Why is Economic Recession Good for Startups

Weaker Competition:

Many big companies are struggling with laying off employees, cutting off secondary product/service, rebuilding management structure, asking for cash investment…..but definitely not going to release new product or better service very soon. Well, this is your chance to sneak into their market.

Lower Cost:

When people get unemployed, even students from great schools and managers from big companies are considering to work for small startups with discounted salary, which rarely happened in the past. Stuff like office, server, food are also cheaper than before.

Better Plan:

While VC is holding back their offers carefully in the recession, it’s more difficult to get fund with a lousy business plan, especially those without a clear revenue model or healthy cash flow. While your business plan is revised again and again but still get cold-shoulder from VCs, it’s more likely to survive in the real business environment.

Fairer Chance:

Well, we all say 9 out of 10 startups are going to fail within 12 months. It’s true that small company has high risk of failure, but after Lehman Brother fell apart, Merrill Lynch got sold, and auto industry monsters kept crying for help, it’s pretty clear that no company is safe in this world, and size definitely can’t determine the fate of a company. I’m sure people will tend to have a fairer attitude towards small companies.

Tighter Pocket:

I have a friend getting >10,000 dollars a month as revenue from his online business. Pretty good for startups, isn’t it? But what makes me sad is, he spend 10 times more money every month, 90% of which is for senior management’s salary, while the job of those seniors is just flying for coffee meeting once a month. It’s never too late to watch every penny in your pocket, dude, no matter it’s recession or not.

Japanese Version (日本語) of this post >>

83 thoughts on “Why is Economic Recession Good for Startups”

  1. You clearly are not an entrepreneur. If you were, you’d say the opposite.

    I am one of those and can tell you this is the most dificult situation you could ever face.

  2. Excellent article. Couldn’t agree more.

    @Antonio – I always thought “real entrepreneurs” recognized opportunity in adversity. If you already run a business, I would recommend doing a little research into the benefits of increasing your marketing spend in times of recession.

    “Audentis fortuna iuvat” ~ Virgil

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  4. Not all startups need VC money. A lot of 2.0 startups are doing it without money. Some finance it themselves. Some through angel investors (which, you should be wary of if you plan to get VC funding later on) and many building the site/business on their off hours until it generates enough money to quit their day job and live the life!

    I was listening to startup.com’s podcast and they had a valid point in it – “the best time to get VC money is when you don’t need it. That is when you get the best evaluation.”

  5. While I agree with everything said in this article, I don’t think there is anything new here.

    If you are a startup, be good, make friends, and always believe in your product/service. I think this is true in a down economy as well as an up economy.

    I started http://www.nycjobfeeds.com a few months ago and have learned so much connecting with other entrepreneurs.

    Sites I visit for inspiration or community:
    http://www.scrappyupstarts.com
    http://www.toiletpaperentrepreneur.com
    http://www.luckystartups.com
    http://www.killerstartups.com

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