Why Businesses Built During Bear Markets Tend to Thrive
In the world of entrepreneurship, timing is everything — or so it’s said. Conventional wisdom dictates that starting a business during a period of economic growth provides the best chance for success. After all, customers are more willing to spend, and financing is readily available. However, data and case studies suggest that businesses founded during bear markets or times of economic stress not only survive but often outperform those founded during booms.
Navigating Scarcity: The Innovation Imperative
During economic downturns, scarcity is the name of the game. Capital is hard to come by, consumer spending drops, and competition stiffens. Paradoxically, this scarcity forces businesses to innovate, prioritize efficiency, and focus intently on customer needs.
A study by the Kauffman Foundation found that over 50% of Fortune 500 companies were either founded during a recession or bear market or in periods of sustained downturns in the GDP. Companies like General Electric, IBM, and Microsoft were all born during economic downturns and stand today as testimonies of resilience and sustainable business models.
Lean and Mean: Efficient Use of Resources
Starting a business during a bear market often means less available funding. This can be a blessing in disguise, as it necessitates a lean business model. Startups founded in lean times are accustomed to operating under budget constraints, making every dollar count. When the economy eventually improves, these companies often find themselves well-positioned to scale, having already developed a model that maximizes profit and minimizes waste.
According to research by the Harvard Business Review, startups that are launched during recessions are statistically more likely to be capital-efficient and are 20% more likely to survive their first three years compared to businesses launched in favorable economic conditions.
Examples: Unicorns Born in Downturns
Airbnb
Founded in 2008 during the Great Recession, Airbnb faced an uphill battle. Traditional wisdom suggested that in an economic downturn, the last thing people wanted to do was travel. However, the financial stress led people to look for alternative sources of income, including renting out their homes. The downturn also made travelers more price-sensitive, turning them toward more budget-friendly options like Airbnb. Today, the company is a multi-billion-dollar global enterprise.
Uber
Also founded in 2009, Uber capitalized on economic stress by offering a more cost-effective alternative to traditional taxis. During the recession, many people were looking for gig work to supplement their income, providing Uber with a readily available fleet of drivers. The innovative ride-sharing model was a win-win for both drivers and consumers, and Uber has since grown into a transportation giant.
Slack
Though not strictly born out of a recession, Slack was initially an internal tool for Tiny Speck, a company working on a game that failed to gain traction. The 2008 financial crisis had made venture capital extremely risk-averse, and when the game faltered, the company had to pivot quickly. Slack was spun off as a separate product in 2013 and rapidly gained traction as businesses looked for more efficient ways to collaborate. Today, it’s a cornerstone of modern business communication.
Conclusion
While launching a business during an economic downturn is counterintuitive, the data suggests that it might be the best time to do so. Operating in a constrained environment drives efficiency and innovation, qualities that give businesses a competitive edge in the long run. Companies like Airbnb, Uber, and Slack demonstrate that with the right approach, starting a business during a bear market can lead to roaring success.
Jeffrey Dreyer is an entrepreneur and business leader in Scottsdale, Arizona. Learn more at www.jeffrey-dreyer.com.
