When Stars Align: Now Might Be the Best Time to Launch a Business ... Ever

Posted in Entrepreneurs by Ben Worsley
It takes more than just a good idea to start a successful new business.


It takes strategy, determination, and, to be honest, a little bit of luck. However, many entrepreneurs are unaware that timing is the most important factor in determining a startup’s success.

Many variables influence whether the time is right: societal trends, new technology, marketplace demands, and the political environment, to name a few. These shifts are usually subtle and limited to a few select industries.

However, several of these factors can come together at the same time to make it an ideal time to start a new business in any sector of the economy. Typically, these kinds of shifts are the result of a major event, such as the end of WWII (more on that later).

As we emerge from the COVID-19 pandemic, it's clear that 2021 may be one of those perfect times for entrepreneurs. The National Bureau of Economic Research (NBER) reports that 500,000 new businesses were registered in May 2021, indicating that many entrepreneurs are already aware. In fact, the number of new business applications since the second half of last year has been at an all-time high (data has been tracked since 2004).

Why is it such an attractive time for entrepreneurs? Let’s take a closer look.

 

The Best Time to Business Plan with Masterplans: Fewer Competitors

Regardless of how you look at it, the pandemic wreaked havoc on small businesses. According to the Federal Reserve, approximately 200,000 businesses permanently closed in 2020

The hardest-hit sectors were the ones we’ve all heard about: personal services, leisure & hospitality, and retail trade. But the effects were felt throughout the economy: transportation & warehousing, construction, manufacturing, education & health, wholesale trade, and professional services all saw greater contraction in 2020 than during the Great Recession.

Although this may appear discouraging at first glance, there is a silver lining: Fewer businesses mean that there are huge gaps in every industry that new businesses can fill. Simply put, customers will seek the goods and services they were accustomed to prior to the pandemic, but there will be fewer businesses available to meet those needs.

The Best Time to Business Plan with Masterplans: Access to Capital

When the economy contracts, such as it did over the last year, lenders and investors typically become tight with their money. From 2008 to 2009, at the height of the Great Recession, the total value of commercial loans from FDIC-insured banks dropped 20%. Most new businesses require capital to grow, and it is difficult to start new businesses when the lending market is constrained.

That’s simply not the case right now. Biz2Credit, a fintech company that specializes in small business lending, publishes a Small Business Lending Index that shows approval rates for small businesses in different types of commercial lending. The June report showed improvement across all lending types:

  • Big banks: 13.6% in June, up from 13.5% in June 2020
  • Small banks: 18.9%, up from 18.4%
  • Institutional lenders: 23.8%, up from 21.6%
  • Alternative lenders: 24.5%, up from 23.4%

If you thought that was good, wait until you hear about private investment. The Pitchbook-NVCA Venture Monitor predicts that 2021 will be the best year ever for venture capital investment. Businesses have secured $150 billion in investment in the first half of 2021, accounting for 90% of what was invested in all of 2020.

Lenders and investors are acutely aware of the importance of timing; if they believe it is a good time, they are almost certainly correct.

The Best Time to Business Plan with Masterplans: Physical Spaces

The pandemic devastated the commercial real estate market. The vacancy rate for office space has historically been around 16.5%; Moody's Analytics expects it to reach as high as 20% this year. In addition, the vacancy rate for retail spaces is expected to hit 12%, 20% higher than the historical average.

For new businesses, this means landlords are desperate to get tenants. And other than offering more amenities, the most probable outcome will be reductions in rental prices. For office spaces, effective rent is down 1.8% as of Quarter 1 of 2021.

The rise of remote work, combined with the shift to online sales – 20% of all retail in 2020 was via ecommerce – means most businesses are reassessing their space needs altogether. Can an office go completely remote? Could a hybrid approach mean less needed space? 

In any case, new businesses are likely to find ways to save money on rent in the coming years.

The Best Time to Business Plan with Masterplans: Consumer Spending

As we mentioned above, the pandemic shifted consumers online. This makes it easier than ever to reach a larger target audience, and online marketing tools enable personalized marketing to those most likely to buy, wherever they are. 

But even more interestingly, despite shifting online, customers are also shifting smaller. During the 2020 holiday season, nearly one in five shoppers bought from small, local businesses. Consumers are realizing the power of their purchase dollar, and the difference it makes to buy local.

According to the SBA, when a shopper spends at a small business, nearly half (48%) of what they spend remains in the local community. On the other hand, when purchases are made at a big-box, nationwide retailer, just 14% stays in the local community. 

A recent survey by the Reshoring Institute showed that 70% of Americans prefer American-made products, and customers are willing to pay more for them. 

The Best Time to Business Plan with Masterplans: Social Equity

The most significant change during the recent startup boom isn't the number of businesses launched, but rather who is launching them. According to Gusto, a payroll service provider, women and minorities are more likely to own businesses started over the last year. In 2017, only 27.5% of new businesses were founded by women. According to recent statistics, that number is 48.5%. Similarly, nearly 81% of founders in 2017 identified as Caucasian, a figure that has since dropped to 60%. The most dramatic increase has been among Black founders, who have increased from 2.5% in 2017 to 11% today.

The Best Time to Business Plan with Masterplans: Public Policy

During the Great Depression, economist John Maynard Keynes advocated for higher government spending to boost the economy's stagnation. To put it another way, he believed that increased government spending increased aggregate demand and, as a result, production, with ripple effects throughout the economy. His ideas influenced Roosevelt's New Deal, and while it's probably an oversimplification to attribute the economic recovery solely to government spending, it's clear that government spending played a key role in the recovery after WWII.

Bringing Keynes' theory into the twenty-first century, the government's new infrastructure bill should boost the American economy. For the next decade, the $550 billion in new spending is expected to generate 2 million new jobs per year. The spending, much of it on roads and bridges, will be mostly disseminated locally, and incentivizes contracts for small and minority-owned businesses. Moreover, improving our infrastructure will make it easier for people to move, which will benefit new businesses on Main Street USA.

The Best Time to Business Plan with Masterplans: Challenges

Despite these encouraging signs, launching a new business is inherently risky, even now. Many questions are still to be answered. Will the Covid-19 pandemic become contained? Are there going to be any more lockdowns as a result of the new variants? Will the inflation increase be temporary? How can employers find good employees in a tight labor market?

You are the only one who can decide if now is the right time to start a new company. Being aware of the environment in which your business is launching is beneficial, if not essential. However, there will always be challenges. There are no guarantees in entrepreneurship. Many successful businesses start at inopportune times, while others fail at opportune times.

The question you must ask yourself is: if not now, when?

Tagged: businessplan, startups
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