Entrepreneurship is the lifeblood of any growing economy. As we face possibly the greatest economic crisis in 80 years both here in the U.S. and globally, much of the immediate focus has been on salvaging the giant corporations that are collapsing under their own weight and inflexibility. But while these measures may help stabilize the economy for now, innovation and growth to pull us out of this mess are going to be driven by entrepreneurs.
The good news is that there are certain businesses that always thrive in a bad economy, and they generally fall into four categories. Entrepreneurs who can create new businesses, products or services to take advantage of these trends have a great opportunity for success.
To understand what these trends are and why they are so powerful in a bad economy, it helps to introduce a concept called Maslow's hierarchy of needs. Follow the link for a complete description, but in simple terms, it breaks human needs down into five levels, and says that we only pursue the higher-level needs when our lower-level needs are met.
In a down economy, many people have to focus on the second level, "Safety", which includes things like security of employment, financial resources, family, health and property. It's hard to focus on things like "esteem" and "self-actualization" when you can't pay your rent and you're eating ramen noodles and peanut butter sandwiches.
So when everyone's tightening their belts, how do you get people to spend money?
- Help people save money. Last quarter, most retail businesses were done, but Wal-Mart was up. Why? Because people who normally shop at upscale stores are looking for bargains. If you can help people save money on things they have to buy anyway, you'll have a hit. Just having a sale on your normal products and services isn't what I'm talking about -- I'm talking about things that help people save immediately, or at least quickly, on fundamentals: food, gas, utilities, etc.
- Help people make money. Who doesn't want to make a little money on the side? People are eager for new ways to make money online, and interest in network marketing is at an all-time high. You can help people make a little money on the side, or help them make a living. Social networking sites that help people find work, such as LinkedIn, are experiencing exceptional growth.
- Help businesses save money. This is the same basic concept as helping individuals save money, but the list of essential expenses is much longer, including things like office supplies, insurance, professional services, office space, etc.
- Help businesses make money. While many companies may tighten up on the big media buys, agency fees and celebrity spokespeople, they still have to reach new customers and try to earn more money with existing customers. If you can help them do that, you can make money. An important thing to realize is that in tough times, companies are interested in direct lead generation, not more general branding and positioning.
One important thing to keep in mind when exploring how to apply these trends in your business is ROI - return on investment. Obviously, in most cases you're not giving these things away for free - you're trying to make money. The question is how long it will take your customers to save or earn back what they spend with you. During tough economic times, you need to be looking at a break-even of probably no more than 2-3 months for individuals and 3-6 months for businesses. Everyone is cash flow conscious, not looking for long-term investments.
How can you apply this in your business? Feel free to come discuss it in the Entrepreneurs Forum and brainstorm with your fellow entrepreneurs.
Know of a cool start-up (even your own) that's following one of these trends? Let me know about it in the comments below - I'll highlight some examples of companies demonstrating these concepts in an upcoming post.