Thomas Cooley writes about finding success during a downturn, and there couldn't be a better time to refer to insider knowledge like his than right now.
Consider the following statement by the dean of New York University's Stern School of Business:
"...it's a time of opportunity because it's a time when emerging businesses, firms that have a good business model can acquire talent, can find more people willing to take on some career risk in order to pursue an idea and really put in the sweat equity that's required to succeed in an entrepreneurial venture."
I think he's right about the availability of good talent during a downturn. People get laid off or have difficulty finding jobs. In those circumstances, starting a business or going to work in a startup is more attractive than the alternative, i.e., unemployment.
However, there's another factor that explains why some businesses started during or directly after a recession are so successful.
Very simply: the competition is distracted.
A void appears in the marketplace. That void is an opening that nimble innovative startups can exploit.
Consider this list of famous companies founded during recessions that are market leaders today. The list includes HP, Burger King, Revlon, Microsoft, FedEx, Lexis Nexis - to name a few.
What is it that made these companies take off? Well in each case they had an innovative new way of doing something.
But there's another factor: large companies, reeling from the effects of the recession, make it easier for startups to drive in a wedge and get a toehold.
Think about the circumstances in which these new companies got started. We know what happens during recessions. Established businesses - especially large corporations - get distracted when their sales flag. They have to reduce staff and cut expenses. The leadership feels embattled - or just worn down. Many of them go into "crisis management" mode. Frequently there's a change in senior leadership (someone has to pay the piper). The business then regroups. The best ones emerge a year, 2 or 3 later as stronger businesses. Others, though, are permanently wounded, filing bankruptcy, hacking off and selling parts of their companies, and exiting markets in order to save the core - only to become a shell of their former selves.
It's the process of creative destruction and rebirth.
Under those circumstances, is it any wonder that a smaller upstart can get a toehold, and then turn that into sustainable competitive advantage?
That's why a recession can be an excellent time to start a business. Take advantage of it. You may not get another opportunity when the market leader is on the ropes - or at least looking the other way.
Discuss
TJ McCue on June 9, 2009, 5:30 PM
Hi Anita,
I have two startups I’m working with as a contractor and I couldn’t agree more. There’s a lot of value that gets added by startups when the big players can’t be bothered with a small problem. But to a customer, it isn’t a small problem — it may be seemingly huge.
Not that it is this simple, but successful startups do something that big companies forget how to do: Listen to their customers and, most importantly, respond to their customer’s requests. The small and growing company can be nimble and responsive as you say.
Vincent Chan on June 10, 2009, 1:44 AM
Paul Graham once said, “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. Which means that what matters is who you are, not when you do it.”
After all, opportunity does favor the prepared mind. Invest in the best assets of yours: your abilities.
Recessions always end. In the book, Buil to Last, 15 of the 18 featured companies had went through the depression, and all of the 18 are still standalone companies today.
If you have a good idea, take action now!
Staci Collier on June 10, 2009, 10:19 AM
That’s a great perspective on the matter. They’re distracted – and most of them certainly are at this time. As leaders, your focus becomes your intention (and it becomes the focus of your employees) and your intentions become your reality. As a leader, if you loose your focus, your intentions cannot manifest into reality.
Flexibility, focus and determination. Combine those with the current atmosphere that is actually full of opportunities and you’re sure to see success.
Brent Frei on June 10, 2009, 10:47 AM
Brent Frei on June 10, 2009, 10:51 AM
Anita – well said. Compounding the challenge for the established companies are Christiansen’s “Innovators Dilemna” and the pressure to cut funding to any innovative work that is underwway in favor of preserviing what is currently generating revenues.
Nathan McFarlane on June 11, 2009, 8:47 PM
I like Ms. Campbell’s enthusiasm and attitude. Her facts seem to back up what she is advocating, but I’m nervous about stating a new business right now. From what I read and hear from people I know, even those with lots of money, people are truly cutting back on everything- we are just not spending like we were. I still am, my business is doing well and I feel fairly secure- but I know what I see, hear and read.
Yes, my competition is distracted- but will any new services I offer be attractive enough to lure people into spending when most of us are watching our pennies. I think it would probably be safer for the average person to wait a bit before putting out any money they can’t afford to lose. Maybe it’s a better time to invest in other companies that we know are doing well and will continue to do so; especially the ones Campbell mentioned that were started during recessions.
Eliot Spaulding on June 11, 2009, 8:51 PM
Wonderful article, thank you Anita. I’m curious about taking your idea one step further though, in that, while yes founding a company in a recession does have an upside, at the same time securing funding is all the more challenging. The very factors and economic conditions that are hurting larger competitors are also hurting you – and likely hurting you even more acutely.
Any tips for getting funding when times are tough? How should one think about getting over that MAJOR hurdle??
Arthur Bland on June 15, 2009, 11:42 PM
They’re definitely distracted because they focus more on how to keep their heads floating and forgot or missed other aspects of their business which needed much attention.
And true, this is in fact the perfect time to start our own business.
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