On December 1st, 2008, the DOW plunged 680 points and recession was declared. The truth is that the real recession started a year ago – December of 2007. These are not the greatest times economically – so what should entrepreneurs do in times such as this? This is a quick post pulling some resources from around the web talking about this. I will also talk about how the conditions are affecting me, my decisions and my experience with being an entrepreneur.
The most popular post in the subject of starting your company during a recession is this post by Paul Graham (a partner at ycombinator). Paul Graham mostly talks about how starting your company during these bad times might not be such a bad idea after all. Here are some of the main points from his essay:
- 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. The economy has some effect, certainly, but as a predictor of success it’s rounding error compared to the founders
- So if you want to improve your chances, you should think far more about who you can recruit as a cofounder than the state of the economy
- Fortunately the way to make a startup recession-proof is to do exactly what you should do anyway: run it as cheaply as possible.
- Another advantage of bad times is that there’s less competition. Technology trains leave the station at regular intervals. If everyone else is cowering in a corner, you may have a whole car to yourself.
Kevin Rose (founder of Digg.com) refers to this essay and talks about his views on the matter. Here is a video post by Kevin Rose on why NOW is a good time for a start-up. Some of the main takeaways from his talk -
- All major start-ups started almost 4 years ago – not during the height of web 2.0.“When” a strat-up started seems to be irrelevant.
- When things are great, many more start-ups appear. The fight for money was tougher as well.
- Additional rounds for funding will be very hard unless you have extremely large revenue
- Scrappy start-ups are good. If you have a job, keep your job
- Use elance. Be smart with money
- Don’t buy servers and such. Take baby steps.
- Invest in steps
- Do activities that cost less.
Paul Graham posted another article recently about how startups might not need VC funding after all. He says – “I originally wrote this at the request of a company producing a report about entrepreneurship. Unfortunately after reading it they decided it was too controversial to include”. I found this article thought provoking and encouraging actually. A few points from his essay (cut and paste) -
- And because Internet startups have become so cheap to run, the threshold of profitability can be trivially low. Which means many Internet startups don’t need VC-scale investments anymore. For many startups, VC funding has, in the language of VCs, gone from a must-have to a nice-to-have.
- As long as VCs were writing checks, founders were never forced to explore the limits of how little they needed them.
- If founders decide VCs aren’t worth the trouble, that could be bad for VCs. When the economy bounces back in a few years and they’re ready to write checks again, they may find that founders have moved on.
Why is MemeTales a perfect fit for this economy?
I am going ahead with my start-up for various reasons including -
It seems to be the right time for me. I am inspired and I have the energy. In fact, this seems to be the best time for me to work on my idea!
Memetales is truly cool because it will offer great choices at a very affordable price point. I think my start-up will do better in a money conscious economy – where people are trying to get more from less. The books on Memetales will cost lesser than the incredibly expensive picture books in the market today.
People are trying to cash-in through their creativity and Memetales is a great way to do that. Parents, grandparents, aunts and uncles spend a good amount of time entertaining kids, teaching them values through little lessons, activities and stories. Why not share these with the world and make some money from it? When it comes down to it, Memetales will potentially make more money per book for the author than the average 3rd party publisher published books.
All in all – it is great for the writer/artist as well as the customer. It is an over all win-win. I am passionate about teh fact that a service such as Memetales will give so many talented people around the world a chance to showcase their talents AND make some money while they do that.
What precautions should an entrepreneur be taking?
- It is very important that your service be able to generate revenues. If you are not sure how you will monetize your start-up, don’t start. Have a good idea about the business model before you go ahead with it.
- Frugal is good. Make it a life style. Question every spending decision. Challenge yourself to be creative. By doing that, you will be building “financial smarts” into the fabric of your company. Adopt the Kaizen philosophy. Look at Toyota – in good times they do great and in bad times they do good.
- Get a good sense of what your skills are and get help for things that you cannot do yourself. Work with freelancers.
- Start slow and get continuous feedback. This is not a time to spend big and look “cool”. Do not spend unless you have to. Scale only when you need to scale.
- Always think in terms of what money is going in an what is coming out. Make sure you have a solid way of monetizing your start-up. And do not spend on the next cycle until you see what is coming out financially from your last cycle of investment.
- Be helpful. Help others and they will help you. Work on authentic relationships.
- Network. Network. Network. But remember “networking for the sake of networking” rarely works. Let your passion drive – always.
- Continue to learn. All the time. Ths is great strategy in a good or bad economy.
If you are thinking of a startup, I say go ahead and do it. Do your best to recession proof it.There is a neat research paper called Innovation Strategies for Global Recession that talks about what you can do to ride along and survive the recession.
What are YOUR thoughts on this matter? Are you working on yout start-up? What precautions are you taking?
photo credit: stuartpilbrow
If you are a parent/author/writer or illustrator and would like to participate in the beta for Memetales, send me an email at m@thinkmaya.com or fill the contact form.