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Why to start a startup in a bad economy (2008)

392 points by dbrereton 4y ago

andjelam990 4y ago
There is always a new wave of opportunities arising from a bad economy. One should just dare to take the plunge.
082349872349872 4y ago
> Another advantage of bad times is that there's less competition.
- slackfan 4y ago
  There definitely is. People are running around chicken-litteling like the sky is falling. In the meantime, I'm bootstrapping a services company because the person that provides the megaphones while everybody is screaming at the sky is the one who makes the money. It's not just less competition, it's the extant players in any market assuming there is less competition and getting blindsided by upstarts.
gnicholas 4y ago
> For years I've been telling founders that the surest route to success is to be the cockroaches of the corporate world. This has always seemed incompatible with the VC model, which involves raising a ton of money, putting the company on an 18 month clock, spending the money so you can hit key milestones, and then raising even more money when the clock runs out. I have heard of a few companies that were on the VC track, raised money, and stayed frugal. But my impression is that investors want to see you swing for the fences, which involves spending all the money they invested, and fast. How common is it for startups to buck this trend?
- jmathai 4y ago
  You shouldn't need VC to start (maybe ever) and probably shouldn't be thinking about it until you've got some traction and customer validation - which can take some time.
  - actionfromafar 4y ago
    It depends on what you want to do. Some things can take too much time without investors, like building new kinds of nuclear reactors.
- danpalmer 4y ago
  Uncommon. You're right. This advice just doesn't work for most startups. If you're pre-seed stage, in Silicon Valley, and the founders have a "good" background (the right companies, knowing the right people, etc), then sure you might raise a small round. If you're any later than that, or anywhere else in the world, you need results, and results don't come as easily in a recession.
  - fortuealex 4y ago
    Eh, it depends. Depending on your segment it may be easier to sell products in a recession. Tools which cut cost and are below a certain monthly spend actually become easier. Hiring is MUCH MUCH easier. Raising money is harder.
- dahfizz 4y ago
  Once you've taken VC money, its growth at all costs. Where "growth" is defined by inflating valuation, not necessarily "real" growth of the company. If you want to be frugal and grow responsibly, you have to do it without VC money.
  - gnicholas 4y ago
    So is this something PG wrote before YC was so deep in the VC ecosystem, and that's why it makes sense for him to have said? What would he have advised a startup to do back then, after raising a $2M round? Would he have told them to keep their burn rate low enough to stay default-alive? What would he say now?
    - waprin 4y ago
      If you compare the pg essays from 2000-2010 to 2010-now, there's a very noticeable shift in tone on this exact topic, even moreso if you zoom out of pg and consider YC messaging then and now. Tons of old pg essays sound straight from something like Indie Hackers or Microconf with their "avoid raising VC money" angle. He even literally predicts the death of VC in web SaaS, saying "investors aren't worth the trouble": http://www.paulgraham.com/divergence.html http://www.paulgraham.com/divergence.html . His YC cofounder Jessica Livingston wrote a book "Founders at Work" and about half the founders in the book are bootstrappers (DHH, Joel Spolosky, Craigslist). The other half are mostly founders recounting horror stories of interacting with VCs. Compare that to modern YC where there are videos where they say _everyone_ should consider applying to YC with the _only_ exception being people that want to bootstrap. Modern Startup School says: "Without startup funding the vast majority of startups will die." (https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising https://www.ycombinator.com/library/4A-a-guide-to-seed-fundr...). There's something very important to note which is that YC did not change the deal from 125k for 7% to 500k for 7%. It's still 125k for 7% plus 375k worth of equity on your next raise. Which only makes sense if there is a next raise. So obviously they discourage bootstrapping since their whole model has been built around you raising at least one more round after YC. Seems a pretty simple case of "follow the incentives." YC basically became more of a traditional VC over time. And I think pg was still closer to a founder in the early 2000s, from a founder perspective, it's more of a set of tradeoffs whether you should bootstrap or seek VC. But from a VC's perspective, obviously they want you to seek VC since they can't get involved if you bootstrap and bootstrapped startups won't get the outsized returns they need. My opinion is, pg is a smart guy, there's still a ton of wisdom to learn from in his essays, but as with every other person on the planet, consider their motivation and incentives for telling you what they're telling you.
- babyshake 4y ago
  You might be able to raise seed money from VCs and not swing for the fences. If they are good VCs, they aren't depending on their seed investments to all necessarily pan out within a few years, if there is good reason to be more frugal. Series A+ is a different story.
- tempsy 4y ago
  Budgeting for 18 months of runway doesn't mean "waste money on frivolous things as fast as possible"
  - mach1ne 4y ago
    Not on all cases, but I personally know one startup where the VC told the investors to hire as many people as possible, regardless of whether they were actually needed. This anecdote seems to ring true with what I hear elsewhere.
    - slap_shot 4y ago
      I think you might have conflated a few things: No VC is telling companies to just to wastefully hire people they don't need. That wastes money and creates friction and bigger problems inside of a company. They do tell you to hire aggressively, and you often present them with a model that shows _how_ you will use the money you raise, and sometimes you hire too many people on accident. But no VC is pounding their fists on the table telling founders to explicitly go hire people that aren't needed. That's directly against the interest of both the founder and the investor.
- kneebonian 4y ago
  That was the way in the days of negative interest rates, and cheap and easy money. We are headed for the greatest contraction of capital since the great depression soon[1], and that will no longer occur. 1. According to Zeihan, who points out that with the retirement of the boomers their 401k accounts that have been funding all this money are going to get cashed out and withdrawn, reducing the amount of money for lending, leading to an overall capital contraction.
- varelse 4y ago
  [dead]
- reidjs 4y ago
  What is the difference between a startup and a business nowadays? I can start a business without an investment round, but not a startup? Is it a startup if it involves tech, a business if not? What if they use SOME tech, but not necessarily innovative tech? Or is this one of those 'you know it when you see it' kind of things? Has the term startup become a buzzword like "optimize" or "synergy"? Seriously asking, not being snarky. edit: thank you, for the responses that clarifiesthe distinction
  - tiledjinn 4y ago
    Scale and speed of scale. Planning for fast growth. Most small businesses do not plan to grow very quickly.
    - praptak 4y ago
      Also the dual is true - bigger risk of failure is acceptable. Normal business investor typically cares between bankruptcy and having merely poor RoI. Startup incubators would rather have their 999 startups go broke and the 1000th become "next Google" than have average RoI on all 1000.
  - gnicholas 4y ago
    According to PG, a startup is a company designed to grow fast. [1] Again, this is a bit at odds with the advice to be frugal. It's not that you can't do both, it's that you have to strike a balance because they are in many ways at the opposite ends of a spectrum. 1: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
    - throwaway29812 4y ago
      Right, and most often that growth is tied to a digital product that can scale to infinity with little additional capital needed.
  - gopalv 4y ago
    > I can start a business without an investment round, but not a startup? The answer around me seems to be that a startup comes out of an idea without the capital worked out. That the equity they have to offer is worth nothing, unless they execute the plan with money they don't have. If you have the capital worked out, you can go ahead into the business phase of the process right away, where profitability is king and there's no plan needed to answer the "how to raise more?" question. A lot of what we associate with startups is the justifications towards raising and a lot of what we see from a "business" is geared towards margins. For instance, better margins by extracting more profits on a lower revenue is better for one, but looks bad for the other.
- jrvarela56 4y ago
  I've heard more startups taking this route after the new YC deal. 500k buys a lot of ramen.
  - gnicholas 4y ago
    Yeah, I know of some that have pivoted at least once and are still alive and kicking. I wonder how YC thought through the costs/benefits of increasing the invested amount so much.
    - jrvarela56 4y ago
      I would assume they did by using their data on how companies progressed, raised money, hired and died/exited.
- zachthewf 4y ago
  The difference is pre versus post PMF. When you start your startup, you are by definition pre-PMF. There is only a weak relationship between what you spend and what comes out the other side. Once you're post-PMF this changes and you may need to jack up the spending in order to grow as quickly as possible. Lots of companies screw this up and scale up spending when they're pre-PMF. In 2021 those companies could keep raising, but now they're probably going to die.
  - gnicholas 4y ago
    Pre-PMF companies need to experiment and nail down their PMF. So what should they be spending on, and what shouldn't they be spending on? I assume conference booths fall into the latter category. Is there anything other than product dev and design that falls into the former? Where does marketing land, in order to make sure enough people are in the funnel to be able to meaningfully experiment and gather data?
    - wefarrell 4y ago
      Relationship building is pretty important pre PMF, especially for industries with larger contracts and longer sales cycles.
    - zachthewf 4y ago
      IMO sales and marketing expenses should be minimal—essentially limited to testing different channels to see if they work. I'm sure this depends on the business but I'd say if you need a lot of marketing spend in order to experiment it's a sign that you may not be enough of an expert on where to find your customers and you either need to find a way to gain that expertise or pivot to an area where you already have it.
- a_c 4y ago
  IMO start up or not depends on growth, growth in terms of learning the product/industry. Many VC funded companies achieve growth by throwing money on to problem, which works. But if you manage to out learn your competitors while still staying alive, essentially being cockroach, it is still start up.
- O__________O 4y ago
  VC care about three things: percentage of ownership, growth, and a liquidity event. If a startup doesn’t need the capital to grow, they’re not likely to take on VC funds. If they do, the startup will need to sell equity, which based on funding round have norms based on equity given for capital received. If the startup is frugal with the capital, but still manages to hit growth targets and reach an acceptable liquidity event for the VC, then any unspent capital would only add to the valuation of the company. Is that common, no, but it does happen; if it does, generally means founders gave up equity unnecessarily. Regardless, VC measure ROI on capital invested in the startup not if the capital they invested was spent by the startup.
- im_down_w_otp 4y ago
  We've bucked this trend at auxon.io, and for the large part it has been stalwartly supported by our investors. Quality pre-seed and seed stage investors seem to have a different mantra than is being expressed here. Though I've certainly encountered investors who typify the criticism here. However, what I heard a lot of from our investors is something more akin to, "The biggest killer of startups is premature scale." Somewhat amusingly now that the capital environment has shifted dramatically, we have investors coming around who used to give us side-eye for being discerning and fastidious (and also our investing resources early to acquire government & adjacent customers), but now they treat us like secret geniuses or something. Because we have a reasonably stable baseline to build from. We're aligned with key markets that continue to spend money even during down markets and recessions. Not to mention we're also not in crisis having to massively disrupt progress and morale by laying off a bunch of people (in fact we're hiring, though still judiciously of course), which is HUGE since team and execution is everything.
- dheera 4y ago
  You can also just not take VC money. There are a couple of ways to do this: (a) Work at a big co, save a boatload of money, quit after a few years, and then fund it yourself without the bullshit coffee chats* and 18-month clock. (b) Work somewhere that has good work-life balance, pays you enough, is okay with you spending your free time doing something that doesn't compete with the company, and then build it on the side until it makes enough money to replace your day job, and only then quit your day job. * There are good VCs out there, but 95% of VCs will waste your time, and you'll have to wade through them in your search for funding. The amount of coffee chats you'll go through will literally destroy your company because you won't have time to do real work.
- jm20 4y ago
  This is easy enough to understand when you decouple “success” vs “VC success”. If you survive as a business long enough you’ll be successful almost by default. It might not be the next Facebook, but it should net you a nice life. However, a long-lived, yet non-home-run business is actually a negative in a VC portfolio. Because of the nature of VC, they need big wins to give returns to their fund investors. Their model intentionally decreases average success probability for a business as a filtering mechanism to find big wins as quickly as possible, so they can provide those returns to their own investors on an acceptable timeline.
- dang 4y ago
  Scott and I were part of the cockroach batch (W09). There's a (little) bit more detail here: https://news.ycombinator.com/item?id=25382902 https://news.ycombinator.com/item?id=25382902
- majani 4y ago
  You can push back in the early stages before >50% board dilution (and this is who pg assumes is his audience), but typically founders are very willing participants in all the spending
tempsy 4y ago
Well the biggest difference is that the economy was "bad" then but central governments/banks were accommodating. It's "bad" now because central banks are actively making capital more expensive, which makes it harder to raise money for a speculative bet.
- tootie 4y ago
  I mean isn't even "bad" right now at all by most measures. Employment is still very strong, growth is slowed, but not stopped. Only inflation is elevated. The two things that incentivize starting a business in a recession are low rates (more VC money available) and high unemployment (cheaper, freer labor) and we have neither of those. Even after dumping 100K or so engineers on the market, that is barely enough to soak up all the undersupply of the past 5 years.
- fexecve 4y ago
  Then you just need to find an angel investor. The capital has to go somewhere. The wealthy aren't just going to leave their money in publicly-traded stocks, they want some risk in their portfolio.
- teeray 4y ago
  If there is true intrinsic value in the company’s offering, I wonder if there’s opportunity for fully bootstrapped startups to thrive. Maybe the growth isn’t explosive, but it might be more sustainable.
  - tempsy 4y ago
    I mean it will be harder to raise capital extensive seed rounds but i'm sure small seed rounds will still be fine. As in I would be really shocked to see a new Uber for X or grocery delivery startup raise tens of millions right now, but yes small teams building something that isn't very capital intensive will likely still be able to raise money.
- Apocryphon 4y ago
  There's a theory that I've seen on HN: in the event of a civilization-destroying apocalypse, future civilizations will find it incredibly harder to industrialize, because our current society has used up all of the cheap energy supplies and easy to extract mineral resources. I wonder if that is applicable here as a metaphor.
guessbest 4y ago
Not really sure how this advice is still relevant since Facebook with its own app store model helped save the tech industry in 2007 from the downturn like the one in 2001-3. The next big thing appears to be AI (not VR), but I don't really see how it can really compete with that historic low cost startup. What would a MVP AI even look like? Would it only be a good AI part of the time? We already have that. Try using Siri. > That was the task for some Stanford students in the fall of 2007, in what became known here as the “Facebook Class.” > The students ended up getting millions of users for free apps that they designed to run on Facebook. And, as advertising rolled in, some of those students started making far more money than their professors. > “Everything was happening so fast,” recalls Joachim De Lombaert, now 23. His team’s app netted $3,000 a day and morphed into a company that later sold for a six-figure sum. > Early on, the Facebook Class became a microcosm of Silicon Valley. Working in teams of three, the 75 students created apps that collectively had 16 million users in just 10 weeks. https://www.nytimes.com/2011/05/08/technology/08class.html https://www.nytimes.com/2011/05/08/technology/08class.html
- Apocryphon 4y ago
  And it's astounding how much Facebook apps have been forgotten, with Meta's neglect and abandonment of their own platform. Not that it was a technology with an extended lifespan anyway, users were only going to stomach endless notifications from FarmVille and Mafia Wars for so long.
  - alex_c 4y ago
    I wouldn't say Facebook apps were forgotten as much as actively suppressed by Facebook after a certain point in time. In the early days of the platform app developers had a huge amount of freedom in terms of accessing users' social graphs, pushing notifications to timelines, and so on. It made it incredibly easy to build a viral loop and push out an app that spread like wildfire. Obvious downsides to that - big privacy issues, and annoying users with endless notifications like you said. Facebook had to start restricting what app developers could do, and once that happened it became much harder for apps to get traction.
paulpauper 4y ago
2008 was a huge outlier though. This was the start of the hugely lucrative cloud, app-payment, SAS, smartphone, 4g, app-store, social networking, mobile confluence. Also, low interest rates forever. A typical bad economy is not like 2008. But sound advice
- ekhaliul 4y ago
  In 2008 startups actually could afford to have a garage to start. Not anymore ...
  - safety1st 4y ago
    But it's vastly easier now to start something that's totally remote.
  - quickthrower2 4y ago
    Depends on the location.
  - nrp 4y ago
    It’s probably cheaper now to get a sublease on commercial real estate or a lease in a class B/C building in most parts of the US than renting the equivalent sized residential garage. It certainly is in SF at least.
    - Breza 4y ago
      I don't know much about commercial real estate, so I checked LoopNet for my area. If you're not picky about the neighborhood, I'm surprised how cheaply you can get a garage-sized space.
- sowbug 4y ago
  Perhaps that long list of innovations has something to do with the startups founded in 2008.
- j45 4y ago
  Going back one more outlier to the dot com boom - a gap then was virtually no one was online. 2023 feels a little like the start of the start with shades of 2008.
Patrol8394 4y ago
VC has unfortunately pushed forward a model that rarely helped building sustainable businesses, but rather grow fast, build hype, IPO, cash out move on model. It definitely benefitted few at the expense of many. People have accepted to work tireless hours for peanuts and paper money with the promise they will become rich: this rarely happen. Don't buy the hype. It is more the exception than the rule. Many multi billion dollar VC funded business are still not profitable and often don't have a path to profitability.
- blacksoil 4y ago
  > that rarely helped building sustainable businesses I think this falls under the founders' shoulders. Some founders tried to "hack" their way to "fake out" large growth that they themselves know are not sustainable, just so they can fool the VCs they are raising money from.
- UncleOxidant 4y ago
  Both of the companies cited as examples early on the the article, Microsoft and Apple were basically started by a couple of guys in a garage (or dorm room). VC wasn't involved until later stages. Probably most of their early funding came from parents. There are plenty of things that don't need VC funding to get going - they can either be self-funded or with loans from relatives in the early stages. At some point the decision can be made as to whether VC is needed to expand or if it's just fine to stay small. In the 90s my wife worked at a software company that makes scientific imaging software. They have a nice niche and continue to sell their software into academic and research labs. They never had more than about 7 employees - now about 5. It's a decent business that never needed VC funding and has gone for about 30 years now.
  - dopeboy 4y ago
    > Probably most of their early funding came from parents. Perhaps VC is an equalizer here. It makes it possible for founders (like me) to start the next Microsoft without having to rely on privilege. I understand allocation of VC resources has its own privilege issues but I'll take that slightly more accessible world over a world where your family determines the outcome.
josh_carterPDX 4y ago
"But it doesn't matter much either way. It's the people that matter. And for a given set of people working on a given technology, the time to act is always now." So agree with this sentiment. It matters less about when you start a company. It's how you execute. You might be building something very timely, but if you can't scale then it hardly matters whether there's a recession or not.
- roflyear 4y ago
  And scale doesn't mean technology.
jyu 4y ago
It's an open secret that investors get 20% of the upside for 1% of the work of founders. Parrot enough plausible nonsense to impressionable people to get favorable investment terms and you're well on your way to monetizing your position as a newly minted thought leader. Nice work, if you can stomach it.
- bloodyplonker22 4y ago
  It's also an "open secret" that investors lose their investment when the founder fails. In addition, more than 90% of VCs are money losers, overall. Founders are taking the risk with their time, investors are taking risk with their money.
  - rebelos 4y ago
    Investors are taking a risk with other peoples' money. And their management fees usually cover very juicy base compensation, so their downside risk is minimal.
    - gowld 4y ago
      Those fees don't last long if they get bad returns.
      - metacritic12 4y ago
        "What do you call this thread?" "Capitalism!"
      - fisf 4y ago
        Which is why fast growth is so important. It's irrelevant to some degree if this growth is real (driven by a better product), or inflated (by offering steep discounts, ads, marketing, etc). It looks good on paper, and allows raising the next round. This is of course an order of magnitude bigger and demands even more growth. VCs look like geniuses in that case. Value of fund goes up, fees go up. Until they don't.
- 4y ago
jll29 4y ago
I would say whether PG is right or not depends on how much initial funding the founders have and what they're trying to build. If you have not a lot of savings to live from, and your runway is therefore short, you'd be stupid to quid your day job and launch your startup: your small savings will quickly be used up and that'll be the end, because you won't be able to raise a round. If, however, you have substantial savings to deploy so that you can get far enough to afford to pivot 1-2 times until you find product-market fit, then PG is right and taking the plunge is the right thing, regardless of business environment. If your plan relies on customers, then it also depends on whether your product or service is aimed at reducing customer cost or has value in a different way. To exemplify the above: I claim "You can/should start something like AirBnb in a bad economy, but not Google."
- randomdata 4y ago
  > I claim "You can/should start something like AirBnb in a bad economy, but not Google." Yet AirBnB was born into a good economy (that, in fairness, was on the cusp of going quite bad), while Google was born into an economy that was just starting to recover from being bad. Not when you start but when your product is ready to ship may be more significant. By the time Google was ready for prime time we were in a good economy. When AirBnB was ready for prime time, we were in a bad economy. Skate where the puck is going, as they say.
  - boulos 4y ago
    > while Google was born into an economy that was just starting to recover from being bad. Huh? Google was started in the mid to late 90s (incorporated 1998 but started earlier at Stanford). It was quite literally during the peak years of the dot com bubble and the US economy was doing fantastically well. The Clinton administration was even trying to draw up plans for what to do if the national debt was paid off... Are you thinking about when Google went public in 2004?
    - randomdata 4y ago
      Work on Google started in 1996. While things weren't bad per se, we were still working through recovery from the early 90s recession. It wasn't bad but it wasn't good either. By 1998, when Google was ready to ship, things were quite good. If, in an alternate universe, work on Google had started in 1998 when the economy was strong and didn't ship until 2000, things could have been quite different. It was no doubt important that they were ready to ship when the economy was at its peak. That means starting when things aren't so good.
atlgator 4y ago
We're not in the same market as this article. Typically, in a bad economy salary expectations are lower making a startup launch more "affordable." Unfortunately, that is not the case currently with ongoing inflation. Salary expectations continue to increase on average, not decrease.
- blacksoil 4y ago
  > Salary expectations continue to increase on average, not decrease I would argue though that tech salaries are highly overpriced right now. A lot of software engineers in the valley should be able to live quite comfortable life even with 50% pay cuts.
  - hello_moto 4y ago
    > A lot of software engineers in the valley should be able to live quite comfortable life even with 50% pay cuts Show us the math, please. Their stock is down by 50-70%. Their base is not that high compare to the insane rent.
smcl 4y ago
Please remember that PG is a financially very secure person, who is in the business of getting people on board with YC and committing to throw themselves 100% into tech companies that will individually more than likely fail. If PG says "you should start a startup in a bad economy" it's simply a clever sales pitch, a spin on the current circumstances. Back in 2008 when this was posted it was presumably in response to the Global Financial Crisis (or "Credit Crunch" in the UK), I'm guessing it's being posted again due to the recent layoffs. It may be the right time for you to take the plunge, but you should be reading this article with a clear head and remember that this is not an old friend giving you some sage advice, but someone who is incentivised to get you to take risks on their behalf.
- jrockway 4y ago
  Yeah. The alternative is to chill out at your current job and be able to pay your mortgage, and then start a startup when money is raining from the sky like it was in 2021. It's cyclical. Tech isn't dead forever, and what's a good idea today will still be a good idea in a couple years. You'll also be a couple years wiser, which is never bad.
  - volkk 4y ago
    or, someone will simply start your idea (assuming it's original and good) and be first to market. lots more nuances around first to market, but PG has a point. there's no right answer and it's all personal, but if you do have an awesome idea, and it makes sense financially for you, then there's no point in waiting X years. you're just throwing those years out. worst case, what, you get rejected from funding because of a grim financial future? it's still extremely valuable spending that time building your project and getting that awesome experience of pitching/getting rejected. there's always an optimistic take to everything and a pessimistic one. if you're always taking the wait and see approach, chances are you're not going to do anything later, either. be somebody who does things and doesn't just sit around dreaming and waiting (like me)
    - TruthShare 4y ago
clpm4j 4y ago
Some people seem to be overthinking this by a long shot. If you have a company you want to build, then it's always the right time to start. The greater economy will always have influence both positive and negative. But considering this, it's probably better to start in a "bad economy" than a "good economy" assuming it's a strong business idea that you can keep alive and grow until the economy becomes "good" again, and then you can exit into the good environment rather than starting when things are rosy and wanting/needing to exit when things inevitably turn south again.
roberttod 4y ago
Taking this with a pinch of salt given the nature of our current situation vs. 2008. > Technology progresses more or less independently of the stock market. Progress could be defined in many ways, but sure as hell there is less money in the tech sector, and funding is very difficult right now as far as I understand. I do agree with the sentiment that the market shouldn't affect your timing if it can be avoided, but I wouldn't expect it to be very easy to start something capital intensive with a long road to profit right now...
fortenforge 4y ago
Does PG ever think it's a bad time to start a startup?
- deleted 4y ago
  [deleted]
nickdothutton 4y ago
The single best reason I'd give, for why it's a good time to start a startup in a downturn, is that it's all signal. There's little or no noise. No noise from buyers who are just tyre kickers, or who buy a little but dont truly adopt, even from VCs who might at other times waste a lot of your time.
ttul 4y ago
The runway from nothing to something is about ten years on average. If you start when times are hot, you’re closer to the next reset event and more likely to experience the reset before you exit. If you start when things are dead, you have the most time to figure things out and exit when things are hopefully not dead yet.
soapspudster 4y ago
I'm of the opinion that the right time is always now. However, when things are great, large wealthy companies over-hire and over-pay everyone. It sedates good employees to stay and be comfortable. When things hit the fan, the larger and fatter a company is, the more likely they will throw the baby out with the bathwater. They go into ultra-stupid cost-cutting mode and that is a great opportunity to hire some of the best dormant employees you'll ever meet. Since the best determinant of a company's success is the makeup of the team, I'd say when the economy is bad is the best time to start a company. You'll land some of the best talent and that'll give you the best chances of success.
emrah 4y ago
A good companion article to read in tandem (also by Paul Graham): http://www.paulgraham.com/notnot.html http://www.paulgraham.com/notnot.html
college_physics 4y ago
Are we in a bad economy? Bitcoin market cap is 400bln. OpenAI eyes 30bln valuation etc. etc. Business cycles, timing the downturn and all that, does this Warren Buffet type "sound contrarian advice" apply also in Alice in Wonderland economies?
- alfalfasprout 4y ago
  Just because bitcoin and OpenAI have nontrivial value doesn't mean we're not in a bad economy. Inflation is rampant still, even wealthier folks are cutting back, and interest rate hikes are destroying markets. Keep in mind markets always lead the broader economy by at least several months. They'll crash well before earnings consistently start looking bad and recover before you see earnings recover. US interest rate hikes are also having an outsized effect on other countries vs. the domestic economy.
  - rgmerk 4y ago
    Things might be bad in Silicon Valley right now but the broader economy is still chugging along pretty well.
  - college_physics 4y ago
    its a very mixed bag. e.g., mortgage delinquency rates near historical lows [0]. I picked those valuation examples to illustrate that 1) there is a lot of discretionary "investment" wealth around and 2) people are still clinging to the various "disruption" narratives. obviously inflation is real and the new rates regime is real but it feels that people are pre-emptively trying to cool things down, build some buffers etc. rather than an already realized economic malaise. the implication for the "time your startup" narrative of OP is that it is even less clearcut of a decision than if it was a real (let alone deep) recession. [0] https://fred.stlouisfed.org/series/DRSFRMACBS https://fred.stlouisfed.org/series/DRSFRMACBS
zurtri 4y ago
I launched my startup May 1st 2021. And yes COVID was still very much in play. My thinking was if I can survive in the lean times, I can survive in the better times.
m0nk3y 4y ago
From Paul's perspective in 2008, this makes sense. And generally, this is sound advice. However, in the 2010s, we saw an explosion in tech business opportunities and cheap capital during strong economic times. Most of today's unicorns are from this era.
karolist 4y ago
Is the economy really bad now? US unemployment rate is lowest it has been since 1970, where I live the restaurants are full, roads are full of cars, planes are full of people, hotels are booked for events well in advance. What exactly is bad besides people having less throwaway cash because eggs and bread is more expensive? Tech layoffs are, IMHO, more an excuse to cull bloated orgs without getting negative press because everyone is doing it, not because of necessity. We're past the Ukraine/Russia war shock and resource shortage scares, what else?
- bagacrap 4y ago
  inverted yield curve seems to be the main focal point of the worry warts out there
deleted 4y ago
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bfrog 4y ago
Recessions might even be akin to fires in forests. Destructive sure, but gives space for new growth to sprout.

392 points by dbrereton 4y ago

andjelam990 4y ago

There is always a new wave of opportunities arising from a bad economy. One should just dare to take the plunge.

082349872349872 4y ago

> Another advantage of bad times is that there's less competition.

slackfan 4y ago
There definitely is. People are running around chicken-litteling like the sky is falling. In the meantime, I'm bootstrapping a services company because the person that provides the megaphones while everybody is screaming at the sky is the one who makes the money. It's not just less competition, it's the extant players in any market assuming there is less competition and getting blindsided by upstarts.

gnicholas 4y ago

> For years I've been telling founders that the surest route to success is to be the cockroaches of the corporate world. This has always seemed incompatible with the VC model, which involves raising a ton of money, putting the company on an 18 month clock, spending the money so you can hit key milestones, and then raising even more money when the clock runs out. I have heard of a few companies that were on the VC track, raised money, and stayed frugal. But my impression is that investors want to see you swing for the fences, which involves spending all the money they invested, and fast. How common is it for startups to buck this trend?

jmathai 4y ago
You shouldn't need VC to start (maybe ever) and probably shouldn't be thinking about it until you've got some traction and customer validation - which can take some time.
- actionfromafar 4y ago
  It depends on what you want to do. Some things can take too much time without investors, like building new kinds of nuclear reactors.
danpalmer 4y ago
Uncommon. You're right. This advice just doesn't work for most startups. If you're pre-seed stage, in Silicon Valley, and the founders have a "good" background (the right companies, knowing the right people, etc), then sure you might raise a small round. If you're any later than that, or anywhere else in the world, you need results, and results don't come as easily in a recession.
- fortuealex 4y ago
  Eh, it depends. Depending on your segment it may be easier to sell products in a recession. Tools which cut cost and are below a certain monthly spend actually become easier. Hiring is MUCH MUCH easier. Raising money is harder.
dahfizz 4y ago
Once you've taken VC money, its growth at all costs. Where "growth" is defined by inflating valuation, not necessarily "real" growth of the company. If you want to be frugal and grow responsibly, you have to do it without VC money.
- gnicholas 4y ago
  So is this something PG wrote before YC was so deep in the VC ecosystem, and that's why it makes sense for him to have said? What would he have advised a startup to do back then, after raising a $2M round? Would he have told them to keep their burn rate low enough to stay default-alive? What would he say now?
  - waprin 4y ago
    If you compare the pg essays from 2000-2010 to 2010-now, there's a very noticeable shift in tone on this exact topic, even moreso if you zoom out of pg and consider YC messaging then and now. Tons of old pg essays sound straight from something like Indie Hackers or Microconf with their "avoid raising VC money" angle. He even literally predicts the death of VC in web SaaS, saying "investors aren't worth the trouble": http://www.paulgraham.com/divergence.html http://www.paulgraham.com/divergence.html . His YC cofounder Jessica Livingston wrote a book "Founders at Work" and about half the founders in the book are bootstrappers (DHH, Joel Spolosky, Craigslist). The other half are mostly founders recounting horror stories of interacting with VCs. Compare that to modern YC where there are videos where they say _everyone_ should consider applying to YC with the _only_ exception being people that want to bootstrap. Modern Startup School says: "Without startup funding the vast majority of startups will die." (https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising https://www.ycombinator.com/library/4A-a-guide-to-seed-fundr...). There's something very important to note which is that YC did not change the deal from 125k for 7% to 500k for 7%. It's still 125k for 7% plus 375k worth of equity on your next raise. Which only makes sense if there is a next raise. So obviously they discourage bootstrapping since their whole model has been built around you raising at least one more round after YC. Seems a pretty simple case of "follow the incentives." YC basically became more of a traditional VC over time. And I think pg was still closer to a founder in the early 2000s, from a founder perspective, it's more of a set of tradeoffs whether you should bootstrap or seek VC. But from a VC's perspective, obviously they want you to seek VC since they can't get involved if you bootstrap and bootstrapped startups won't get the outsized returns they need. My opinion is, pg is a smart guy, there's still a ton of wisdom to learn from in his essays, but as with every other person on the planet, consider their motivation and incentives for telling you what they're telling you.
babyshake 4y ago
You might be able to raise seed money from VCs and not swing for the fences. If they are good VCs, they aren't depending on their seed investments to all necessarily pan out within a few years, if there is good reason to be more frugal. Series A+ is a different story.
tempsy 4y ago
Budgeting for 18 months of runway doesn't mean "waste money on frivolous things as fast as possible"
- mach1ne 4y ago
  Not on all cases, but I personally know one startup where the VC told the investors to hire as many people as possible, regardless of whether they were actually needed. This anecdote seems to ring true with what I hear elsewhere.
  - slap_shot 4y ago
    I think you might have conflated a few things: No VC is telling companies to just to wastefully hire people they don't need. That wastes money and creates friction and bigger problems inside of a company. They do tell you to hire aggressively, and you often present them with a model that shows _how_ you will use the money you raise, and sometimes you hire too many people on accident. But no VC is pounding their fists on the table telling founders to explicitly go hire people that aren't needed. That's directly against the interest of both the founder and the investor.
kneebonian 4y ago
That was the way in the days of negative interest rates, and cheap and easy money. We are headed for the greatest contraction of capital since the great depression soon[1], and that will no longer occur. 1. According to Zeihan, who points out that with the retirement of the boomers their 401k accounts that have been funding all this money are going to get cashed out and withdrawn, reducing the amount of money for lending, leading to an overall capital contraction.
varelse 4y ago
[dead]
reidjs 4y ago
What is the difference between a startup and a business nowadays? I can start a business without an investment round, but not a startup? Is it a startup if it involves tech, a business if not? What if they use SOME tech, but not necessarily innovative tech? Or is this one of those 'you know it when you see it' kind of things? Has the term startup become a buzzword like "optimize" or "synergy"? Seriously asking, not being snarky. edit: thank you, for the responses that clarifiesthe distinction
- tiledjinn 4y ago
  Scale and speed of scale. Planning for fast growth. Most small businesses do not plan to grow very quickly.
  - praptak 4y ago
    Also the dual is true - bigger risk of failure is acceptable. Normal business investor typically cares between bankruptcy and having merely poor RoI. Startup incubators would rather have their 999 startups go broke and the 1000th become "next Google" than have average RoI on all 1000.
- gnicholas 4y ago
  According to PG, a startup is a company designed to grow fast. [1] Again, this is a bit at odds with the advice to be frugal. It's not that you can't do both, it's that you have to strike a balance because they are in many ways at the opposite ends of a spectrum. 1: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
  - throwaway29812 4y ago
    Right, and most often that growth is tied to a digital product that can scale to infinity with little additional capital needed.
- gopalv 4y ago
  > I can start a business without an investment round, but not a startup? The answer around me seems to be that a startup comes out of an idea without the capital worked out. That the equity they have to offer is worth nothing, unless they execute the plan with money they don't have. If you have the capital worked out, you can go ahead into the business phase of the process right away, where profitability is king and there's no plan needed to answer the "how to raise more?" question. A lot of what we associate with startups is the justifications towards raising and a lot of what we see from a "business" is geared towards margins. For instance, better margins by extracting more profits on a lower revenue is better for one, but looks bad for the other.
jrvarela56 4y ago
I've heard more startups taking this route after the new YC deal. 500k buys a lot of ramen.
- gnicholas 4y ago
  Yeah, I know of some that have pivoted at least once and are still alive and kicking. I wonder how YC thought through the costs/benefits of increasing the invested amount so much.
  - jrvarela56 4y ago
    I would assume they did by using their data on how companies progressed, raised money, hired and died/exited.
zachthewf 4y ago
The difference is pre versus post PMF. When you start your startup, you are by definition pre-PMF. There is only a weak relationship between what you spend and what comes out the other side. Once you're post-PMF this changes and you may need to jack up the spending in order to grow as quickly as possible. Lots of companies screw this up and scale up spending when they're pre-PMF. In 2021 those companies could keep raising, but now they're probably going to die.
- gnicholas 4y ago
  Pre-PMF companies need to experiment and nail down their PMF. So what should they be spending on, and what shouldn't they be spending on? I assume conference booths fall into the latter category. Is there anything other than product dev and design that falls into the former? Where does marketing land, in order to make sure enough people are in the funnel to be able to meaningfully experiment and gather data?
  - wefarrell 4y ago
    Relationship building is pretty important pre PMF, especially for industries with larger contracts and longer sales cycles.
  - zachthewf 4y ago
    IMO sales and marketing expenses should be minimal—essentially limited to testing different channels to see if they work. I'm sure this depends on the business but I'd say if you need a lot of marketing spend in order to experiment it's a sign that you may not be enough of an expert on where to find your customers and you either need to find a way to gain that expertise or pivot to an area where you already have it.
a_c 4y ago
IMO start up or not depends on growth, growth in terms of learning the product/industry. Many VC funded companies achieve growth by throwing money on to problem, which works. But if you manage to out learn your competitors while still staying alive, essentially being cockroach, it is still start up.
O__________O 4y ago
VC care about three things: percentage of ownership, growth, and a liquidity event. If a startup doesn’t need the capital to grow, they’re not likely to take on VC funds. If they do, the startup will need to sell equity, which based on funding round have norms based on equity given for capital received. If the startup is frugal with the capital, but still manages to hit growth targets and reach an acceptable liquidity event for the VC, then any unspent capital would only add to the valuation of the company. Is that common, no, but it does happen; if it does, generally means founders gave up equity unnecessarily. Regardless, VC measure ROI on capital invested in the startup not if the capital they invested was spent by the startup.
im_down_w_otp 4y ago
We've bucked this trend at auxon.io, and for the large part it has been stalwartly supported by our investors. Quality pre-seed and seed stage investors seem to have a different mantra than is being expressed here. Though I've certainly encountered investors who typify the criticism here. However, what I heard a lot of from our investors is something more akin to, "The biggest killer of startups is premature scale." Somewhat amusingly now that the capital environment has shifted dramatically, we have investors coming around who used to give us side-eye for being discerning and fastidious (and also our investing resources early to acquire government & adjacent customers), but now they treat us like secret geniuses or something. Because we have a reasonably stable baseline to build from. We're aligned with key markets that continue to spend money even during down markets and recessions. Not to mention we're also not in crisis having to massively disrupt progress and morale by laying off a bunch of people (in fact we're hiring, though still judiciously of course), which is HUGE since team and execution is everything.
dheera 4y ago
You can also just not take VC money. There are a couple of ways to do this: (a) Work at a big co, save a boatload of money, quit after a few years, and then fund it yourself without the bullshit coffee chats* and 18-month clock. (b) Work somewhere that has good work-life balance, pays you enough, is okay with you spending your free time doing something that doesn't compete with the company, and then build it on the side until it makes enough money to replace your day job, and only then quit your day job. * There are good VCs out there, but 95% of VCs will waste your time, and you'll have to wade through them in your search for funding. The amount of coffee chats you'll go through will literally destroy your company because you won't have time to do real work.
jm20 4y ago
This is easy enough to understand when you decouple “success” vs “VC success”. If you survive as a business long enough you’ll be successful almost by default. It might not be the next Facebook, but it should net you a nice life. However, a long-lived, yet non-home-run business is actually a negative in a VC portfolio. Because of the nature of VC, they need big wins to give returns to their fund investors. Their model intentionally decreases average success probability for a business as a filtering mechanism to find big wins as quickly as possible, so they can provide those returns to their own investors on an acceptable timeline.
dang 4y ago
Scott and I were part of the cockroach batch (W09). There's a (little) bit more detail here: https://news.ycombinator.com/item?id=25382902 https://news.ycombinator.com/item?id=25382902
majani 4y ago
You can push back in the early stages before >50% board dilution (and this is who pg assumes is his audience), but typically founders are very willing participants in all the spending

tempsy 4y ago

Well the biggest difference is that the economy was "bad" then but central governments/banks were accommodating. It's "bad" now because central banks are actively making capital more expensive, which makes it harder to raise money for a speculative bet.

tootie 4y ago
I mean isn't even "bad" right now at all by most measures. Employment is still very strong, growth is slowed, but not stopped. Only inflation is elevated. The two things that incentivize starting a business in a recession are low rates (more VC money available) and high unemployment (cheaper, freer labor) and we have neither of those. Even after dumping 100K or so engineers on the market, that is barely enough to soak up all the undersupply of the past 5 years.
fexecve 4y ago
Then you just need to find an angel investor. The capital has to go somewhere. The wealthy aren't just going to leave their money in publicly-traded stocks, they want some risk in their portfolio.
teeray 4y ago
If there is true intrinsic value in the company’s offering, I wonder if there’s opportunity for fully bootstrapped startups to thrive. Maybe the growth isn’t explosive, but it might be more sustainable.
- tempsy 4y ago
  I mean it will be harder to raise capital extensive seed rounds but i'm sure small seed rounds will still be fine. As in I would be really shocked to see a new Uber for X or grocery delivery startup raise tens of millions right now, but yes small teams building something that isn't very capital intensive will likely still be able to raise money.
Apocryphon 4y ago
There's a theory that I've seen on HN: in the event of a civilization-destroying apocalypse, future civilizations will find it incredibly harder to industrialize, because our current society has used up all of the cheap energy supplies and easy to extract mineral resources. I wonder if that is applicable here as a metaphor.

guessbest 4y ago

Not really sure how this advice is still relevant since Facebook with its own app store model helped save the tech industry in 2007 from the downturn like the one in 2001-3. The next big thing appears to be AI (not VR), but I don't really see how it can really compete with that historic low cost startup. What would a MVP AI even look like? Would it only be a good AI part of the time? We already have that. Try using Siri. > That was the task for some Stanford students in the fall of 2007, in what became known here as the “Facebook Class.” > The students ended up getting millions of users for free apps that they designed to run on Facebook. And, as advertising rolled in, some of those students started making far more money than their professors. > “Everything was happening so fast,” recalls Joachim De Lombaert, now 23. His team’s app netted $3,000 a day and morphed into a company that later sold for a six-figure sum. > Early on, the Facebook Class became a microcosm of Silicon Valley. Working in teams of three, the 75 students created apps that collectively had 16 million users in just 10 weeks. https://www.nytimes.com/2011/05/08/technology/08class.html https://www.nytimes.com/2011/05/08/technology/08class.html

Apocryphon 4y ago
And it's astounding how much Facebook apps have been forgotten, with Meta's neglect and abandonment of their own platform. Not that it was a technology with an extended lifespan anyway, users were only going to stomach endless notifications from FarmVille and Mafia Wars for so long.
- alex_c 4y ago
  I wouldn't say Facebook apps were forgotten as much as actively suppressed by Facebook after a certain point in time. In the early days of the platform app developers had a huge amount of freedom in terms of accessing users' social graphs, pushing notifications to timelines, and so on. It made it incredibly easy to build a viral loop and push out an app that spread like wildfire. Obvious downsides to that - big privacy issues, and annoying users with endless notifications like you said. Facebook had to start restricting what app developers could do, and once that happened it became much harder for apps to get traction.

paulpauper 4y ago

2008 was a huge outlier though. This was the start of the hugely lucrative cloud, app-payment, SAS, smartphone, 4g, app-store, social networking, mobile confluence. Also, low interest rates forever. A typical bad economy is not like 2008. But sound advice

ekhaliul 4y ago
In 2008 startups actually could afford to have a garage to start. Not anymore ...
- safety1st 4y ago
  But it's vastly easier now to start something that's totally remote.
- quickthrower2 4y ago
  Depends on the location.
- nrp 4y ago
  It’s probably cheaper now to get a sublease on commercial real estate or a lease in a class B/C building in most parts of the US than renting the equivalent sized residential garage. It certainly is in SF at least.
  - Breza 4y ago
    I don't know much about commercial real estate, so I checked LoopNet for my area. If you're not picky about the neighborhood, I'm surprised how cheaply you can get a garage-sized space.
sowbug 4y ago
Perhaps that long list of innovations has something to do with the startups founded in 2008.
j45 4y ago
Going back one more outlier to the dot com boom - a gap then was virtually no one was online. 2023 feels a little like the start of the start with shades of 2008.

Patrol8394 4y ago

VC has unfortunately pushed forward a model that rarely helped building sustainable businesses, but rather grow fast, build hype, IPO, cash out move on model. It definitely benefitted few at the expense of many. People have accepted to work tireless hours for peanuts and paper money with the promise they will become rich: this rarely happen. Don't buy the hype. It is more the exception than the rule. Many multi billion dollar VC funded business are still not profitable and often don't have a path to profitability.

blacksoil 4y ago
> that rarely helped building sustainable businesses I think this falls under the founders' shoulders. Some founders tried to "hack" their way to "fake out" large growth that they themselves know are not sustainable, just so they can fool the VCs they are raising money from.
UncleOxidant 4y ago
Both of the companies cited as examples early on the the article, Microsoft and Apple were basically started by a couple of guys in a garage (or dorm room). VC wasn't involved until later stages. Probably most of their early funding came from parents. There are plenty of things that don't need VC funding to get going - they can either be self-funded or with loans from relatives in the early stages. At some point the decision can be made as to whether VC is needed to expand or if it's just fine to stay small. In the 90s my wife worked at a software company that makes scientific imaging software. They have a nice niche and continue to sell their software into academic and research labs. They never had more than about 7 employees - now about 5. It's a decent business that never needed VC funding and has gone for about 30 years now.
- dopeboy 4y ago
  > Probably most of their early funding came from parents. Perhaps VC is an equalizer here. It makes it possible for founders (like me) to start the next Microsoft without having to rely on privilege. I understand allocation of VC resources has its own privilege issues but I'll take that slightly more accessible world over a world where your family determines the outcome.

josh_carterPDX 4y ago

"But it doesn't matter much either way. It's the people that matter. And for a given set of people working on a given technology, the time to act is always now." So agree with this sentiment. It matters less about when you start a company. It's how you execute. You might be building something very timely, but if you can't scale then it hardly matters whether there's a recession or not.

roflyear 4y ago
And scale doesn't mean technology.

jyu 4y ago

It's an open secret that investors get 20% of the upside for 1% of the work of founders. Parrot enough plausible nonsense to impressionable people to get favorable investment terms and you're well on your way to monetizing your position as a newly minted thought leader. Nice work, if you can stomach it.

bloodyplonker22 4y ago
It's also an "open secret" that investors lose their investment when the founder fails. In addition, more than 90% of VCs are money losers, overall. Founders are taking the risk with their time, investors are taking risk with their money.
- rebelos 4y ago
  Investors are taking a risk with other peoples' money. And their management fees usually cover very juicy base compensation, so their downside risk is minimal.
  - gowld 4y ago
    Those fees don't last long if they get bad returns.
    - metacritic12 4y ago
      "What do you call this thread?" "Capitalism!"
    - fisf 4y ago
      Which is why fast growth is so important. It's irrelevant to some degree if this growth is real (driven by a better product), or inflated (by offering steep discounts, ads, marketing, etc). It looks good on paper, and allows raising the next round. This is of course an order of magnitude bigger and demands even more growth. VCs look like geniuses in that case. Value of fund goes up, fees go up. Until they don't.
4y ago

jll29 4y ago

I would say whether PG is right or not depends on how much initial funding the founders have and what they're trying to build. If you have not a lot of savings to live from, and your runway is therefore short, you'd be stupid to quid your day job and launch your startup: your small savings will quickly be used up and that'll be the end, because you won't be able to raise a round. If, however, you have substantial savings to deploy so that you can get far enough to afford to pivot 1-2 times until you find product-market fit, then PG is right and taking the plunge is the right thing, regardless of business environment. If your plan relies on customers, then it also depends on whether your product or service is aimed at reducing customer cost or has value in a different way. To exemplify the above: I claim "You can/should start something like AirBnb in a bad economy, but not Google."

randomdata 4y ago
> I claim "You can/should start something like AirBnb in a bad economy, but not Google." Yet AirBnB was born into a good economy (that, in fairness, was on the cusp of going quite bad), while Google was born into an economy that was just starting to recover from being bad. Not when you start but when your product is ready to ship may be more significant. By the time Google was ready for prime time we were in a good economy. When AirBnB was ready for prime time, we were in a bad economy. Skate where the puck is going, as they say.
- boulos 4y ago
  > while Google was born into an economy that was just starting to recover from being bad. Huh? Google was started in the mid to late 90s (incorporated 1998 but started earlier at Stanford). It was quite literally during the peak years of the dot com bubble and the US economy was doing fantastically well. The Clinton administration was even trying to draw up plans for what to do if the national debt was paid off... Are you thinking about when Google went public in 2004?
  - randomdata 4y ago
    Work on Google started in 1996. While things weren't bad per se, we were still working through recovery from the early 90s recession. It wasn't bad but it wasn't good either. By 1998, when Google was ready to ship, things were quite good. If, in an alternate universe, work on Google had started in 1998 when the economy was strong and didn't ship until 2000, things could have been quite different. It was no doubt important that they were ready to ship when the economy was at its peak. That means starting when things aren't so good.

atlgator 4y ago

We're not in the same market as this article. Typically, in a bad economy salary expectations are lower making a startup launch more "affordable." Unfortunately, that is not the case currently with ongoing inflation. Salary expectations continue to increase on average, not decrease.

blacksoil 4y ago
> Salary expectations continue to increase on average, not decrease I would argue though that tech salaries are highly overpriced right now. A lot of software engineers in the valley should be able to live quite comfortable life even with 50% pay cuts.
- hello_moto 4y ago
  > A lot of software engineers in the valley should be able to live quite comfortable life even with 50% pay cuts Show us the math, please. Their stock is down by 50-70%. Their base is not that high compare to the insane rent.

smcl 4y ago

Please remember that PG is a financially very secure person, who is in the business of getting people on board with YC and committing to throw themselves 100% into tech companies that will individually more than likely fail. If PG says "you should start a startup in a bad economy" it's simply a clever sales pitch, a spin on the current circumstances. Back in 2008 when this was posted it was presumably in response to the Global Financial Crisis (or "Credit Crunch" in the UK), I'm guessing it's being posted again due to the recent layoffs. It may be the right time for you to take the plunge, but you should be reading this article with a clear head and remember that this is not an old friend giving you some sage advice, but someone who is incentivised to get you to take risks on their behalf.

jrockway 4y ago
Yeah. The alternative is to chill out at your current job and be able to pay your mortgage, and then start a startup when money is raining from the sky like it was in 2021. It's cyclical. Tech isn't dead forever, and what's a good idea today will still be a good idea in a couple years. You'll also be a couple years wiser, which is never bad.
- volkk 4y ago
  or, someone will simply start your idea (assuming it's original and good) and be first to market. lots more nuances around first to market, but PG has a point. there's no right answer and it's all personal, but if you do have an awesome idea, and it makes sense financially for you, then there's no point in waiting X years. you're just throwing those years out. worst case, what, you get rejected from funding because of a grim financial future? it's still extremely valuable spending that time building your project and getting that awesome experience of pitching/getting rejected. there's always an optimistic take to everything and a pessimistic one. if you're always taking the wait and see approach, chances are you're not going to do anything later, either. be somebody who does things and doesn't just sit around dreaming and waiting (like me)
  - TruthShare 4y ago

clpm4j 4y ago

Some people seem to be overthinking this by a long shot. If you have a company you want to build, then it's always the right time to start. The greater economy will always have influence both positive and negative. But considering this, it's probably better to start in a "bad economy" than a "good economy" assuming it's a strong business idea that you can keep alive and grow until the economy becomes "good" again, and then you can exit into the good environment rather than starting when things are rosy and wanting/needing to exit when things inevitably turn south again.

roberttod 4y ago

Taking this with a pinch of salt given the nature of our current situation vs. 2008. > Technology progresses more or less independently of the stock market. Progress could be defined in many ways, but sure as hell there is less money in the tech sector, and funding is very difficult right now as far as I understand. I do agree with the sentiment that the market shouldn't affect your timing if it can be avoided, but I wouldn't expect it to be very easy to start something capital intensive with a long road to profit right now...

fortenforge 4y ago

Does PG ever think it's a bad time to start a startup?

deleted 4y ago
[deleted]

nickdothutton 4y ago

The single best reason I'd give, for why it's a good time to start a startup in a downturn, is that it's all signal. There's little or no noise. No noise from buyers who are just tyre kickers, or who buy a little but dont truly adopt, even from VCs who might at other times waste a lot of your time.

ttul 4y ago

The runway from nothing to something is about ten years on average. If you start when times are hot, you’re closer to the next reset event and more likely to experience the reset before you exit. If you start when things are dead, you have the most time to figure things out and exit when things are hopefully not dead yet.

soapspudster 4y ago

I'm of the opinion that the right time is always now. However, when things are great, large wealthy companies over-hire and over-pay everyone. It sedates good employees to stay and be comfortable. When things hit the fan, the larger and fatter a company is, the more likely they will throw the baby out with the bathwater. They go into ultra-stupid cost-cutting mode and that is a great opportunity to hire some of the best dormant employees you'll ever meet. Since the best determinant of a company's success is the makeup of the team, I'd say when the economy is bad is the best time to start a company. You'll land some of the best talent and that'll give you the best chances of success.

emrah 4y ago

A good companion article to read in tandem (also by Paul Graham): http://www.paulgraham.com/notnot.html http://www.paulgraham.com/notnot.html

college_physics 4y ago

Are we in a bad economy? Bitcoin market cap is 400bln. OpenAI eyes 30bln valuation etc. etc. Business cycles, timing the downturn and all that, does this Warren Buffet type "sound contrarian advice" apply also in Alice in Wonderland economies?

alfalfasprout 4y ago
Just because bitcoin and OpenAI have nontrivial value doesn't mean we're not in a bad economy. Inflation is rampant still, even wealthier folks are cutting back, and interest rate hikes are destroying markets. Keep in mind markets always lead the broader economy by at least several months. They'll crash well before earnings consistently start looking bad and recover before you see earnings recover. US interest rate hikes are also having an outsized effect on other countries vs. the domestic economy.
- rgmerk 4y ago
  Things might be bad in Silicon Valley right now but the broader economy is still chugging along pretty well.
- college_physics 4y ago
  its a very mixed bag. e.g., mortgage delinquency rates near historical lows [0]. I picked those valuation examples to illustrate that 1) there is a lot of discretionary "investment" wealth around and 2) people are still clinging to the various "disruption" narratives. obviously inflation is real and the new rates regime is real but it feels that people are pre-emptively trying to cool things down, build some buffers etc. rather than an already realized economic malaise. the implication for the "time your startup" narrative of OP is that it is even less clearcut of a decision than if it was a real (let alone deep) recession. [0] https://fred.stlouisfed.org/series/DRSFRMACBS https://fred.stlouisfed.org/series/DRSFRMACBS

zurtri 4y ago

I launched my startup May 1st 2021. And yes COVID was still very much in play. My thinking was if I can survive in the lean times, I can survive in the better times.

m0nk3y 4y ago

From Paul's perspective in 2008, this makes sense. And generally, this is sound advice. However, in the 2010s, we saw an explosion in tech business opportunities and cheap capital during strong economic times. Most of today's unicorns are from this era.

karolist 4y ago

Is the economy really bad now? US unemployment rate is lowest it has been since 1970, where I live the restaurants are full, roads are full of cars, planes are full of people, hotels are booked for events well in advance. What exactly is bad besides people having less throwaway cash because eggs and bread is more expensive? Tech layoffs are, IMHO, more an excuse to cull bloated orgs without getting negative press because everyone is doing it, not because of necessity. We're past the Ukraine/Russia war shock and resource shortage scares, what else?

bagacrap 4y ago
inverted yield curve seems to be the main focal point of the worry warts out there

deleted 4y ago

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bfrog 4y ago

Recessions might even be akin to fires in forests. Destructive sure, but gives space for new growth to sprout.