Recession Jumpstart

By Jennifer Hopfinger
May 21, 2008 04:27 PM

A recession is bad for business, right? Not necessarily, according to Inc. magazine’s May cover story. It may sound counterintuitive, but the magazine says a recession can be a good time to start a business.

“Nobody loves a recession,” the cover story says--being sure to qualify that a recession, which is defined as two consecutive quarters during which the country’s GDP declines, has yet to be declared--“but many successful entrepreneurs say that, in retrospect, they were lucky to have launched their businesses in tough times.”

The article, “Starting Up in a Down Economy,” co-written by Ryan McCarthy, Nadine Heintz, and Bo Burlingham, offers three case studies that depict how it can be done.

The first example comes from the most recent recession. Shortly before the dot-com bubble burst, entrepreneurs Adam Lowry and Eric Ryan founded Method soap and household cleaning products. You’ve seen their products at Target. They come in trendy colors and chic packaging, and they’re made from environmentally friendly ingredients. But their boring business model got them more laughs than capital back then. However, post-bubble, their Old Economy company looked a lot more attractive to investors.

The second example takes readers back to 1991 when Bill Pratt founded RF Micro Devices, which was developing tiny chips for cell phones. The company struggled for years before turning a profit in 1997, the same year it went public. But, Pratt says, the recession was a blessing. “Because few companies were investing in product development at the time, RF Micro Devices could labor over its chip design without worrying about competition. And when the economy took a turn for the better, Pratt's technology was ready to go, while other semiconductor companies, having scaled back their R&D efforts, were now forced to play catch-up. Today, RF boasts $1 billion in annual revenue and more than 3,200 employees worldwide.”

The third example also comes from the early 90s, when Gary Erickson founded Clif Bar, an energy bar company. He, too, was tested in the fire of a recession and emerged with pure gold. This year, Erickson expects sales of more than $200 million. But “he does wonder about the possible impact of a third recession in 18 years. Somewhere, after all, another start-up could be taking aim at Clif Bar, and a recession might be just what it needs,” as well as a little nudge from Inc. magazine.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism