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Why to Start a Startup in a Bad Economy (2008)
- quaquaqua1 7y ago>What if you quit your job to start a startup that fails, and you can't find another? That could be a problem if you work in sales or marketing. In those fields it can take months to find a new job in a bad economy. But hackers seem to be more liquid. Good hackers can always get some kind of job. It might not be your dream job, but you're not going to starve. Probably true but I think I would prefer the safe bet over the risky one. Why would I pass up on a 100% chance to make 100k when someone is offering a 0.01% chance to make a few million? If the job was remote, maybe my mind would change. But VCs are asking us to cram into cities with $4000 rent for reasons they can't explain. And most startup interviews these days are theater.
- gargs 7y ago>And most startup interviews these days are theater. They have been for years. I remember meeting a few wannabe VC types a few years ago to get advice on bureaucratic procedures to start a business and all of them subjected me to cross-examination using the standard VC question-bank, when all I wanted was the ABCs of starting a business.
- mkj 7y agoThe title's "Start a Startup", not "Join a Startup"!
- peteradio 7y agoGood point, that sounds way less risky.
- Grimm1 7y agoAs someone else said to another poster if your risk tolerance is low you probably shouldn't start a company anyway.
- mkj 7y agoI'm not saying it's not risky. It just sounds like the OP misread it about applying for jobs at startups. I'm not going to guess where the better risk/reward lies.
- zachthewf 7y ago"Why would I pass up on a 100% chance to make 100k when someone is offering a 0.01% chance to make a few million?" You don't have to start a startup. And if this is your attitude towards risk, you probably shouldn't.
- Grimm1 7y agoWell said.
- hef19898 7y agoIf money is the only motivation, maybe you shouldn't neither.
- gbear605 7y agoI’d definitely take 100% * $100k = $100k over 0.01% * $10M = $1000, especially since money has diminishing returns to happiness. Now perhaps you think your odds are better than 1/10000 or that you’d make 10 billion instead of 10 million, but assuming the given odds and valuation, there’s no way I’m going with the risky offer.
- SpicyLemonZest 7y agoTo first order, successful startup founders are the people who don't do these calculations. Any early stage software business has countless plausible reasons why it's likely to fail; if you're thinking about risk-benefit analysis beyond the basic sanity check of "will my life be ruined if this doesn't work", you're sapping energy you need to actually make it successful. (I'm not saying this to look down on you! I'm absolutely the kind of person who does these calculations, and thus shouldn't found a startup, even if it sometimes sounds cool to me.)
- vikramkr 7y agoI think founders do those same calculations, Since you can't be successful if you can't accurately judge risk, but I think the utility function is different in how founders value non-monetary rewards and the mission of the company etc, and I think founders might also see themselves as in positions to influence those payoff numbers to increase the probability of success or the venture or the payoff as t the end.
- duxup 7y ago> for reasons they can't explain Well I think they know why (vc funding, concentration of talent, etc), they just can't explain why you as an individual would want that.
- awb 7y agoFor those new to a tough economy, here's my story from 2008: I was laid off from the digital agency I worked at. I had been trying to find a new job for a while but no one was hiring at the income I needed to pay the mortgage on the house I just bought. So, I started my own digital agency. I tried to think of ways to make their model better/faster/cheaper. Better: I would routinely measure the impact of my work. Faster: I would do it myself, no teams slowing things down. Cheaper: I'd charge half of what my old company was charging. The business grew considerably despite the economic tough times. Everyone was looking for great work at cheap rates and I was willing to work long hours (8am - 3am for a few months to get off the ground). As the economy improved I hired a team, raised my rates and worked reasonable hours again. After 5 years it was a successful enough venture that I was able to sell the business. It's possible to make a great living in a bad economy, but you need some luck, some skill and a lot of hard work in my experience.
- hef19898 7y agoI would add a domain that is needed in bad economic times. Even better, one you can provide value other can't. then you are rather safe, I think.
- EGreg 7y agoIf you don’t want to start a startup, just invest in one. One that is derisked and not yet IPO. But usually only accredited investors can do that. Another way that the Federal government helps the rich get richer. PS: The JOBS act changed that with Rule 506b but you have to convince startups to use it
- helen___keller 7y ago> If you don’t want to start a startup, just invest in one. In a recession, there may be a lot of people with talent, a lot of time, but little to no money. Investment is a game for the rich in the first place, which is why most people don't care about rules involving accredited investors.
- EGreg 7y agoSo invent your own currency (use Ethereum or intercoin.org) and pay w that. Slicing Pie is a good book for this But not everyone will agree to work for it, for others you will need cold hard cash. And stock investors are all around, I am talking to them, they want to take $ out of the stock market and put it in SOMETHING.
- travisjungroth 7y agoI’m working on ideas for a new startup and this is a very different economy than three weeks ago. The Dow is down 24% in that time. Overall, I think my chances are better. Raising that friends and family round might be tougher, since some people are feeling less rich than they did. Others will be looking for a hedge. I’m targeting B2B SaaS, and there’s certainly going to be some purse string tightening. But I imagine there will still be room for low-cost tools with a 10x ROÍ, which is the surest way to be successful, anyway. The biggest advantage I have going is flexibility. Right now I can turn on a dime, which a public company, or even a Series B, can’t really do.
- sebastianconcpt 7y agoFortunately the way to make a startup recession-proof is to do exactly what you should do anyway: run it as cheaply as possible. For years I've been telling founders that the surest route to success is to be the cockroaches of the corporate world. The immediate cause of death in a startup is always running out of money. So the cheaper your company is to operate, the harder it is to kill. And fortunately it has gotten very cheap to run a startup. A recession will if anything make it cheaper still. If nuclear winter really is here, it may be safer to be a cockroach even than to keep your job. Customers may drop off individually if they can no longer afford you, but you're not going to lose them all at once; markets don't "reduce headcount." What if you quit your job to start a startup that fails, and you can't find another? That could be a problem if you work in sales or marketing. In those fields it can take months to find a new job in a bad economy. But hackers seem to be more liquid. Good hackers can always get some kind of job. It might not be your dream job, 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 to yourself. You're an investor too. As a founder, you're buying stock with work: the reason Larry and Sergey are so rich is not so much that they've done work worth tens of billions of dollars, but that they were the first investors in Google. And like any investor you should buy when times are bad.
- hef19898 7y agoOne of PGs most influential essays, at least for me. If anything, the emergence of cloud services made start-ups even cheaper since 2008.
- 5445455 7y agoIf you want try start a startup in a bad economy come to my country, Argentina, and you will have de full package. Sometimes I read comments or blog post about the risks or the "bad economy situation" in first-world countries and a little smile on my face appears. If you really want to test yourself come here.
- Ididntdothis 7y agoI think the title should be “start a startup in bad economy that will recover soon”. Ongoing misery is a totally different beast.
- dzonga 7y agoif you think that's bad. go to my home country, Zimbabwe.
- kirubakaran 7y agoIf you think that's bad, go to Aleppo Syria https://en.wikipedia.org/wiki/Four_Yorkshiremen_sketch https://en.wikipedia.org/wiki/Four_Yorkshiremen_sketch
- pedalpete 7y agoand every time Argentina seems to be coming out of the tough times, the government comes up with a new hairbrained scheme to trash the whole thing. But I have to say, I absolutely love the vibe in your country. One of my favorite places.
- LeoTinnitus 7y agoArgentina is like the climate Mecca of the Americas imo, too bad the government f'd up real bad essentially ruining the economy. I'd love to visit just because it still seems like a great place, just nobody has money. They just have assets.
- bernardlunn 7y agoBrilliant post that inspired me to do this research when I was at ReadWrite: https://readwrite.com/2009/04/30/what-do-vcs-say-and-do-in-early-stage-today/ https://readwrite.com/2009/04/30/what-do-vcs-say-and-do-in-e...
- brenden2 7y agoThis is easy to say when you have capital or access to capital. Having lived most of my life quite poor, I find it somewhat frustrating to hear things like this. When you can't afford food, rent, health insurance, etc, the last thing you're thinking about is dumping your life savings into a new business that has a 90% chance of failure.
- lnsru 7y agoI’ll have a choice soon to invest part of my savings into very cheap stocks or to fund my startup with life savings. I don’t think, I’ll do latter. On the other hand keeping startup costs low is universally good advice.
- brenden2 7y agoIf you can afford to do it, it is indeed a great time to start a company.
- smegma2 7y agoThe post was written for people who are interested in starting a company. If you're not in the financial state to be able to do so, then blogs about starting companies are probably not for you.
- troughway 7y agoHN has a disproportionate amount of people trying to snipe "survivorship bias!" whenever someone does start a company, is successful, and wants to share what worked for them (much like what pg is doing in this post). Why are these people here, I will never know.
- meatmanek 7y agoIt is possible for someone to simultaneously be interested in starting up a company and also recognize / call out logical fallacies.
- 7y ago
- inventtheday 7y agoI get what he's saying, but the majority of the richest people in history were born ~20 years before the early American Industrial/Steel boom or ~20 years before the internet was popularized. Macro is important from a population level perspective.
- stoicShell 7y agoThere is one word missing from this post that contains a whole lot of the argument on the environment side: chaos. Those who learn to thrive in chaos are most dangerous out there, for they have this contrarian impulse to rise when there's blood in the streets. If you recall a history lesson or two, that's how the most egregious powers are made —in wealth or might or legacy. Right now, some of us are down —the situation is draining, energy-wise— whereas others feel invigorated, a drive to take action, make a move. How we respond to chaos thus creates a big divide among us in times of major perturbation. There's this shift of potentials in the system, and kinetics go crazy, and some flee/freeze (seek security, refuge, maintaining the status quo, conservatively preserve what's left, etc) while others feel compelled to fight (to defend, protect, help; but also attack, kick in the disruptive nuts, solve problem, seek victory). For those, it could be the perfect storm to attempt a moonshot — I find there's a really unusual proportion of such stories among famous successful figures in virtually all fields, but I wonder if it's not survivorship bias + myth building + my own filters.
- jl2718 7y agoI am stoked.
- tryitnow 7y agoWhen in doubt it's almost always cognitive biases at play. I think a more reasonable assessment would indicate that people who are well resourced (either through financial, social, or skill capital) are more likely to feel invigorated and therefore will build on the resources they already have by taking advantage of the chaos.
- catchmeifyoucan 7y agoExactly what I needed - thanks PG. Didn't really know what to make of the current situation. Another gem that always gets me going: http://www.paulgraham.com/vb.html http://www.paulgraham.com/vb.html
- rexreed 7y agoOk, no. This is a bad meme. Read the comments here and you can see why. You know what startups came out of the 2008/2009 recession? A car sharing company. A rooms-for-lease company. Many, many different delivery companies and a sh*t-ton of gig economy jobs. Do you know what they all have in common? Taking advantage of people's weak economic situation. That's the sort of company that comes out of bad economies. The ones that take advantage of people being in poor economic situations. But starting something that matters? You have to do it when customers can actually buy your products. And that takes a GOOD economy. I can't wait to see the slew of low-quality companies that come out of this next upcoming, inevitable recession
- jmkd 7y agoStarting something that matters? No better test of that than a bad economy...
- rexreed 7y agoHow would you propose testing that if the market can't actually buy or validate the need for your product? The best test is a ready customer base. Otherwise, it's just venture capital floating a lot of half-digested ideas and seeing which sh*t doesn't sink.
- SuoDuanDao 7y agoI'm pretty sure he meant that if you have a ready customer base in a bad economy, you're providing something of real value because people reduce spending on luxuries.
- holler 7y ago> Taking advantage of people's weak economic situation Wouldn't it just be simple supply/demand? What about all those jobs the gig workers have access to, which otherwise wouldn't exist?
- rexreed 7y ago
- wexxy 7y agoCan I pay my rent in startup ideas?
- syrrim 7y agoDoes a bad economy lead to higher rent?
- cmauniada 7y agoIdeas are worthless.
- JohnFen 7y agoIdeas are both a dime a dozen and invaluable. That is, ideas are easy to come up with by the bushel, but you can't have a business without one. Unimplemented ideas are worthless, though.
- wuunderbar 7y agoYou would have to pay rent with or without a bad economy if you're starting a start-up. Someone leaving a stable job to start a start-up would've already factored in rent payments.
- JohnFen 7y agoI think how true this is depends on how you're starting your business (specifically, how you're funding the startup). I've personally had greater success with starting business when the economy is down than when it is up. As near as I can tell, it's because the field tends not to be as crowded. It's easier to get attention to your business when there are fewer startups competing for attention. Since I've always avoided using investment money or loans to fund ventures anyway, a down market doesn't impact me as much as it does with many other approaches.
- simonswords82 7y agoSweat equity increases in value as the amount of money being invested in startups diminishes
- greendave 7y agoA timely reminder (was that really only 12 years ago?). But (maybe a big but), recessions are not all created equal. Seems the unknowns are a lot different this time around.