10 ms·

Why to Start a Startup in a Bad Economy (2008)

158 points by gautamsomani 6y ago

postingpals 6y ago
Does anyone decide not to do a startup because of abstract assumptions about a collapsing economy like this? I find people don't do it for much more realistic material reasons, eg: the economy is so bad that I've lost my job, no one is giving out loans, I don't have the capital or infrastructure. I would almost call this a straw man, but I guess there must be some people out there who make decisions this way.
- H8crilA 6y ago
  > I've lost my job, no one is giving out loans, I don't have the capital or infrastructure. What would anyone think a "bad economy" is if not this?
  - postingpals 6y ago
    The author suggests that the primary reason people don't want to start a startup in a bad economy is that no one will invest in them or that there wont be any customers, I think more consideration should be put into the fact that it's usually just that they simply cannot start a startup, not that they are iffy about it I could be misinterpreting them, though
- muzani 6y ago
  It sounds like you answered your own question - people avoid doing businesses when they're not sure their products will sell, when it's harder to get loans and capital. And they link this to a bad economy. But the idea behind the article is that these are mostly untrue - it's easier to hire talent and other resources during a bad economy.
  - vladimirralev 6y ago
    There is another side of this. Unemployment. Unlike 2000 or 2008, right now would be a terrible time to start a software business because jobs in software are plentiful, wages are so high. So you have to take out bigger loans with more risk and paying wages doesn't produce assets that can be put as collateral. It's a great time to find ways to utilize lower skilled labor somehow, but not for anything that needs top talent.
    - MattGaiser 6y ago
      True. Bad economy is a skillset/industry based thing. I wouldn't characterize tech workers as being in a bad economy right now.
- pixelmonkey 6y ago
  FWIW, this essay had an impact on me in 2008, and I started my startup in early 2009. I was working in NYC, and on Wall St (as a programmer). I was 2 years out of college, so 25 or so, and had only minimal savings and some college debt left to pay off. The "conventional wisdom" in my circle of friends was, "This is a really bad time to quit a stable job and start a small company, because the entire economy might collapse." I had nothing but evidence in front of me: from my office window one day, I could see streams of hundreds of laid off people leaving the Lehman Brothers building, with cardboard boxes of personal office items in their hands. Friends of mine who were smart and hard workers were getting laid off from their NYC jobs left and right. When I worked up the courage to quit and pursue the startup, and I announced it to my colleagues at work, quite a few of them took me aside and said, "I get that you already made this decision, but I'm really worried about you given what's going on in the economy." I think pg's essay, as well as the general mindset of YCombinator, helped me and my co-founder have the attitude of, "We'll try this, and it might fail, but if it succeeds, it'll be awesome. And if it fails, despite how bad the economy is, we can still fall back on just working our butts off to find another job." Anyway, it wasn't easy, for sure. Though we managed to get seed accelerator financing ($20K) from Dreamit Ventures in Philly in Summer 2009, we then bootstrapped for 2 years in the startup wilderness until our seed financing round of $800K in 2011. I don't think most people, young and frugal or not, would last that long on non-employer healthcare or with only consulting/freelance income to pay the bills. I wrote about that financial reality here: https://amontalenti.com/2011/04/02/not-for-the-faint-of-heart https://amontalenti.com/2011/04/02/not-for-the-faint-of-hear... Also, zooming forward to 2020, I think the current economy is much more startup friendly than 2008-2009. In the period we started in, seed financing was not very mature -- we were still living in the shadow of the 2000-2001 crash. NYC had a very small tech startup community in 2008-2009. The 2008 crash, being a "financial" crisis, also depressed venture capital investing at the same time. By contrast, this Covid-19 recession has split investors, where retail/consumer stocks are losing money, but tech stocks are growing by leaps and bounds, and many investors are now trained by the success of low valuation seed investments from the 2008-2010 era, which eventually led to IPOs and exits in our recent tech bull market. So, if I weren't still running my company and if I were working for a BigCo like I was in 2008, I would definitely start a company now, because there's really no downside whatsoever. That is, no downside except the opportunity cost of your salaried job. (One other counterintuitive aspect, though, is that, perhaps, starting a startup now is such an obvious decision that you'll be competing with a lot of other seed stage founders, assuming they are as rational as I describe here :-) ...) Also, about a year ago I provided a little advice for how to bootstrap your company if you do get started and you are not of any means. Hope it helps someone: https://news.ycombinator.com/item?id=21506297 https://news.ycombinator.com/item?id=21506297
xwdv 6y ago
We haven’t really had a bad economy for tech in the past 10 years. Ever since the mobile App Stores opened up and cloud computing began to take off, tech entrepreneurship entered a boom cycle and it’s been eternal September since then. The ease of getting investment throughout the years has varied, notably the hardest point to raise money was around the middle of the decade, but for the most part if you have not made a lot of money from tech in the past 10 years you have done something wrong.
- ackbar03 6y ago
  You make it sound almost easy... I'm sure the startup scene is still littered with those that didn't quite make it
  - xwdv 6y ago
    Well yes that’s always been true, but has nothing to do with the economy.
    - parksy 6y ago
      I agree that "the economy" has relatively little to do with the ability for "a" startup to succeed, given the right startup, with the right technology, in the right political environment, in the right social environment... But further up you basically said "if you haven't made a lot of money in tech in the last 10 years then you're doing something wrong" Which is a tautology, independent of how you define success. If you don't succeed, you did something wrong. But define "a lot of money" Is a "lot of money" a six figure personal income? A six figure income is easy to get. Just work hard and be good at your job for a few years, and don't be afraid to negotiate. Set your terms, if you're valuable they'll pay for your time. Or are we talking on the scale of companies? I helped build up a small garage operation into a multi-million dollar turnover enterprise - is that a lot of money? Probably to some people, but not compared to the multi-billion dollar companies. Some random nobody made a website that lets people post 140 characters and we all lol'ed and now it's worth more than twenty billion dollars. There were millions of web forums experimenting with different modes of communication. Did everyone who tried to start a social media website at the same time as twitter do "something wrong" because they didn't understand the magic formula? If you're talking on a personal level, then yes, making money in "tech" is easy. I've made "a lot" of money in "tech." I live more comfortably than my peers. But I would not say it's been easy, or it's just been some fluke.
newbie578 6y ago
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill.
deleted 6y ago
[deleted]
Dumblydorr 6y ago
Do other folks agree with PG that the economy is a rounding error compared to the quality of the founders? To me, it sounds like a hammer saying all that matters is the nail, not the substrate you're attempting to pierce. I think it's his job to believe in the "great man" theory, and to not credit circumstances, luck, etc. PG is in YC and their whole raison d'etre is attempting to choose great founders. Is there a statistical analysis of YC and PG which shows they choose effectively?
- austincheney 6y ago
  Some food for thought is that it takes time for a new business to achieve market penetration and that span of time is irrespective of and orthogonal to economic health.
  - an_opabinia 6y ago
    If you're making software, you can achieve market penetration in an afternoon by signing a deal to bundle your app on a phone or social media platform.
    - alisonkisk 6y ago
      For almost everyome, that's not an option.
    - ako 6y ago
      That signature usually takes years of preparation and negotiation...
    - SpicyLemonZest 6y ago
      This is relevant to only a small segment of the market. A substantial majority of software development, even VC-funded software development, isn't something that can meaningfully be sold as a consumer-facing phone app.
- tomhoward 6y ago
  > Do other folks agree with PG that the economy is a rounding error compared to the quality of the founders? When I was in YC (in 2009, a few months after this essay was published), I remember PG saying that plenty of VCs, (specifically Marc Andreessen, as an example), pay just as much/more attention to market/macro conditions as they do to founder talent, but added that this is a luxury Andreessen has when all the very best companies want to be funded by Andreessen, so he can pick companies that have both great founders and favourable market conditions. > I think it's his job to believe in the "great man" theory, and to not credit circumstances, luck, etc PG acknowledges often that luck plays a critical role in success. But the point is that weak founders with all the luck in the world won't achieve much, whereas great founders with only a little bit of luck can be hugely successful. He also points out that it's a long journey, much longer than a downturn will last, so better to start now when you're inspired, especially when the downturn can bring favourable conditions (like cheaper talent, rent, services, etc). YC is also quite happy to back founders a second time. Off the top of my head, Stripe, Twitch and Cruise were all founded by 2nd or 3rd-time founders. So YC's approach is to find founders with potential, get them into their network, then support them for as long as they need to find success. > Is there a statistical analysis of YC and PG which shows they choose effectively? Some people have tried to evaluate this quantitively or qualitatively, but most miss the point, or can't evaluate it correctly without knowing YC's financials, which nobody outside YC management and their investors knows. YC's approach isn't to try to "choose" only the good founders. Their approach is to cast a very wide net, to invest in a huge number of companies including some very crazy-looking ones, knowing that only a handful will win big but that will yield big enough returns to more than pay for all the losses. So the question is not whether they chose good founders and rejected bad ones, but whether they backed a big enough and broad enough pool of companies to get a significant number of huge winners - like, say, Dropbox, Airbnb, Twitch, Segment, Cruise, Coinbase, Instacart, Flexport, Brex. Answer: yes, evidently.
justiceforsaas 6y ago
From reading the article, the main reason seems like having (way) less competition. Especially with cheaper acquisition channels (I've been doing research [1] on this topic for 2+ years and noticed this trend), where you have less businesses advertise on Facebook/Google, bringing CPC costs down. I wonder if the "law of shitty clickthroughts" [2] applies here as well. What if you have a huge # of founders reading the advice; acting on it and starting new businesses just because Paul Graham told them so? Then starting a startup in a bad economy would no longer be an advantage. Somewhere in May Gumroad founder tweeted that they have record numbers of people signing up, and that may be an early sign that thing sort of thing is already happening. [1] https://firstpayingusers.com https://firstpayingusers.com [2] https://andrewchen.co/the-law-of-shitty-clickthroughs/ https://andrewchen.co/the-law-of-shitty-clickthroughs/
- asadkn 6y ago
  Surely that's one of the many factors. The opposite is also true. For instance, pre-election, for some niches US FB ads bids were totally out of whack. Or the fact that it's been high ever since the COVID caused eCommerce boom, globally.
amelius 6y ago
But the digital side of the economy is actually booming right now.
mathattack 6y ago
I think the essence of this is taelent is more important than capital. Better to start something when talent is plentiful and money scarce than the other way around.
xoxoy 6y ago
In this market, the lesson is to start a startup when rates are 0 and trillions have been pumped into financial markets due to QE infinity. Growth at all cost is being rewarded handsomely. If you’re a tech company that can grow, no investor will care if you’re burning money while doing it.
- bnonhacker 6y ago
  Lol. Now you're getting to the core of macroeconomics within our existing infrastructure. The Fed is cutting (again!) investors are chilling (again!). I don't want to burn money with some sort of hopeful expectation of profit in the future, but goodness gracious money is so friggen cheap right now.
known 6y ago
"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the #unreasonable man" --George Bernard Shaw (b. 1856)
woeirua 6y ago
I think in the broader sense this is true and there are some concrete advantages to starting in the midst of a (normal) downturn. As usual there are exceptions to the rule. In particular, you should be wary of starting a business in a sector or industry in a recession that is caused by broader macroeconomic trends that may not be short lived. For example, right now I’d be extremely hesitant to start a company in the oil and gas industry. That sector has been in a recession pretty much continuously since 2014, and was in bad shape before the pandemic hit. It will likely stay depressed for a few more years. The other thing I would caution against is starting a company today based on the perceived change in the world due to Covid. As vaccines and therapies are coming online it’s becoming clear that we are likely headed for one of the best possible outcomes. A lot of people have convinced themselves that Covid has permanently changed things and I think they’re going to be shocked when the world goes pretty much back to the way it was in a year or so.
deleted 6y ago
[deleted]
buzzerbetrayed 6y ago
> If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. I've heard this repeated dozens of times, and I believe it is just circular logic. 1. The success of the startup depends on the quality of the founder. 2. The quality of the founder is determined by whether or not their startup succeeds. I think some people would argue that they aren't judging the quality of the founder by whether or not their startup succeeds. But I don't know if I buy that. If some "low quality founder" creates a billion dollar business people will just say "I mis-judged him. He's a great founder." If some "high quality founder" creates a startup that fails people will say "He just didn't have what it takes as a founder", until he eventually succeeds then they'll be back to "He was a great founder all along". In other words, every founder of a successful startup is a "great founder". But only because that is baked in to the definition, despite the implication that you're actually judging their merit as a founder in some other (mysterious) way.
- philippoi 6y ago
  I agree. I think there's such an interest in seeing the genius behind a work which actually involves the collaboration of a group to actually succeed. Just like in team sports. There are great players who are great because they won a lot of championships, had high scoring totals, etc. But in most cases, they also had the best teams. The genius lifts their collaborators up and the inverse is also true. I wonder sometimes about great players in my favorite sport and have doubts about the career outcomes of some of their peers that seems to have a lot to do with how good their teams were, as well as how fortunate they were to avoid injury, etc. There are analogies to those factors as well in business, but they don't garner as much fascination as the idea that there's one person who really makes the thing go.
  - heymijo 6y ago
    I think there's such an interest in seeing the genius behind a work which actually involves the collaboration of a group to actually succeed Walter Isaacson recognized this when he went to write his book The Innovators [0]. He intended it to be a more narrow autobiographical book like he is known for but quickly realized the technological revolution was brought about through an collaborative effort across time and space. [0] https://www.goodreads.com/book/show/21856367-the-innovators https://www.goodreads.com/book/show/21856367-the-innovators
Existenceblinks 6y ago
I'm going to make a half joke. So you want to start a software product/business, like web app? First things first, evaluate frontend technology, try a bunch of them, for a week, and lost all the vibe all together.
- Qwertious 6y ago
  "try a bunch of them, for a week, and lost all the vibe all together." Pretty sure "lost" is a typo but I can't figure out what the word was supposed to be.
omk 6y ago
I love reading Paul G's essays. I just hope someday there is a reliable RSS feed I can subscribe to.
- pedro1976 6y ago
  I am working on supporting pg's website as part of rss-proxy [0], unfortunately its quite an odd markup. [0] https://github.com/damoeb/rss-proxy https://github.com/damoeb/rss-proxy
Nacdor 6y ago
> When Microsoft and Apple were founded. > As those examples suggest, a recession may not be such a bad time to start a startup. I don't see how they suggest that at all. The fact that a couple tech unicorns managed to survive during the beginning of a major technology boom says absolutely nothing about the probability of any other startup surviving. That's like me winning the lottery on a Thursday and then saying "Always buy your lottery tickets on Thursdays!" And didn't Bill Gates come from a very wealthy, very well-connected family that could easily support him for the rest of his life if Microsoft failed? If I remember correctly, his mother was on the board of IBM and got Microsoft its first major contract for DOS.
harry8 6y ago
It is in YC's financial interests for as many people to gamble everything on as startup as possible to collect a share of as many winnings as possible. This remains true if the odds accross all startups of succeeding just halved. If you are the founder and the odds just halved it may well affect your willingness to take that risk. YC simply needs enough of its funded ventures to succeed. You aren't diversified like that. P.G.s interest are _not_ yours. Take that on board and know that it can affect P.G.s reasoning through uncoscious bias then adjust for that according to your own and /then/ it's a good article. Take it a face value at your peril.
justinzollars 6y ago
I did lose a job this year. When I was on the phone with my family I said - I could get hungry and that typically is fuel for the best startup ideas. :)

158 points by gautamsomani 6y ago

Does anyone decide not to do a startup because of abstract assumptions about a collapsing economy like this? I find people don't do it for much more realistic material reasons, eg: the economy is so bad that I've lost my job, no one is giving out loans, I don't have the capital or infrastructure. I would almost call this a straw man, but I guess there must be some people out there who make decisions this way.

H8crilA 6y ago
> I've lost my job, no one is giving out loans, I don't have the capital or infrastructure. What would anyone think a "bad economy" is if not this?
- postingpals 6y ago
  The author suggests that the primary reason people don't want to start a startup in a bad economy is that no one will invest in them or that there wont be any customers, I think more consideration should be put into the fact that it's usually just that they simply cannot start a startup, not that they are iffy about it I could be misinterpreting them, though
muzani 6y ago
It sounds like you answered your own question - people avoid doing businesses when they're not sure their products will sell, when it's harder to get loans and capital. And they link this to a bad economy. But the idea behind the article is that these are mostly untrue - it's easier to hire talent and other resources during a bad economy.
- vladimirralev 6y ago
  There is another side of this. Unemployment. Unlike 2000 or 2008, right now would be a terrible time to start a software business because jobs in software are plentiful, wages are so high. So you have to take out bigger loans with more risk and paying wages doesn't produce assets that can be put as collateral. It's a great time to find ways to utilize lower skilled labor somehow, but not for anything that needs top talent.
  - MattGaiser 6y ago
    True. Bad economy is a skillset/industry based thing. I wouldn't characterize tech workers as being in a bad economy right now.
pixelmonkey 6y ago
FWIW, this essay had an impact on me in 2008, and I started my startup in early 2009. I was working in NYC, and on Wall St (as a programmer). I was 2 years out of college, so 25 or so, and had only minimal savings and some college debt left to pay off. The "conventional wisdom" in my circle of friends was, "This is a really bad time to quit a stable job and start a small company, because the entire economy might collapse." I had nothing but evidence in front of me: from my office window one day, I could see streams of hundreds of laid off people leaving the Lehman Brothers building, with cardboard boxes of personal office items in their hands. Friends of mine who were smart and hard workers were getting laid off from their NYC jobs left and right. When I worked up the courage to quit and pursue the startup, and I announced it to my colleagues at work, quite a few of them took me aside and said, "I get that you already made this decision, but I'm really worried about you given what's going on in the economy." I think pg's essay, as well as the general mindset of YCombinator, helped me and my co-founder have the attitude of, "We'll try this, and it might fail, but if it succeeds, it'll be awesome. And if it fails, despite how bad the economy is, we can still fall back on just working our butts off to find another job." Anyway, it wasn't easy, for sure. Though we managed to get seed accelerator financing ($20K) from Dreamit Ventures in Philly in Summer 2009, we then bootstrapped for 2 years in the startup wilderness until our seed financing round of $800K in 2011. I don't think most people, young and frugal or not, would last that long on non-employer healthcare or with only consulting/freelance income to pay the bills. I wrote about that financial reality here: https://amontalenti.com/2011/04/02/not-for-the-faint-of-heart https://amontalenti.com/2011/04/02/not-for-the-faint-of-hear... Also, zooming forward to 2020, I think the current economy is much more startup friendly than 2008-2009. In the period we started in, seed financing was not very mature -- we were still living in the shadow of the 2000-2001 crash. NYC had a very small tech startup community in 2008-2009. The 2008 crash, being a "financial" crisis, also depressed venture capital investing at the same time. By contrast, this Covid-19 recession has split investors, where retail/consumer stocks are losing money, but tech stocks are growing by leaps and bounds, and many investors are now trained by the success of low valuation seed investments from the 2008-2010 era, which eventually led to IPOs and exits in our recent tech bull market. So, if I weren't still running my company and if I were working for a BigCo like I was in 2008, I would definitely start a company now, because there's really no downside whatsoever. That is, no downside except the opportunity cost of your salaried job. (One other counterintuitive aspect, though, is that, perhaps, starting a startup now is such an obvious decision that you'll be competing with a lot of other seed stage founders, assuming they are as rational as I describe here :-) ...) Also, about a year ago I provided a little advice for how to bootstrap your company if you do get started and you are not of any means. Hope it helps someone: https://news.ycombinator.com/item?id=21506297 https://news.ycombinator.com/item?id=21506297

xwdv 6y ago

We haven’t really had a bad economy for tech in the past 10 years. Ever since the mobile App Stores opened up and cloud computing began to take off, tech entrepreneurship entered a boom cycle and it’s been eternal September since then. The ease of getting investment throughout the years has varied, notably the hardest point to raise money was around the middle of the decade, but for the most part if you have not made a lot of money from tech in the past 10 years you have done something wrong.

ackbar03 6y ago
You make it sound almost easy... I'm sure the startup scene is still littered with those that didn't quite make it
- xwdv 6y ago
  Well yes that’s always been true, but has nothing to do with the economy.
  - parksy 6y ago
    I agree that "the economy" has relatively little to do with the ability for "a" startup to succeed, given the right startup, with the right technology, in the right political environment, in the right social environment... But further up you basically said "if you haven't made a lot of money in tech in the last 10 years then you're doing something wrong" Which is a tautology, independent of how you define success. If you don't succeed, you did something wrong. But define "a lot of money" Is a "lot of money" a six figure personal income? A six figure income is easy to get. Just work hard and be good at your job for a few years, and don't be afraid to negotiate. Set your terms, if you're valuable they'll pay for your time. Or are we talking on the scale of companies? I helped build up a small garage operation into a multi-million dollar turnover enterprise - is that a lot of money? Probably to some people, but not compared to the multi-billion dollar companies. Some random nobody made a website that lets people post 140 characters and we all lol'ed and now it's worth more than twenty billion dollars. There were millions of web forums experimenting with different modes of communication. Did everyone who tried to start a social media website at the same time as twitter do "something wrong" because they didn't understand the magic formula? If you're talking on a personal level, then yes, making money in "tech" is easy. I've made "a lot" of money in "tech." I live more comfortably than my peers. But I would not say it's been easy, or it's just been some fluke.

newbie578 6y ago

"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill.

deleted 6y ago

[deleted]

Dumblydorr 6y ago

Do other folks agree with PG that the economy is a rounding error compared to the quality of the founders? To me, it sounds like a hammer saying all that matters is the nail, not the substrate you're attempting to pierce. I think it's his job to believe in the "great man" theory, and to not credit circumstances, luck, etc. PG is in YC and their whole raison d'etre is attempting to choose great founders. Is there a statistical analysis of YC and PG which shows they choose effectively?

austincheney 6y ago
Some food for thought is that it takes time for a new business to achieve market penetration and that span of time is irrespective of and orthogonal to economic health.
- an_opabinia 6y ago
  If you're making software, you can achieve market penetration in an afternoon by signing a deal to bundle your app on a phone or social media platform.
  - alisonkisk 6y ago
    For almost everyome, that's not an option.
  - ako 6y ago
    That signature usually takes years of preparation and negotiation...
  - SpicyLemonZest 6y ago
    This is relevant to only a small segment of the market. A substantial majority of software development, even VC-funded software development, isn't something that can meaningfully be sold as a consumer-facing phone app.
tomhoward 6y ago
> Do other folks agree with PG that the economy is a rounding error compared to the quality of the founders? When I was in YC (in 2009, a few months after this essay was published), I remember PG saying that plenty of VCs, (specifically Marc Andreessen, as an example), pay just as much/more attention to market/macro conditions as they do to founder talent, but added that this is a luxury Andreessen has when all the very best companies want to be funded by Andreessen, so he can pick companies that have both great founders and favourable market conditions. > I think it's his job to believe in the "great man" theory, and to not credit circumstances, luck, etc PG acknowledges often that luck plays a critical role in success. But the point is that weak founders with all the luck in the world won't achieve much, whereas great founders with only a little bit of luck can be hugely successful. He also points out that it's a long journey, much longer than a downturn will last, so better to start now when you're inspired, especially when the downturn can bring favourable conditions (like cheaper talent, rent, services, etc). YC is also quite happy to back founders a second time. Off the top of my head, Stripe, Twitch and Cruise were all founded by 2nd or 3rd-time founders. So YC's approach is to find founders with potential, get them into their network, then support them for as long as they need to find success. > Is there a statistical analysis of YC and PG which shows they choose effectively? Some people have tried to evaluate this quantitively or qualitatively, but most miss the point, or can't evaluate it correctly without knowing YC's financials, which nobody outside YC management and their investors knows. YC's approach isn't to try to "choose" only the good founders. Their approach is to cast a very wide net, to invest in a huge number of companies including some very crazy-looking ones, knowing that only a handful will win big but that will yield big enough returns to more than pay for all the losses. So the question is not whether they chose good founders and rejected bad ones, but whether they backed a big enough and broad enough pool of companies to get a significant number of huge winners - like, say, Dropbox, Airbnb, Twitch, Segment, Cruise, Coinbase, Instacart, Flexport, Brex. Answer: yes, evidently.

justiceforsaas 6y ago

From reading the article, the main reason seems like having (way) less competition. Especially with cheaper acquisition channels (I've been doing research [1] on this topic for 2+ years and noticed this trend), where you have less businesses advertise on Facebook/Google, bringing CPC costs down. I wonder if the "law of shitty clickthroughts" [2] applies here as well. What if you have a huge # of founders reading the advice; acting on it and starting new businesses just because Paul Graham told them so? Then starting a startup in a bad economy would no longer be an advantage. Somewhere in May Gumroad founder tweeted that they have record numbers of people signing up, and that may be an early sign that thing sort of thing is already happening. [1] https://firstpayingusers.com https://firstpayingusers.com [2] https://andrewchen.co/the-law-of-shitty-clickthroughs/ https://andrewchen.co/the-law-of-shitty-clickthroughs/

asadkn 6y ago
Surely that's one of the many factors. The opposite is also true. For instance, pre-election, for some niches US FB ads bids were totally out of whack. Or the fact that it's been high ever since the COVID caused eCommerce boom, globally.

amelius 6y ago

But the digital side of the economy is actually booming right now.

mathattack 6y ago

I think the essence of this is taelent is more important than capital. Better to start something when talent is plentiful and money scarce than the other way around.

xoxoy 6y ago

In this market, the lesson is to start a startup when rates are 0 and trillions have been pumped into financial markets due to QE infinity. Growth at all cost is being rewarded handsomely. If you’re a tech company that can grow, no investor will care if you’re burning money while doing it.

bnonhacker 6y ago
Lol. Now you're getting to the core of macroeconomics within our existing infrastructure. The Fed is cutting (again!) investors are chilling (again!). I don't want to burn money with some sort of hopeful expectation of profit in the future, but goodness gracious money is so friggen cheap right now.

known 6y ago

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the #unreasonable man" --George Bernard Shaw (b. 1856)

woeirua 6y ago

I think in the broader sense this is true and there are some concrete advantages to starting in the midst of a (normal) downturn. As usual there are exceptions to the rule. In particular, you should be wary of starting a business in a sector or industry in a recession that is caused by broader macroeconomic trends that may not be short lived. For example, right now I’d be extremely hesitant to start a company in the oil and gas industry. That sector has been in a recession pretty much continuously since 2014, and was in bad shape before the pandemic hit. It will likely stay depressed for a few more years. The other thing I would caution against is starting a company today based on the perceived change in the world due to Covid. As vaccines and therapies are coming online it’s becoming clear that we are likely headed for one of the best possible outcomes. A lot of people have convinced themselves that Covid has permanently changed things and I think they’re going to be shocked when the world goes pretty much back to the way it was in a year or so.

deleted 6y ago

[deleted]

buzzerbetrayed 6y ago

> If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. I've heard this repeated dozens of times, and I believe it is just circular logic. 1. The success of the startup depends on the quality of the founder. 2. The quality of the founder is determined by whether or not their startup succeeds. I think some people would argue that they aren't judging the quality of the founder by whether or not their startup succeeds. But I don't know if I buy that. If some "low quality founder" creates a billion dollar business people will just say "I mis-judged him. He's a great founder." If some "high quality founder" creates a startup that fails people will say "He just didn't have what it takes as a founder", until he eventually succeeds then they'll be back to "He was a great founder all along". In other words, every founder of a successful startup is a "great founder". But only because that is baked in to the definition, despite the implication that you're actually judging their merit as a founder in some other (mysterious) way.

philippoi 6y ago
I agree. I think there's such an interest in seeing the genius behind a work which actually involves the collaboration of a group to actually succeed. Just like in team sports. There are great players who are great because they won a lot of championships, had high scoring totals, etc. But in most cases, they also had the best teams. The genius lifts their collaborators up and the inverse is also true. I wonder sometimes about great players in my favorite sport and have doubts about the career outcomes of some of their peers that seems to have a lot to do with how good their teams were, as well as how fortunate they were to avoid injury, etc. There are analogies to those factors as well in business, but they don't garner as much fascination as the idea that there's one person who really makes the thing go.
- heymijo 6y ago
  I think there's such an interest in seeing the genius behind a work which actually involves the collaboration of a group to actually succeed Walter Isaacson recognized this when he went to write his book The Innovators [0]. He intended it to be a more narrow autobiographical book like he is known for but quickly realized the technological revolution was brought about through an collaborative effort across time and space. [0] https://www.goodreads.com/book/show/21856367-the-innovators https://www.goodreads.com/book/show/21856367-the-innovators

Existenceblinks 6y ago

I'm going to make a half joke. So you want to start a software product/business, like web app? First things first, evaluate frontend technology, try a bunch of them, for a week, and lost all the vibe all together.

Qwertious 6y ago
"try a bunch of them, for a week, and lost all the vibe all together." Pretty sure "lost" is a typo but I can't figure out what the word was supposed to be.

omk 6y ago

I love reading Paul G's essays. I just hope someday there is a reliable RSS feed I can subscribe to.

pedro1976 6y ago
I am working on supporting pg's website as part of rss-proxy [0], unfortunately its quite an odd markup. [0] https://github.com/damoeb/rss-proxy https://github.com/damoeb/rss-proxy

Nacdor 6y ago

> When Microsoft and Apple were founded. > As those examples suggest, a recession may not be such a bad time to start a startup. I don't see how they suggest that at all. The fact that a couple tech unicorns managed to survive during the beginning of a major technology boom says absolutely nothing about the probability of any other startup surviving. That's like me winning the lottery on a Thursday and then saying "Always buy your lottery tickets on Thursdays!" And didn't Bill Gates come from a very wealthy, very well-connected family that could easily support him for the rest of his life if Microsoft failed? If I remember correctly, his mother was on the board of IBM and got Microsoft its first major contract for DOS.

harry8 6y ago

It is in YC's financial interests for as many people to gamble everything on as startup as possible to collect a share of as many winnings as possible. This remains true if the odds accross all startups of succeeding just halved. If you are the founder and the odds just halved it may well affect your willingness to take that risk. YC simply needs enough of its funded ventures to succeed. You aren't diversified like that. P.G.s interest are _not_ yours. Take that on board and know that it can affect P.G.s reasoning through uncoscious bias then adjust for that according to your own and /then/ it's a good article. Take it a face value at your peril.

justinzollars 6y ago

I did lose a job this year. When I was on the phone with my family I said - I could get hungry and that typically is fuel for the best startup ideas. :)