Recession: Just like any other time for a startup, only more so

PUBLISHED ON MAR 29, 2010 — STARTUP

As soon as things started looking pretty grim in late 2008 I knew it was time to be thinking about starting new companies. At the time it was mainly intuition, and the knowledge that the majority of great companies in existence today were started during down cycles. I also believe in the platinum rule of “Invest where there is pain”, which is an unpleasant philosophy on the surface but when you dig down it is about faith in humanity’s enduring ability to bounce back, to fight through adversity.

Consider what the environment looks for at a startup during ‘normal’ economic times:

Money is hard to come by and may come with unpleasant impact on founders and growth strategy of business (that’s a whole article there) Startups are more nimble than established players and so may be able to seize opportunity other overlook

During the dotcom boom years money was too easy to come by:

  • With too much money floating around people were not as careful about who they funded. Too much money chasing too few deals (a recipe for problems in any market situation).
  • As a founder if you have too much money to build an idea you may gold plate crap, you won’t iterate quickly to find things that will work well enough to keep you alive.
  • Worst of all you could build a cost structure that may not be supportable by the thing you finally arrive at that people will pay you for.
  • Staffing becomes challenging. At the peak of the dotcom boom it felt like everyone who was employable was busy you could only pry people loose through rapid salary and options inflation.

When times are “bad” things get better for startup quality:

  • Bad ideas are easier to sniff out
  • Established players are too busy trying to protect what they have to be making forays into new territory. So if you find new problems to fix in new ways it is much less likely some larger company is going to meet you or beat you.
  • A wider variety of people are available to contribute. So wake up and smell the opportunity. Get out there and get building.
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