3 Reasons Why the Bear Market Is an Excellent Opportunity for Entrepreneurship

The term bear market is one that scares investors, entrepreneurs, and the general public alike. This isn’t a surprise given that mainstream media, financial analysts, and investors like to associate it with issues like recession and high unemployment. But most people seem to ignore one indisputable fact: bear markets are a natural part of market cycles.

Bear markets are not only perfectly normal, they are necessary as they erase the negative effects of previous speculative runs and create fertile ground for companies and projects of real substance. This positive effect of bear markets makes them a particularly good opportunity for truly disruptive and innovative startups to thrive.

This is great news for any entrepreneur thinking about postponing their startup or business launch due to the current economic climate. Let’s take a look at three reasons why the bear market is a great opportunity for entrepreneurship.

1. Startups formed during the bear market could outperform other companies

Some of the world’s biggest startups were born during bear markets and recessions, including names like Zendesk, Airbnb, Uber, MailChimp, Salesforce, Activision Blizzard, Adobe, and many more. While there is some debate as to whether a crisis directly correlates with more successful startups, experts agree that companies can thrive regardless of the existence of a bear or bull market.

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A well-known study by the Kauffman Foundation in 2009 found that more than half of the most successful companies -; those on this year’s Fortune 500 list -; were introduced during an economic downturn. Inspired by this study, Touchdown Ventures collected data in 2020 to conclude that industry-leading companies can emerge despite the economic climate.

With this in mind, there is no reason for entrepreneurs with solid business plans not to go out and launch their startups. If you have what it takes to start a startup, not only does the data suggest you have an equal (or better) chance of success during the bear market, but you’ll also enjoy less competition.

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2. Your startup will enjoy more visibility

If you want to get noticed by venture capitalists and other investors, the bear market can be the best time to do it. In recent decades, investors have also become increasingly aware of the opportunities that bear markets present. While due diligence increases at such times, the promise of higher future profits also leads to an increased search for new investment opportunities. Startups lucky enough to stand out during bear markets will later reap the benefits of the crisis.

3. Your startup is ready when the tables turn

Bear markets not only end eventually, but eventually transition into bull markets. That’s why experts like John Cunnison, vice president/chief investment officer of Baker Boyer Wealth Management, recommend keeping an eye out for gold’s prospects as the rally recovers. This is not only because bear markets last shorter than bull markets, but also because consumer sentiment has changed.

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In fact, there is some very good data on the relationship between consumer sentiment and stock market returns 12 months ahead. The data shows that when people are feeling really good, the average return in the stock market 12 months later is about 4%, according to Cunnison. When the data shows people feeling down, stocks are up nearly 20% on average 12 months later. Right now, consumer sentiment is at its lowest ever.

While the eventual emergence of a bull market doesn’t mean your startup will be immediately successful, launching during a bear market means that customer validation, marketing, networking, and similar efforts can be prioritized. As long as cash burn isn’t an issue, your startup should have enough reserves to weather the bear market. Once customer and investor sentiment shifts, your business is in a unique position to capitalize on the upcoming surge in investment.

The opinions expressed here by Inc.com columnists are their own and not those of Inc.com.

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