Is it a good time to start a company?

An aspiring entrepreneur approached me. He wanted to know, how I see the Finnish economy developing this year, because he was wondering if the time was right to start a business. I promised to give my reply here.

Let me begin by saying that much like there is never a perfect time to have kids, there is never a perfect time to start a company. And yet people do both anyway. It is not only about making a rational decision. Starting a business is very much about taking a leap of faith, following a passion – or making a virtue out of necessity.

If we humans only ever made careful, rational decisions, we would still be living in caves. It is the crazy people that go against the odds that make the world go forward. (Sometimes they also suffer a very grim fate, you never know in advance.)

Speaking of the economy, the overall economic outlook is not necessarily the best indicator to look at. The success of your company depends on knowing your customer base. In some cases customers will buy precisely because the economy is bad.

In 2009-2010 we were experiencing the effects of the 2008 crash. The overall economic outlook was bleak. But my company was doing well. Why? Because we had made the decision to focus on consulting SME-size professional service companies. And small-to-medium ICT consultancies were booming.

Big customers were looking for anything that helped them cut costs and make their operations more efficient, and they were hiring small consultancies, because the bigger ones were perceived expensive. Also, advertising agencies were losing out to PR agencies, which were perceived as providing more value for money.

So, it all depends on what you are planning on selling and to whom. In the restaurant business, for example, the current trend is favouring more affordable meals at the expense of fine dining. Consumers are not keen on making big investments, but there is more of a market for cheap and cheerful things – traditionally the sales of lipstick have gone up in bleak economic times, for example.

It also depends on how capital-intensive your business plan is. After the 2008 crash bank financing has been more difficult to come by and the terms have become stricter. On the other hand, there is a reasonable amount of angel money available for startups that are able to get going with moderate capital and scale up quickly.

Overall, the latest SME indicator (pk-yritysbarometri) reflecs a pessimistic outlook for this year – companies are holding out on investments and recruitment. So, this will likely not be the best year ever for companies offering services or equipment to the SME sector. Nevertheless, seven per cent of SMEs are looking to grow significantly and as many as 35 per cent are looking to grow if possible.

The best advice I can offer at this point is to study your target market and target customer base carefully. Find out how other companies in the same field are doing – there is lots of public information available. Even if the overall market is weak, money can still be made, if you find a good niche and develop a great offering.

At the end of the day, success as an entrepreneur is always also about luck. No matter how much you study the market, surprises will always come. Success very much depends on how well you are able to handle those surprises.

I hope this answers your question.