The best time to start a business is during a downturn. During a downturn, there is less competition, more creativity, and more hungry people looking to start something new. You can hire quality cheaper easier and for cheaper during a downturn, which is more than half the battle.
The post, Lessons Learned Since The Financial Crisis, really brought me back to the time when Financial Samurai was started in the summer of 2009.
The Global Financial Crisis has so far been the biggest downturn of our lives. I had just lost 35% of my net worth in six months and scared that I might lose it all. As a result, my mind started to turn and I finally got motivated to start an online business I had put off since 2006!
In this post, I want to figure out why Financial Samurai has survived all these years. My theory is that launching during a downturn has a lot to do with it.
Have Always Wanted To Be An Entrepreneur
Since I was 12 years old, I wanted to be an entrepreneur because I witnessed the fabulous lifestyles of those who called the shots instead of those who took orders. I just didn't know what to invent. Back in 1989, you actually had to create a physical product to make money.
My entrepreneurial dreams died down after getting a job in finance in 1999. Only after graduating from business school in 2006 did my desire to start a company reignite. I was emboldened to put all I had learned from my professors to good use. Otherwise, what was the point of going to business school in the first place?
But nothing happened in 2006, 2007, or 2008 because I was tired. After three years of working 60 hours a week while also spending 20 hours a week on business school related activities, all I wanted to do was take a break. It really felt like a vacation to only have to work 12 hour days after graduation!
Only until the world started falling apart in 2009 did I finally decide to launch Financial Samurai. It turns out, there were other companies that were founded during the depths of the recession too: Uber (2009), Airbnb (2008), Quora (2008), Kickstarter (2009), Whatsapp (2010) and many more.
Let me share some reasons why the best time to start a business is during a downturn.
Why The Best Time To Start A Business Is During A Downturn
Here are the key reasons why the best time to start a business is during a downturn. The signs of a recession are becoming stronger, so it's good you are reading this post today.
1) You're no longer comfortable doing the same old thing.
Whether it's due to fear, disillusionment, or anger, a downturn really motivates you to do something different with your life. When Lehman Brothers failed in 2008, I was finally scared for my future. By the summer of 2009, I felt my career was over because the S&P 500 collapsed even further.
A year before the financial crisis hit, I was promoted to Vice President. I felt like I was on top of the world as a 28-year-old who just bought his second property in San Francisco.
Why would I even bother to start something on the side when there was so much upside in my career? It was only when I realized I was standing in quicksand that I had to do something different.
My mind went into overdrive thinking of contingency plans in case I was let go. I had already been aggressively investing most of my savings in real estate to generate passive income, but now these investments were failing. Given I lost hope in the stock market and real estate market, the next logical choice was to go into something completely new.
The easiest thing was to start a personal finance site, something I had been considering since 2006. Back then, I hired a guy from Craigslist for $1,000 to get started. Then I paid him another $500 for design work and more.
I clearly remember sitting down with him for a couple hours in my living room to come up with the layout, decision, and original Financial Samurai mask logo. It was exhilarating! Today, you can do everything yourself in under an hour for less than $50 bucks.
2) You're forced to think more creatively to survive.
During the downturn, I had to think of ways to save on my biggest two expenses: food and shelter. As a result, I decided to be more proactive in asking work clients out for breakfast, lunch, and dinner.
Not only would I save money on food thanks to the corporate card, I would also use the outings to build stronger relationships in order to win more business down the road.
What went from taking out a client once a week on average turned into a 3-4X a week. Instead of paying $80 a ticket to go watch the Warriors or Giants, I invited clients out instead.
As for saving money on shelter, not only did I refinance my mortgage a couple times between 2008 – 2010, I also found a tenant for our ground floor garden room. These two moves freed up about $2,000 a month in cash flow, which was a significant ~30% savings.
Regarding Financial Samurai, it became obvious there was a personal finance hole to fill regarding writing content about making more money through investing.
All of the largest sites at the time were focused on saving money. Therefore, the opportunity was ripe for someone who worked in finance, got his MBA several years earlier, and loved to write about investing to meet this demand.
Related: A Housing Expense Guideline For Financial Independence
3) Making adjustments is much easier.
The bigger you are, the larger you fall. The best time to start a business is when your giant competitors are seeing huge declines.
I remember getting my bonus slashed by 50% in 2009 and my boss told me something funny at the time.
He said, “You should be lucky you make so little. I make so much more money than you and getting my bonus cut by even 30% hurts so much more!“
Uh, thanks boss! I wasn't happy to hear this at the time, but I understood what he was saying. During the last financial crisis, we came as close as ever to catching up to Warren Buffet's wealth. Now even Warren is poor compared to Jeff Bezos.
Because the largest companies have the most to lose, they often become distracted by organizational issues during tough times. While big companies are having constant HR meetings about which department to cut the most, small companies with little-to-no overhead can nimbly jet ski away from the impending tsunami.
Although I didn't see Financial Samurai as a business when I started, by the time I left my job in 2012, I figured I could do well positioning this site as a financial independence site that focused on living one's best life through wealth creation rather than through frugality. After all, I was 34 when I left work and was hell-bent on growing my net worth after.
I wanted to take the harder, but more rewarding route of achieving financial independence. Negotiating a severance versus quitting is one such example of taking the harder route that made Financial Samurai unique. Confrontation is hard, which is why most people just quit. But by approaching things differently, Financial Samurai was able to grow.
The rise of financial technology companies (fintech) is precisely due to the financial crisis. Large financial institutions became handicapped through overregulation, stubbornly high fees, and legacy businesses that dragged down profitability.
4) Labor is plentiful and cheap.
The biggest problem CEOs face in the San Francisco Bay Area today is a dearth of talent and expensive labor. Due to the high cost of living on the coasts, I'm confident there will be a multi-decade migration trend towards the heartland of America. It is absurd that earning $200,000 a year is nowhere close to enough if you want to buy a median priced SF home by yourself.
When the unemployment rate hit 10% in 2009, you could hire people for half off. You could probably get a horde of people to work for you for free since people were desperate to keep their resumes fresh. When people are hungry and desperate, great things tend to happen.
5) People who are different or think differently have greater opportunity.
When things start breaking, people begin to question the status quo. It's easier to become more receptive to new people with new ideas.
Back in 2009, there weren't a lot of minorities with finance backgrounds living in a coastal city like San Francisco or New York writing about personal finance. As a result, it was easier to stand out.
All I had to do was not write an article about how to save $10 a month on food and I was good to go! OK, it wasn't that easy, but you get what I mean.
Today, the financial independence community has gotten slightly more diverse. It's a little harder to come up with new takes on timeless subjects. That said, the community is still very homogenous.
The same people get interviewed by big media because big media is still very homogenous. The same people win the same awards and scratch each other's backs because they look and think alike.
I'd love to see s non-white, non-male version of Financial Samurai flourish over the next 10 years. If nobody decides to fill these holes, I'll figure out a way to do it. But alas, it's hard to break away from group think when times are so good!
Related: Three White Tenants, One Asian Landlord
Take Advantage Of Complacency
The biggest thing you must guard against during good times is complacency.
Complacency is why our bellies get bigger the older we get. Nobody has time to work out when it's steak dinners and caviar every night.
Complacency is why some people get financially destroyed during a recession. They weren't staying on top of their finances because they thought the good times would last forever.
Complacency is why bad apples are able to join great companies. Hiring managers didn't bother to screen their candidates like the CIA because they're either desperate for labor or they think their product is so good that people don't matter as much.
Complacency is why some folks wake up 10 years from now depressed that their lives are still the same. They just assumed someone would save them.
Be very careful about letting a bull market lull you into a state of inactivity. Let the big companies with their multi-billion dollar balance sheets stop innovating. Let empire builders try and digest their rivals at record high valuations.
Good Times Are Good Too
The second best time to start a business is when times are good. Capital is plentiful and the propensity for consumers to spend is at its highest.
Just look at on-demand scooter businesses that have become billion dollar companies overnight. Set aside at least an hour every week to brainstorm. Work on your business or side hustle before or after work.
You don't have to have everything ready to go. Just come with an imperfect product and keep iterating. If the downturn ever hits, you'll be so far ahead of the competition.
During a global pandemic is clearly one of the best times to start a business. We're all stuck at home with more freedom to create. When you can run an online business without fear of getting it shut down by the government, you are winning! Therefore, the valuations of online businesses have gone way up as well.
As for me, I've been working on a couple new initiatives. When you've got another mouth to feed, it's very hard to slack off!
Related: Why I Regret Selling My Business For Millions Of Dollars
Suggestions For Starting A Business
Start your own website. Now that you know the best time to start a business is during a downturn, it's time to at least start your website. Every business needs their own website. Here's a step-by-step tutorial showing you how.
Not a day goes by where I'm not thankful for starting Financial Samurai in 2009. I ever would have imagined being able to engineer my layoff from a well-paying job in 2012 to just write and be absolutely free. You just never know what might happen if you try.
Back when I started, I had to hire someone for $1,500 to launch FS. Now you can launch in under 30 minutes for less than $50. The best time to start a business is today. And personally, I believe blogging is the best business in the world.
Invest In Private Businesses As Well
Starting a business during a downturn takes courage. Instead, you may want to keep your day job and invest in private growth businesses. This way, you get to have brilliant entrepreneurs work for you. Or you can do both! I certainly am.
Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10 while most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much.
In addition, if you enjoyed this article and want to get more personal finance insights and tips, please sign up for the free Financial Samurai newsletter. You’ll get access to exclusive content only available to subscribers.
Interesting Sam. I was thinking about starting a financial independence blog from Women perspective (non-white, non-male) but my writing chops are no where near yours. Wanna team up?
Hmm, what’s the plan? It would be nice to get someone else to do all the writing :)
Great read, thanks for posting. I started several businesses over the years; quit my day job back in the early 90’s. It was challenging to say the least. I made many mistakes but hung in and persevered.
Now, financially independent, I look back with a smile. I remember the day I quit my job to start a publishing company – I knew little about publishing given I was a professional geologist and environmental consultant at the time. However, I sought advice from others including SCORE.org which offers free advice to small businesses and entrepreneurs. I received great advice and the venture was successful. I moved on and started other successful businesses since that time.
If you are starting a business of your own, I highly encourage you to surround yourself with high quality people with integrity and to seek advice from others that can help you. SCORE is a national organization sponsored by the SBA (good place to start). I’m now a volunteer at SCORE; doing my best to share my knowledge and give back to others.
I hope this helps. Thanks again for posting.
There’s definitely not a lot of diversity in the personal finance space in general. For one of the annual awards, it’s the same people on the panel who end up voting for themselves. And of course, they are predominately white.
I actually don’t think they realize how undiverse they are in terms of representation. It’s these blind is that people have on that allows for other people to take advantage and thrive!
The great thing about having an online business is that awards and accolades don’t matter. The only thing that matters is your traffic and your revenue. Of course, if you have the time, it’s nice to build relationships and join the popular crowd or a clique. But I really have so little time now as a dad.
I really, really, enjoy the meritocracy of an online business. And I really, really did not enjoy the politics when I was working. Therefore, I try to stay away from any politics online today.
That’s pretty good. I think you’re one of the very few people who treated blogging as a business right from the start. That’s a big difference.
I’m nervous about the next downturn. I’m complacent and I don’t have a good plan for it.
It seems you really do need a “shock to the system” to make you break the bonds of inertia and escape your bubble of complacency.
For me my financial revolution came because of a very traumatizing experience (my divorce). It was only when I hit rock bottom that I realized I needed something different to dig myself back out.
Similar to the market crash in 2009 forcing you to think out of the box, my personal life crash came in 2010. If I didn’t have that event, who knows how my path would have been different. Probably would have gone along making the same old mistakes and not making much progress.
So every now and then I guess it is good to have your world turned upside down. The key is to take advantage of this when it happens and analyze the situation for best possible outcomes.
If you’re interested in sharing your story about your divorce as a guest post, and how it turned things around for you, I welcome it. I’ve written about divorce and bird nesting And other relationship related topics before. There are important.
Thanks Sam. I would love to take you up on that offer.
I will get to work on it and get back to you
Hey Sam,
Just wanted to give you a heads up that I finished the post and sent it to you. Please let me know if you got it or not and what you think. Appreciate the opportunity to have some of my material on a wildly successful platform that Financial Samurai is.
“I’d love to see a non-Asian, non-white, non-male version of Financial Samurai flourish over the next 10 years. If nobody decides to fill these holes, I’ll figure out a way to do it. But alas, it’s hard to break away from group think when times are so good!”
I would too! I’m an African American female and would love to collaborate with you on my project fullyfundedfreedom.com! Please let me know your thoughts.
I’d love to see bloggers who ‘will not be judged by the color of their skin (or gender) but by the content of their character.’ MLK
Your article really highlights the importance of just starting Sam. Kind of like the answer to the following question about investing.
When’s the best time to start investing? *20 years ago*. Second best time is today. Today it’s easier than ever to start an online business.
Hosting is so much cheaper and reliable that it was even 15 just years ago. With Fiverr and Upwork you can easily outsource things to others that you can’t quickly learn yourself. It’s a great time to have some ambition.
There really is a lack of diversity in the financial independence movement. And that’s where the opportunity lies. Groupthink is really strong to break. As a result, I think many of them will die out because there can only be a couple who rise to the top in their homogenous environment.
Take advantage!
I will. It’s like an all you can eat buffet almost 10 years later! I can’t believe they’re still such this huge landgrab that is still available for those who want to go Against the popular crowd.
fintech is precisely due to the financial crisis. Large financial institutions became handicapped through overregulation, stubbornly high fees, and legacy businesses that dragged down profitability.
Insuretech is the next big disrupter as industry is still plagued with the exact same issues listed above. Many incumbents will get bought upbefore it gets big but it only takes 1 google/amazon to change the industry
Timely post. I finally launched my blog a few weeks ago to tackle personal finance topics from the perspective of an attorney, which surprisingly is a underrepresented segment of the personal finance blogging space.
If I have to pick between either the good times continuing to roll or a looming recession in order for it to succeed, I’ll fall on the sword and hope that times stay good, even though that’s second best.
I started doing business online in 2005 and did not start to make any money until a year later. What pushed me to start something was my burning desire to quit my job. I felt that the situation was not making me utilize my talent and the work environment was toxic. It was a blessing that when the downturn happened, the product and services I was selling became in-demand and was able to quit my job in mid-2007. It felt weird that while many people are losing their jobs, I was ready to leave my job and my business was flourishing. Thanks for this wonderful post.
I’ve recently jumped on the entrepreneur bandwagon after 7 plus years as a stay at home mom. Something within me went off and I realized I had too many business ideas inside of me that must come out.
For me, it has mostly been about overcoming fear of failure and rejection rather than good financial times or bad. And also pushing past the fatigue and overwhelm of raising three young kiddos to find dedicated time to build and create a business.
I’m telling myself that perfection doesn’t exist but what is most important is consistent effort. If I can continuously put in this effort (which I feel very eager to do), I’m hopeful the business will thrive in both good times and bad.
I definitely appreciate this article and it confirms my own decision to forge my own path.
Thanks for the great read! I was really encouraged when you spoke of having minority non-male finance bloggers starting a blog. I’m a CPA and moved to the US less than 10 years ago and often worry that my US friends and colleagues are not paying attention or thinking as much about the future as I am. I’m also beginning to understand that sometimes people just don’t understand how financial instruments and investments work in the first place.
It would be great to have a finance blog that brings down complexity a few steps to help professionals who are not in the finance space. Teachers, lawyers, construction professionals etc. Definitely considering doing this as I have some down time in the next 6 months.
Thanks as always for sharing your wisdom nuggets.
I guess you could say my graphic design hustle and blog (possibly) are now businesses since they make me money. More the former than the latter but the amount per month is starting to get real – which is awesome. I have yet to LLC them or officially make them businesses and it’s on my to-do list. Mainly because I’m making enough now that I probably need to pay quarterly estimated taxes. However, unless it happens soon, I will definitely not be starting them on a downturn…
The biggest takeaway that I have from this article is the fact that one has to pay attention to what is going on. For a multitude of reasons, it’s always easier to ignore some of the bigger things. When I was in my 20s, I did not earn much, and did not think much about retirement. For me, as an engineer, my interest and drive is all about improving my technology skills. Sometime in my mid 20s, I woke up slowly, and decided to start paying attention. It took a while, but I’m finally paying full attention. The question has become, what have I developed these skills for? It’s the questions you are suggesting everyone ask themselves.
Your post makes me think of the story of the ant and the grasshopper. Winter, the next downturn, is sure to come, and you have to prepare for it. It’s in all the oldest stories. The remarkable thing is how few of us think about it. It’s like all the old wisdom is there, but in this day of fast moving distractions, it’s so easy to miss them.
It’s really hard to plan ahead. But if you can take time out of your busy week and think about the future and delay gratification, great things happen. Especially if you can stick things out for a long time. Grit really is more than 50% of the equation.
Wonderful post. I agree that success can easily go to people’s heads. When they feel unchallenged or complacent, they tend to rest on their laurels. To differentiate, you need to stay hungry and focused on how to improve at all times.
As you mention, many companies managed to achieve great success during this last downturn through adopting an entrepreneurial mindset, taking risk, and course-adjusting along the way. Another great success is Apple and its line of products introduced over the past 10 years. The company produced some of the most innovative devices in recent history at some remarkably high prices and they sold at a record clip.
They created industry-changing products and delivered a customer experience unlike any other. The company demonstrated true marketing genius by selling products that made consumers feel as though they were buying better versions of themselves. By using an Apple product, consumers could accomplish something they felt like they couldn’t without it. Along with the companies you mention, Apple did not let a recession stop them from launching a unique set of products and services that made consumers feel like they could do more with them than without. They didn’t get bogged down in their timing. They seized the moment.