Published in Australian Anthill Magazine, Dec 2008/Jan 2009
Economic downturn? What an opportunity! Mick Liubinskas explores the upside of the downturn for serious start-up entrepreneurs.
I met with a guy recently who started his business in the late nineties, built it up, got slapped in 2001 by the market, held on, kept building it up, got some success, and sold it a year ago and is about to lose his golden handcuffs.
We were talking about the market and the fear flying around and it struck me that it’s the perfect time to start a new business. Here’s why.
The first reason is that it takes time to start something from scratch, build it up and make serious profits/sell it. Forget the rare case of YouTube, which was up and flipped in 18 months. Most companies take a year or two to establish, a year or two to build up and a year or two to sell. That’s six years.
Sure we’re in a slump, but it’s 99 percent likely to go back up, higher than it was before. But it won’t stay up forever. Maybe in another eight to ten years we’ll have another slump. Cycles, trends, blah, blah, blah.
So if you start now, you’ve got the most time between this slump and the next one to get going, grow and get it done.
Really, you don’t need a boom to start It may be true that it’s easier to start in a boom, but it’s not required. You’d much rather be growing or selling/profiting in a boom because that’s when you want to accelerate. But establishment is different. Establishment is setting up a base. A base isn’t about millions of dollars or millions of users. The ball is still in your court.
If you’re in pharmaceuticals, manufacturing or mining, you’ll need millions just to get started. That might be tough at the moment. But if you’re in the web game, you can, and definitely should, be lean and cheap until you’ve got a solid core utility.
In fact, if this slump forces more start-ups to focus their big visions on something they can start with less than $5,000 and between nine to five (pm to am that is), then better businesses will emerge.
Now is also a great time to hire. In boom times it’s hard to find great people because there is more silly money to pay massive salaries and give lots of perks. But right now, it’s much easier to hook up with a few rockstars. This is an important point. The team is about 814 times more important than the idea. It’s the team with the brilliance, passion, culture, connections, dedication and experience that can take a business through the tough times and make them good times.
I’m not trying to treat people as a commodity here. It’s just a fact that supply will outstrip demand for a while and that’s a good thing for founders.
The stock market has dropped, real estate sucks and there will be a trickling-down, flowing-on effect, but this just means a drop in growth, not a significant drop in spending. Consumers will still buy food, services, entertainment and toys. Businesses will still buy productivity, organisation, advertising and advantage. Maybe less, but not zero. You can still sell stuff. So focus on creating enough value that people will pay for it.
And there is money available, too. I know of at least five angel investors who are prepared to invest as little as $20k and as much as $500k to support a great team with good momentum. Venture Capitalists (some) still have funds they must invest. Seriously, there is money.
Yes, there’s less silly money, less private equity, less from family, friends and fools, but it’s there. Maybe it will take longer, maybe you’ll have to work harder, maybe you’ll get a bit less – but it’s there.
This environment also creates an innovation vacuum that you can capitalise on.
When the economy flies to safety, one of the first things the big boys cut is their R&D budget. Why is this good? It means that they are leaving many of the new opportunities to you and your shiny new start-up. They are sticking to their knitting while you’re out there creating the future. And it certainly doesn’t mean that they won’t invest or buy you out when you prove your mettle. They would be delighted to because they get the upside, without the risk. You get the reward for taking the risk, and proving you can execute.
So get started.
Someone’s going to start a business tomorrow that will be a wonderful success in five years. Do they have more time in the day? Do they really have that many better contacts on LinkedIn? Is it going to be just because they have more cash in their bank right now? I don’t think so.
So if you’ve got an idea that’s been in your head and you’re thinking, “Woah, have to put that on hold for now,” pick it back up again.
It’s a great time to start.
Mick Liubinskas is one of Australia’s leading web strategists, having served in head marketing roles at Kazaa, Zapr and Tangler. He now runs Pollenizer, the business incubator he co-founded with ex-Kazaa colleague Phil Morle.