NFIB

Is This a Good Time To Start a New Business? The Answer May Surprise You.
04/ 01/ 2002

As this article is being written in late July 2001, economic issues seem to indicate that it's a terrible time to start a new business. The stock market continues to remain questionable, with earnings reports even from the strongest companies now in doubt for the near term. The Fed has lowered interest rates again and again during the last year, but the effects have not yet been tangible in any significant way throughout the economy. Companies are beginning to cut back on research, development and advertising. And thousands of people are being laid off, not only in the tech field, but in more established fields such as accounting, administrative and even sales.

This all adds up to a simple conclusion: it could be a great time to start a new business. Jeffrey Moses explains why in today's Workshop.

The Fed has lowered interest rates six times in the last year, without real success in jump-starting the economy. This indicates that the economy is sluggish, certainly, but it also has had the result that interest rates are exceptionally low. That means mortgages, auto leases, business and personal loans are cheaper. Since many new small businesses are started with loans, it's now possible to set up loans or lines of credit at extremely reasonable rates. Of course, many banks and venture capital firms are hesitant to make small business loans in today's uncertain economy. But individuals putting together solid business plans, with well thought out products and services, are even more attractive than usual to many banks.

What about the fact that even large companies are cutting back on research and development? All the better for a small, nimble company with a new idea. If large, established companies are going to start functioning defensively instead of offensively, small companies can jump forward and may have more time to mine their share before large companies pull out the picks and shovels.

ItÆs also a good time for a new company to negotiate better values in its marketing. Newspaper, radio, TV and magazine ad space is available for the taking--and in these fields, a dollar goes a lot farther than it did a year ago.

Finally, isn't it a negative indication that so many skilled people are being laid off? Sure, in ways. But it also means that many highly experienced and capable individuals are available--and may be interested in coming to a small company at slightly less pay that they once commanded. This is the ideal hiring climate for a startup company. For best long-term results, don't shortchange your employees in the areas of salary and benefits--but certainly small companies have a much larger pool of potential hires than they did last year at this time.

There are hazards to starting a company at this time, of course. It's more difficult to sell business-to-business because large companies are cutting back outside spending. The economy as a whole has settled a notch or two, cutting overall consumer spending. But it could be a good time for a company that starts conservatively and is capitalized for the long term. Remember, there are advantages available now that may not be around in a year or two.

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