October 2008The economic situation is apparently so grim that some experts fearwe may be in for a stretch as bad as the mid seventies.When Microsoft and Apple were founded.As those examples suggest, a recession may not be such a bad timeto start a startup. I'm not claiming it's a particularly good timeeither. The truth is more boring: the state of the economy doesn'tmatter much either way.If we've learned one thing from funding so many startups, it's thatthey succeed or fail based on the qualities of the founders. Theeconomy has some effect, certainly, but as a predictor of successit's rounding error compared to the founders.Which means that what matters is who you are, not when you do it.If you're the right sort of person, you'll win even in a bad economy.And if you're not, a good economy won't save you. Someone whothinks "I better not start a startup now, because the economy isso bad" is making the same mistake as the people who thought duringthe Bubble "all I have to do is start a startup, and I'll be rich."So if you want to improve your chances, you should think far moreabout who you can recruit as a cofounder than the state of theeconomy. And if you're worried about threats to the survival ofyour company, don't look for them in the news. Look in the mirror.But for any given team of founders, would it not pay to wait tillthe economy is better before taking the leap? If you're startinga restaurant, maybe, but not if you're working on technology.Technology progresses more or less independently of the stock market.So for any given idea, the payoff for acting fast in a bad economywill be higher than for waiting. Microsoft's first product was aBasic interpreter for the Altair. That was exactly what the worldneeded in 1975, but if Gates and Allen had decided to wait a fewyears, it would have been too late.Of course, the idea you have now won't be the last you have. Thereare always new ideas. But if you have a specific idea you want toact on, act now.That doesn't mean you can ignore the economy. Both customers and investorswill be feeling pinched. It's not necessarily a problem if customersfeel pinched: you may even be able to benefit from it, by makingthings that save money. Startups often make things cheaper, so inthat respect they're better positioned to prosper in a recessionthan big companies.Investors are more of a problem. Startups generally need to raisesome amount of external funding, and investors tend to be lesswilling to invest in bad times. They shouldn't be. Everyone knowsyou're supposed to buy when times are bad and sell when times aregood. But of course what makes investing so counterintuitive isthat in equity markets, good times are defined as everyone thinkingit's time to buy. You have to be a contrarian to be correct, andby definition only a minority of investors can be.So just as investors in 1999 were tripping over one another tryingto buy into lousy startups, investors in 2009 will presumably bereluctant to invest even in good ones.You'll have to adapt to this. But that's nothing new: startupsalways have to adapt to the whims of investors. Ask any founderin any economy if they'd describe investors as fickle, and watchthe face they make. Last year you had to be prepared to explainhow your startup was viral. Next year you'll have to explain howit's recession-proof.(Those are both good things to be. The mistake investors make isnot the criteria they use but that they always tend to focus on oneto the exclusion of the rest.)Fortunately the way to make a startup recession-proof is to doexactly what you should do anyway: run it as cheaply as possible.For years I've been telling founders that the surest route to successis to be the cockroaches of the corporate world. The immediatecause of death in a startup is always running out of money. So thecheaper your company is to operate, the harder it is to kill.And fortunately it has gotten very cheap to run a startup. A recessionwill if anything make it cheaper still.If nuclear winter really is here, it may be safer to be a cockroacheven than to keep your job. Customers may drop off individuallyif they can no longer afford you, but you're not going to lose themall at once; markets don't "reduce headcount."What if you quit your job to start a startup that fails, and youcan't find another? That could be a problem if you work in sales ormarketing. In those fields it can take months to find a newjob in a bad economy. But hackers seem to be more liquid. Goodhackers can always get some kind of job. It might not be your dreamjob, but you're not going to starve.Another advantage of bad times is that there's less competition.Technology trains leave the station at regular intervals. If everyone else is cowering in a corner, you may have a whole car toyourself.You're an investor too. As a founder, you're buying stock withwork: the reason Larry and Sergey are so rich is not so much thatthey've done work worth tens of billions of dollars, but that theywere the first investors in Google. And like any investor youshould buy when times are bad.Were you nodding in agreement, thinking "stupid investors" a fewparagraphs ago when I was talking about how investors are reluctantto put money into startups in bad markets, even though that's thetime they should rationally be most willing to buy? Well, foundersaren't much better. When times get bad, hackers go to grad school.And no doubt that will happen this time too. In fact, what makesthe preceding paragraph true is that most readers won't believeit—at least to the extent of acting on it.So maybe a recession is a good time to start a startup. It's hardto say whether advantages like lack of competition outweighdisadvantages like reluctant investors. But it doesn't matter mucheither way. It's the people that matter. And for a given set ofpeople working on a given technology, the time to act is alwaysnow.
