Business creation is an essential part of a national economy’s ability to adapt and grow. Yet, it is also a risky endeavor. Almost all start-up ventures are abandoned, and the proportion of those that achieve profitability is very low. This is a major concern for policy makers, who are eager to encourage more business creation without increasing social costs.
To help reduce the risks involved in starting a new business, entrepreneurs should validate their ideas with market research. This step can reveal whether consumers are willing to pay for a product, and it helps entrepreneurs understand what features are most important to their audience. It is also helpful to look at competitors, and examine their pricing.
Often, businesses are started to fill gaps in the marketplace that have been ignored by existing firms. This is particularly true of digital businesses, where users are eager to find products and services that fit with their lifestyles. For example, online retailer Shopify reports that the number of merchants selling “digital goods” like games and apps has exploded since its founding in 2007.
While some may be afraid to begin a business during tough economic times, a slowdown in a country’s economy can actually be a good time for startups. During downturns, competition is usually weak, and inputs (labor, supplies) are cheap. These factors, among others, have helped some entrepreneurs succeed in launching their businesses.