though your needs will vary depending on the type of business you're launching. When you're starting out, your most important resource is funding since every business needs money to operate. There are ways to cut costs, but every startup incurs a variety of different expenses. We'll look at how to access the capital you need in the next section.
You'll also need access to the right tech solutions since technology makes your business more flexible and adaptive. Most startups need a responsive website, cloud storage solutions, cybersecurity tools and a way to collect and analyze data.
Finally, you'll need to invest in employees at some point. You may be able to get things off the ground by yourself, but if you want to build a scalable business, you'll need to find and develop the right team of people.
5. Access to capital
There are three primary ways entrepreneurs access capital — by self-funding the venture themselves, looking for outside investors or through small business loans. Self-funding allows you to avoid taking on debt or giving up equity, but it's harder to gain traction this way. You may have to bootstrap your company for years before you can successfully scale.
Outside investors can be a good choice, but this option is becoming less available to startups. VC funds fell by 60% from 2022 to 2023, and startup funding dropped by a third. Interest rates aren't expected to drop substantially in 2024, so this trend will likely continue.
Another option startups can consider is taking out a small business loan. Banks often have strict lending criteria, making non-bank lenders an excellent alternative. Online lenders and lending marketplaces offer a streamlined application process, less rigorous lending requirements, and fast access to capital.
Related: Struggling to Get a Bank Loan for Your Small Business? Try This Flexible Financing Option Instead.
Starting a business in uncertain economic times can be daunting, but with careful planning, strategic thinking and the right mindset, you can position your new venture 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 necessary resources and exploring diverse funding options, you can navigate these challenges and turn your entrepreneurial vision into reality.
