Pandemic. Stock market volatility. High debt levels. Waning confidence in the US dollar. A massive number of layoffs. “The worst recession since the Great Depression.”
In so many ways, this does not seem like a great moment to start a new company.
Yet, despite uncertainty and pain, now might be the right time to begin your startup.
I write this as someone who founded my first startup in 2000 and my second in 2008. Both were crisis moments for at least the stock market if not the economy.
I am aware that my suggestions may not apply to everyone’s situation. And indeed many people’s focus is necessarily elsewhere. This piece is for those of you who are dreaming of creating a startup and have the opportunity. For you, I would like to offer the optimistic case for building a company now. Don’t wait.
- Needs are Changing: During an ordinary recession, the destruction of firms creates vacuums for new opportunities. Yet this is not an ordinary recession. The social distancing practices and demand for online services has redirected money. Consumer tastes are changing. Businesses are willing to try new things. And there are stronger incentives to invest in infotech and automation. Pay attention and serve these new needs and you may be able to move faster than incumbents. From telehealth to ecommerce, and education to travel, customers are demanding change. Some of those preferences may change back as the crisis passes, but some of these industries will reach new equilibrium. They will not go back to the old way of doing things. You can be a part of building this new future. Be the one to create a new dominant player.
- You Have More Control Over the Biggest Risks. In the beginning of a startup, two of the biggest risks are customer demand and working well with your team. While these two things are influenced by macro-economic forces, they are more narrow and specific. Can you work effectively with this person? Can you find a small number of customers who want to use your product or service? You don’t have to solve the global economy or public health. You have more control and can focus on these two things.
- Stronger and Easier Recruiting. When unemployment is higher, a greater number of people are looking for work. It is easier to hire strong employees from a larger pool of applicants.
- It is Easier to Build a Remote Team. In the past, there may have been greater expectations that companies have a physical office space. No longer. Major companies are operating with remote teams. Many people don’t want to come to the office. Now you can take advantage of lower costs, larger applicant pools and increased flexibly by operating without an office. And you can do this without pushback or stigma.
- VCs are Still Funding. There have been fewer VC investments over the past 6 months, but not as few as you might assume. Some report the number of seed investments down 40% and coming back up. VCs are still looking through company decks for deal opportunities. Given the historically high levels of VC funds and commitments, there are a lot of dollars looking for startups.
- Successful Companies Do Start in Recessions. While it is hard to determine the exact probability of success for a given startup, it is encouraging that successful companies were founded in recessions. For example, Groupon (2008), WhatsApp (2009), Venmo (2009), Uber (2009), Slack (2009), and Instagram (2010).
- You Have the Most Control Over the Bigger Risk. The biggest risk is that you do not begin. Most startups die at the idea phase. So, if you have been dreaming about it and you have the opportunity, don’t be deterred because of news headlines. Go build. Go sell. Start.
By Miles Lasater with Julian Jacobs