What can the 2008 recession teach startups about the current economic downturn?
The state of the UK economy continues to cause uncertainty across the country. Many forecasters suspect high energy prices, elevated inflation and raised interest rates will mean the UK will fall into the longest-ever-recession since records began. Now has never been a better time to plan accordingly to get through these turbulent times.
As Co-Founder and Director of a growing business, I recognise the worries and concerns that business owners experience when the impact of a recession is high. At times like this, and from experience, it can be arduous to navigate changing markets deciding whether to invest more in the things that have always worked for you or to ease up and be more cautious to see how things play out.
New business leaders can learn a lot by looking back at the trends and insights from the last financial crash. We analysed ONS business birth and death data from 2008-2013 to identify which industries are the most recession-proof for new business, which regions could see businesses fare the best and how long we can expect to wait to see some recovery of startup success.
What does the Recession-Proof Index tell us?
In 2009, over a year after the recession began, startups in the East of England & South West saw the joint-lowest rate of business failures of all regions, at 23% making them the most recession-proof regions in the UK. On average, we also saw that startups founded in the North fare worse as a result of a recession than businesses in the South.
The least recession-proof regions which saw the highest rates of business failures in 2009 were London (30%), Yorkshire & Humber (28%) and the North East (27%). This could suggest these areas are likely to be most impacted by the current recession.
The most recession-proof industries
Historically the Health industry is the strongest and most secure for startups throughout a recession. Further analysis shows that, across data from 2008-2013, the Health industry stands out as the most recession-proof industry for startups to launch despite the recession.
Startups in the Health industry had the lowest rate of failure two years after their launch at an average of 20%. This was closely followed by startups in the Information and Communication industry that had an average failure rate of 21%.
Despite the overall strength of the Health industry, Yorkshire & The Humber bucked this trend as a region. It saw the highest rate of health business failures at 60% in the immediate aftermath of the last recession in 2009
Across 2008-2013, Scotland, East of England and the West Midlands were the most recession-proof regions to launch a startup in the Health industry, with an average failure rate of just 16% each.
This highlights the fact that both the industry and region play a pivotal role in how secure a startup can be. Depending on your location in the UK it is clear that the data points to some regional variances in business success ratios but remains an important factor to consider in the long term.
The most severely impacted industries
The analysis from the Recession-proof Index also showed that by 2010, the situation had gotten worse for some industries, with the rate of business failures continuing to increase.
The Property industry was found to be the least recession-proof in the aftermath of the last recession, with close to a third (32%) of all new businesses failing after 2 years. This was the highest rate of business failures across all industries from 2009 to 2013.
With the current increase in mortgage rates making it more expensive to buy a house, forecasters predict a 10%-15% plunge in prices over the next year or so which may lead to history repeating itself.
Startups in Business Administration & Support Services failures increased by 8% in 2010, with two in every five (40%) businesses failing in this year. The failure of startups in Arts, Entertainment, Recreation & other Services increased by 6%, with a third (33%) of businesses being unable to survive the recession.
What this all means and how to prepare moving forward…
Fortunately, the technological landscape has evolved since the last recession and so my advice to startup founders is as follows:
Streamline your tech stack and remove inefficient hardware and overlapping software. This can quickly become a drain on money, time and resources which is not ideal during a recession.
Instead, look to adopt platforms that enable easy integration of common tools such as CRM apps, Office 365 and your email. An all-in-one platform will be more cost-efficient and can increase productivity across teams.
Be prepared to adapt and stay flexible. Making changes to your business model or pivoting your offering in the middle of economic uncertainty may seem high risk but it could also be the difference between survival and failure.
Consider the use of modern cloud-based business tools that can also provide crucial insights to your company’s sales success. Knowing what’s working and what isn’t will help you make informed decisions.
Where possible continue with planned marketing activities as normal to maintain sales. While recessions are not a time for growth, they are a time for maintenance. Businesses that drastically reduced their marketing efforts, saw a sharp decline in growth when trying to survive a recession.
No one can predict the future, but we can look back and use what history taught us to help prepare and make informed decisions about how we progress and, hopefully, weather the storm as best we can.
