Is it a bad time to start a company?
With the economy in shambles and the outlook for the next couple years looking pretty bleak, is now a good time to leave your safe job to start something of your own?
It depends.
VCs and angel investors are telling their portfolio companies to batten down the hatches and prepare for the worst, which doesn’t bode well. Money is going to be very tight and every company out there is going to have to do some serious belt-tightening. Getting investment is going to be even tougher. Exits are going to be extremely difficult and rare for awhile. We’re going to see layoffs, consolidation, and lots of bankruptcies as companies are not able to raise the cash they need to grow or sustain operations. It’s going to be very ugly.
That being said, downturns can be a great time to start a company, depending on the type of company you want to start. If you want to start something that’s focused on getting lots of eyeballs on the back of millions in venture funding, with little thought of profitability, now might not be the best time. On the other hand, if you’re starting something that truly adds value, has a clear revenue model, and helps individuals or companies be more efficient, then perhaps now is a great time. The key is going to be keeping things lean and understanding that the odds of a fast exit for untold millions just got a lot slimmer.
One practical note: throw a touch of realism into your plans. If you’ve got a great job with good benefits and no savings, now might not be the best time, especially if you have a family to support. Take the next six to twelve months, build up some reserves, build your company on the side, and then strike out on your own if it’s working. It’s very, very difficult to build a startup on the side (I speak from experience), but you don’t want to get into a situation where you quit, it doesn’t work out, and you’re homeless because you didn’t have a safety net and there are no jobs available. Think ahead and think defensively.
Tighten your belt, put your head down, and just keep trudging towards the goal of adding value at maximum efficiency. It’ll pay off eventually.
November 12th, 2008 at 10:05 am
I think it is a great time to start a company. Recessions actually cause a boom in home based and start-ups. I know what you’re thinking. I’m not looking to start a home based business.
Some of the biggest names in our industry were started as home based businesses during recessions. You may have heard of a small company called Microsoft. It was founded in 1975 during what many economists refer to as a recession time. Another company that comes to mind is Wikipedia. They were founded during the post 9/11 recession.
I think during any time whether it be at the top or bottom of a cycle it is important to realize if your business, website or widget server a purpose and fits a need it will survive. And if it fills a large enough need it will thrive!
There are some great deals being made by advertising outlets and keyword bidding on certain PPC terms is declining. As a start up or new business you can take this opportunity to thrive.
It might not be a good time to look for funding if you have a rough idea for a site that will give away services. If you have has a foggy idea of how or when the site/service will become profitable you might find difficulty.
One thing to realize also is funding does not guaranty success. Unless of course, funding is your goal and not actually founding a profitable company. I lived through the dot com bubble so I am always skeptical of individuals with an idea but no idea of how to create a working business model or tangible product.
However, if you are one of the few entrepreneurs with a truly great idea and a solid business plan I don’t think you’ll find it to difficult to acquire funding. I think you’ll have investors knocking on your door.
Ryan’s advice is great. If your business isn’t turning a profit large enough to sustain your overhead. “Don’t quit your day job!”
That’s just my humble opinion. Good luck to everyone!