Entrepreneurial opportunities in the downturn

It has become the standard view that economic downturns are prime incubators of entrepreneurial activity. New opportunities arise and people who have been turned loose (i.e. fired) are more willing to take the risk of a start up. According to Harvard Business School Senior Lecturer Bhaskar Chakravorti (in a recent interview with HBS Working Knowledge), there are opportunities to “think-outside-the-box” – to use that old cliché:

Clearly there will be areas such as infrastructure, health care, education, clean technologies, etc., that will get a boost because of investments and demand from the public sector. Let us put these areas aside–because they will be readily identifiable. I am more interested in isolating the opportunities that arise organically and will be developed through private initiatives.
Here, I think it is critical to systematically identify what I would call “downturn needs.” There are many different kinds of such needs. First, there are needs that are created by the substitution effects I spoke of earlier. Second, there are needs that emerge because of the availability of excessive time or the unavailability of productive employment. These are by way of necessities. In addition, there is also a need for affordable luxuries. After all, just because consumers are cutting back doesn’t mean that they do not still enjoy products that give them pleasure and entertainment–or even distraction from the difficult times around them. The third category of needs is a more obvious one: products that deliver value for the money spent on them. When consumer budgets are tight, such products will have plenty of appeal.
In terms of lessons from the past, there are many examples that we can turn to. Taking the last of the needs first, in the airline industry alone, Southwest Airlines, Ryanair, and JetBlue were founded during downturns on the principles of delivering value. In terms of affordable luxuries, consider the emergence of cosmetics, such as Revlon, and media, such as CNN, during downturns. I already offered some examples of opportunities that come out of the substitution effect or of products that complement the surplus time that consumers may have on their hands. You could go even further and brainstorm a fairly long list of ideas: for example, think along the lines of meals at home, budgeting tools, job matching, etc.

Other ideas:

The opportunity here is in all the surplus resources that you can tap into and harness. For instance, the downtime created by the collapse of the Internet bubble gave rise to a host of new applications that we now collectively know as Web 2.0. Technologies and materials left unused due to the collapse of one industry can be creatively re-directed towards others that can take advantage of the low input costs. Silicon and wafer cutting technologies that were rendered surplus after the semiconductor industry slowed down during the last recession were picked up by a fast-growing solar energy industry.

What I really like about Chakravorti’s advice is to look for opportunities where others aren’t. Everyone piling into green right now reminds me a little bit of the dot-com bubble. There have to be some other transformational ideas out there – things that no one has thought of but are, in retrospect, intuitively obvious. Those entrepreneurs are the ones who we will look back at as the real pioneers.

2 thoughts on “Entrepreneurial opportunities in the downturn”

  1. Unemployment rises again — and our task ahead

    There was little good in this mornings news from this morning’s jobs data from BLS. The unemployment numbers took another big leap upward in February, rising to 8.1% from 7.6% in January and 7/1% in December. Payrolls fell by 651,000…

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  2. Unemployment rises again — and our task ahead

    There was little good in this mornings news from this morning’s jobs data from BLS. The unemployment numbers took another big leap upward in February, rising to 8.1% from 7.6% in January and 7/1% in December. Payrolls fell by 651,000…

    Like

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