Amended at close: 10/22/2008
Whether it is optimal to start a business in this uncertain climate has been a topic of discussion all over the web. In the forum, we haven’t discussed starting up an enterprise as much because so many there already have. Our conversations have been along the lines of refining strategies amid the increasingly challenging marketplace. I’ve been hanging back, hoping to crib source material on whether recessions are a good time to start businesses from other members since there’s a lot more of them than there are of me but nothing much has popped up. Rats. So, I guess I have to stake my position by saying I think economic downturns can be good opportunities to develop projects. I’m not the only one to think that trying times can be opportunities, consider:
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.
Thus spake Warren E. Buffett (unarguably the most successful investor ever) in his NYT op-ed piece entitled Buy American. I Am.
I think those who are optimally suited for this are those who can do a lot of their own product development while keeping their belts tightly fastened. The Toilet Paper Entrepreneur leads the cheer mentioning there’s fewer startups to compete with you, get rich quick types flee the field (not that this industry falls in this category), higher caliber talent is displaced and available for hire and lastly, luxury goods sales expand. The latter has nearly always been the case but it seems that luxury apparel related goods aren’t doing as well as they typically have. Among buyers and sellers, the pattern is clear in the short term; orders have slowed with buyers assuring vendors they’re interested in more immediates. The latter is a hint by the way. Economic downturns should also be a time to realign competencies and capacity. Perhaps it’s time to more seriously consider lean manufacturing?
So, do you think this is a good time to start a clothing line? Why or why not? Thanks for all your input.
Somebody sent me this link, forgot who and I apologize.
Amended with Paul Graham’s commentary on why to start a startup in a bad economy:
…a recession may not be such a bad time to start a startup. I’m not claiming it’s a particularly good time either. The truth is more boring: the state of the economy doesn’t matter much either way.
Regarding investment, he says
Startups generally need to raise some amount of external funding, and investors tend to be less willing to invest in bad times. They shouldn’t be. Everyone knows you’re supposed to buy when times are bad and sell when times are good.
The problem is, investors –founders are investing with work– are supposed to buy low and sell high, meaning they should invest at precisely the worst time and sell when times are good again. Unfortunately, most investors and entrepreneurs sit out the low cycle, sit on their money or go back to grad school, rather than taking advantage to buy in at rock bottom.
I close with this:
Fortunately the way to make a startup recession-proof is to do exactly what you should do anyway: run it as cheaply as possible. For years I’ve been telling founders that the surest route to success is to be the cockroaches of the corporate world. The immediate cause of death in a startup is always running out of money. The cheaper your company is to operate, the harder it is to kill. Fortunately it has gotten very cheap to run a startup, and a recession will if anything make it cheaper still.