Entrepreneurship has boomed during the pandemic and continued its big surge in 2022. But obstacles have emerged, such as high interest rates, inflation, fears of recession, labor shortages, and cooling venture capital – all significant challenges new small business owners will face in 2023.
One key to entrepreneurial success is knowing how to weather economic uncertainty and upheaval, and having a strategic roadmap to navigate those potholes has never been more important.
The pandemic allowed many people to pursue their dream of starting a business, due largely to millions being laid off early on, and to rock-bottom interest rates that made money cheap and widely available. But the economic environment that helped spark that entrepreneurial spirit has been adversely affected by high interest rates, high inflation, declining savings, and other factors. Startups are vulnerable, and entrepreneurs who are relatively new to the game will have to learn fast, plan carefully, adjust accordingly, and surround themselves with good, dependable people.
Here are some tips to help new entrepreneurs survive challenging economic conditions:
Do a financial forecast.
A lack of capital is a main reason start-up businesses fail. Before making the leap, he suggests doing a realistic and conservative financial pro forma – a financial statement that uses projections or presumptions to try to predict revenues and expenses. This can help you understand your true financial needs.
In simplest terms, if your pro forma shows you breaking even in nine months, I would not start the business unless I knew I had access to capital to cover those projected nine months and many more.
Hope for the upside, but plan for the downside.
Even under normal conditions, about half of new businesses fail in the first five years. Webb says considering the concept of failing and what path you would choose next is of critical importance.
Take your leap and put a ton of your energy into the success of the business, but always have a contingency plan for when things go wrong. That plan should include the ability to raise more capital and the ability to change courses or product lines.
Start-up owners have plenty on their plate. Responsibilities can be overwhelming and lead to inefficiency if they try to do too much themselves. That’s why it’s vital to build relationships:
With vendors. Developing true relationships with your vendors is of utmost importance. They can be there for you in the tough times and actually provide guidance and direction based on their own experiences with other customers.
With employees. Success or failure will hinge in part on who the new business owner hires in the early stages of the company. And knowing when to fire is just as important as who to hire. Holding onto an underperforming employee too long can drag down the business. Set appropriate expectations and provide the necessary training and support to ensure mutual success. If you’ve provided the necessary support and they still can’t get the job done, make the change.
With competitors. While this concept may sound counterintuitive, meeting with competitors occasionally is a way to help each other with general business challenges without giving away any secrets. Competitors provide a unique relationship concept. Just imagine that once-every-few-months beer with your competitor, or a phone call to check in once in a while to swap stories and discuss mutual issues. The old saying, ‘Keep your friends close but your enemies closer’ could not be more true here, but I believe it can be a genuine and productive relationship.
This current economic cycle is a difficult one and even more difficult to predict. There is no way to predict the future, but using these concepts will help you navigate the ebbs and flows of business and further increase your chance for success.
James Harold Webb is author of “Redneck Resilience: A Country Boy’s Journey To Prosperity“. His career in radiology saw him rise from a technologist to becoming a leader in the industry as the entrepreneur of several companies. After over 40 years in the medical field, Webb focused on the fitness sector, owning and overseeing the management of 33 Orangetheory Fitness® franchises throughout North Texas.