No matter how much unemployed people hope to find a job, it is not likely to happen soon. Not only has the current recession not bottomed out, it is not likely to do so anytime in the near future. There are several factors contributing to this phenomenon. For one, the current high unemployment and rising inflation in the United States has not been curtailed in spite of government efforts.
Struggling nations and the impact on the global economy
And the crisis in Europe is worsening. Not only is the Greek government bankrupt but Spain, Italy, Portugal and Ireland are also suffering. And in Asia, China is trying desperately to preserve her strong economic position in spite of dwindling income. China has become the world’s factory but due to problems at home, the world is not buying as much as they once did.
And the global wild card is in Iran. If a conflict should break out there, the price of oil will soar, increasing the cost of manufactured products and therefore higher prices. Plus a higher cost of gasoline will shrink people’s discretionary income and place additional limits on their buying power.
Politics also plays a part as the Republicans and Democrats are at odds about the best strategies to use to put the country on the road to recovery and they are likely to stall until the election is over. But even if they put aside their differences and worked together to create a solution, it still may not be wholly effective. According to Federal Reserve Chairman, Ben Bernanke there are too many factors beyond US control. Europe needs to deal with its overwhelming debt and faltering banking system and it has not yet done so. This recession is a global event.
Stimulus effort, big business and unemployment
The US Government has implemented various stimulus plans in hopes that the large corporations will create more jobs. But large corporations are as challenged as the government. In March of 2012, the total debt for non-financial corporations in this country amounted to 8.1 trillion dollars. Yet their cash on hand had dwindled from 2.0 trillion in 2011 to 1.7 trillion in 2012. At the end of 2011, the pension liability funds of S&P 500 corporations were underfunded by 354.7 billion dollars.
Europe is a major market for these corporations representing 40% of their exports. However, due to problems in their home countries, the European countries are not buying as much as they once did. Europe is also a major market for China.
When corporations see no prospect of increased sales from the export or domestic market and are already in debt, they are certainly reluctant to create jobs. And if they don’t create jobs, unemployment will continue.
Why start a small business in a poor economy?
So why would this be an opportune time to start a business? First, a small business does not require the volume of sales needed by large corporations. That enables the small entrepreneur to serve specialized markets that are often overlooked by the corporations. For example, McDonald’s is a thriving fast food chain even in this economic downturn but McDonald’s does not attract vegans and vegetarians. A savvy chef might do well if establishing a new business or taking over a failing one to create a menu that catered to vegans, vegetarians, and meat eaters so friends could eat together and vegetarians and vegans could have more choices.
Practically every American is familiar with Knott’s Berry Farm products. Knott’s Berry Farm started out at the beginning of the Great Depression in the thirties, when the Knott family started selling their jams and jellies at a roadside stand. They progressed to a small store and coffee shop. Then in 1934 Cordelia Knott expanded the coffee shop to small dining room specializing in fried chicken. On opening day she sold eight dinners priced at sixty-five cents each. By 1941, she was averaging 1,450 dinners per day.
Another Great Depression millionaire was Colonel Sanders of Kentucky Fried Chicken fame. He started selling fried chicken dinners from his gasoline station and by 1937 owned a 142 seat restaurant.
So small businesses can succeed in poor economic times. The secret is to identify a market and then work out a strategy to serve that market. And the small business operation can, as Colonel Sanders and Cordelia Knott did, start by successfully serving a small market and then expand into a larger market.
In any economic downturn, there will still be people with discretionary income. Prospective entrepreneurs need to identify these people, then determine what they need and/or want and work out a way to provide these. Large corporations are not equipped to do this. Imagine Green Giant selling peas at a roadside stand!
The benefits of operating a small business during an economic downturn
Small businesses can get by with less operational cost since they can quickly innovate and change. Richard Bach, author of the best seller Johnston Livingston Seagull, aptly described the problem of large corporations when he detailed his first experience as a high paid engineer in the aerospace industry. He needed and asked for money to buy a stapler. Expecting that he would be given $12.00 out of petty cash to do this, he was shocked to find that procuring a stapler required generating enough paperwork and labor to up the cost of the stapler to around $50.00.
And there are businesses in demand that simply aren’t suited to corporate operation. For example, when times are hard crime tends to rise. Those who are affluent need to protect their valuables creating a demand for locksmiths and security system technicians. While locksmithing is a trade that needs to be learned it does not require a long time to do this. This can be an ideal business where Mom mans the order desk while Pop goes out on the calls. And it also has the added advantage that it can’t be outsourced to Mexico or India.
There are many other types of businesses that are ideal for small entrepreneurs. The magic bullet is to identify the needs (markets), decide which of your skills can be adapted to one of these markets and then take the plunge.
Written By: Renee Simao