4 Rules For Starting a Business in a Recession
As part of the "How I Made My Millions" series, CNBC.com asked the founders and CEOs of these companies to share their experience on a variety of topics. What follows is advice for starting a business even in a tough economy from TerraCycle's Tom Szaky.
Recession. Depression. Just plain tough. Whatever you call the economy today, the sane among us would have you believe it’s a lousy time to start a business. Except it isn’t. I’ve been operating TerraCycle in a recession-smart way since the start, and have four ways you can, too:
1. Get to Know Necessity, the Mother of All Invention
Needs, whether as a business or an individual, are a great motivator to find or create a solution. A recession is going to create new niches that may have not existed or have been unnoticed while we were more were flush with money.
When Terracycle started, we wondered how best to source the raw material for our products—product packaging. A costly regional infrastructure wasn’t an option. Instead, we created Brigades, where people collect per category, i.e., juice pouches, sending it to us, earning 2 cents per piece for their school.
In doing this, we’ve minimized costs, built goodwill with 11.5 million people collecting, and as of this month paid $1 million for the 50 million Capri Sun and other juice pouches collected. A win all around.
2. As the Giants Hunker Down, Now’s Your Time to Shine!
In a stable economy, large corporations have and will spend their way into squashing the competition. Not so at the moment, unless your name is Apple . Today you can leverage where the biggies aren’t serving the market well or have backed off. Do it well, uniquely, and you’ll succeed beyond the current economy.
Having to function within the tighter constraints of the current economy will by necessity force you to work in a fiscally disciplined yet bold manner. You’ll be well prepared for even bigger success when the economy improves.
3. Prove It Now. Grow It Later.
TerraCycle creates 186 products, using everything from what were Sharpie pens to Clif Bar wrappers. None are frivolous gambles. We use both a creative eye for possibility and a clear focus on customer utility. Take risks, but do it with a clear focus on the customer. Not the industry accolades.
Likewise, if you can prove by its sales that a product is more than an interesting project, you can continue justifying the budget for it. A wise way to go, in any economy.
4. Fund Yourself, Don’t Wait for Others
Your first goal as a business should not be to attract investors. It’s only going to distort your vision as a company. It’s like living in a house and remodeling with only future buyers in mind. You’re prone to acting out of integrity with what best serves, never focusing on the present. When you’re firmly established as a business and have success on your own, then consider investment, on your own terms. But not before.
I hope you’ve found these four suggestions helpful, and I encourage you to jump in and succeed hugely! Do you have any other tips to share? Leave a comment below!
In 2001, Tom Szaky started TerraCycle as a freshman at Princeton University. He dropped out to pursue his dream of starting an eco-capitalist company that could be both profitable and sustainable at the same time. Today, TerraCycle works with major consumer-goods companies like Kraft Foods, Frito-Lay, Mars, SC Johnson, Kimberly-Clark and more to run free upcycling programs that pay 70,000 schools and nonprofits nationwide to help collect billions of pieces of consumer waste every year.