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Potential Problem with Starting a Business in a Crisis

The other day I received several messages on my personal Facebook page about acquaintances starting businesses during the Covid-19 crisis.  In reading about these would-be entrepreneur’s new opportunities I thought back to my own experiences with starting a business during troubled times.  I began to wonder is this a good or a bad thing? Is there a potential problem with starting a business in a crisis?

My Experience During the Great Recession Financial Crisis

Way back in 2009, during the great recession, my income was cut a full 10%.  At the time I was just an entry-level analyst with about 5 years of business experience.  I was worried.  Would things get worse and I lose my job?  I had no other source of income.  My assets were really just a modest 401k and an emergency fund of 6 months.

Worse still I’d made some bad decisions back in 2007.  Buying a Corvette with most of my taxable account assets.   So there was no money to invest in opportunities.   Had I lost my job after 6 months I would have been out of funds and in trouble.

So, what did I do?  Well, the first thing I did was cut back my 401k contributions to the level of my match.   The intention was to set aside the rest of my funds to booster my emergency fund.  

How Scary was 2008/2009 Really?

For those who didn’t live it, you have to understand the feelings at the time.  There were legitimate fears, even magazine articles, noting the potential collapse of the entire financial system.  There were articles about possible runs on banks and issues with the FDIC backstopping them.    People became knowledgable about things like the insurance on your brokerage account.  

The fear was real. I didn’t end up selling any of my stock market assets at the time.  Honestly I told myself if the market went to 0 and the banks all failed that anything I did with my money wouldn’t matter.  So I just let it ride.   As we all know it ended up being the right decision.

Looking at Starting a Business In a Crisis

Anyway, during this time I attempted to make one more move to sure up my finances.  I went looking for an opportunity to start a business.  I figured at the time that starting a business in a crisis would be an easy way to backstop my risk.  And what easier field for me to enter then, you guessed it, financial planner.  I had the background with an MBA in finance, the interest as you can see from this blog, and the time as I was still pre wife and kids.  I began to look at what it would take to start such a business or partner with someone who was already operating.

What I found was most existing partnerships didn’t want someone to join in such a down market.  The best option I was offered was assistance as a tax preparer (no thanks!).    A few of the MLM like financial planning groups expressed interest in having me open up shop, but a little bit of investigation showed this was not the path to success.   So that really left starting a business in a crisis.

No Viable Ethical Business Case

I did my due diligence and learned that I needed certification to be a planner.  Simultaneously I learned it was a crowded market.  It would have been difficult to start a business in the field and make money while not doing things I criticize financial planners for doing today

IE. the reason so many planners put their clients in high expense funds is because they get a kickback.  The reason they go after this kickback is that financial advice is such a cutthroat field it’s hard to make money by just charging a fee when the guy down the street is hiding his costs in the fund.  If people shop planners based on stated cost, then the ethical planner is priced out of the market.  

Ultimately I learned I didn’t have a viable business plan to do it on my own.  So I abandoned the idea.  Eventually, things turned around.  

The Businesses I Own Today

Today I essentially own directly, or through my wife, 2 small businesses.  One is consulting and one is this blog.  I also have enough assets where I don’t really need to search for an entrepreneurial opportunity out of desperation.   If I did start another business, it would be because I saw an opportunity and really was interested in doing so.  The right reason to do a business in my honest opinion.

Starting a Business in a Crisis, Most Businesses Fail

Which brings us back to those acquaintances.  I will start by saying I don’t know anything about whether they’ve thought through their business idea.   I can guess a few haven’t based on my own experiences.  (Not to mention at least one is opening a Disney travel agency… Seems a bit out of touch with what’s going on to me).

The good news is, many have the time with lockdowns to start a business.  The initiative is fantastic.    Start a business in your spare time.  I can’t commend this aspect of their decision enough.  Not only that, some of the most successful businesses in the world have been created out of a crisis.

The bad news though is that most businesses fail.  According to the small business administration about half of businesses fail in the first 5 years.  Not only that, starting a successful business takes money.  You need to invest money in a business for it to grow.  

You Must Have a Plan

So starting a business in a crisis can lead to immense riches, but it also can leave your finances in a more precarious position than they already are.  The key is to have a business plan.  A blueprint to make money and differentiate yourself from the competition.  Well that and avoid the pyramid scheme like multi-level marking company’s where you are essentially making someone else money.

Contents of a Good Business Plan

A good business plan will include what is commonly referred to as a SWOT analysis.  Essentially a detailed analysis of your business’s strengths, weaknesses, the opportunities in the market, and the threats to your business.  Understanding these aspects will allow you to position your business in a way as to mitigate threats, take advantage of opportunities, and leverage the strengths of your new business.   Only with proper positioning will you be successful, and even then it’s still possible to fail.   Your business plan should also contain your plan to act on these findings: sales, marketing, and even execution.  

Finally, it will contain a ramp plan.  Where possible set things up so your business investments don’t leave you on the streets should they not materialize.  Start small and see if the sales follow.   Create a ramp plan, don’t just go to 100% on day one.   Don’t invest your life savings in a  new idea until you see if it can be successful.  Especially in a crisis.

Consider this Your Word of Caution If You Are Starting a Business in a Crisis

Again, I can’t comment if the people I am seeing starting business are or are not doing the above.  But it’s probably a good time for the reminder.  A well thought out small business is a great investment of time and money in a Covid-19 crisis environment.  Just ensure you ease your way into it and do your diligence.    You don’t want to make things worse.

If you are interested in the administrative aspects of starting a business you can read our series of articles here.

Anyone starting a business during the shutdown?   If so how much time have you spent designing your business and ramp plans?


  1. Xrayvsn
    Xrayvsn May 11, 2020

    I feel bad for those individuals like new physician attendings or dentists that just started up a solo private practice before covid hit.

    With cash coming in evaporating and fixed expenses continuing along it could be a nervous time.

    • FullTimeFinance
      FullTimeFinance May 17, 2020

      Uncertainty reigns. Here is hoping things settle down soon.

  2. Mr. 39 Months
    Mr. 39 Months May 13, 2020

    Its funny, but one of my goals at the start of 2020 was to start a business with my hobby, woodworking. The primary goal was not so much to make money, but to learn the ins & outs of running a business, doing the books, marketing, production, etc.

    Not sure if, after a certain period of time I haven’t made money means the business is a failure, if it helps me to accomplish my learning goals? Since I don’t depend on it to make a living, it isn’t as intensive or necessary of a project.

    • FullTimeFinance
      FullTimeFinance May 17, 2020

      Nothing wrong with a hobby business. This blog fits that criteria. I more intended this for people that might think starting a business is the financial way out of a difficult situation.

  3. Katie Camel
    Katie Camel May 16, 2020

    I remember the 2008/2009 crisis all too well. Like you, I also took a 10% pay cut to keep my job. I believe others took even larger cuts in my company. It was tough, especially because I already wasn’t making much, but my cost of living was so low through my own efforts that it didn’t matter all that much.

    I wondered how non-fee financial planners made money, so the kickback makes sense. Thanks for pointing that out!

    • FullTimeFinance
      FullTimeFinance May 17, 2020

      Ultimately I managed to survive without too much hardship as I lived below my means. But for a while there I was legitimately concerned my employer was going under. Living with a 10% pay cut is one thing. 100% at that time would not have been pretty.

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