Ask YC: Is there a recession/depression coming? • Hacker News Board

Re: Ask YC: Is there a recession/depression coming?

#41

Post by ocamlback » Wed, Dec 12, 2007, 6:47 AM UTC

lowfat wrote: post #20

Just make sure you have enough savings to let you focus your efforts on your startup - maybe 6 months worth of expenses - so that recession or not, you will be okay.

6 months is fine in normal circumstances, but if you're going to quit a very safe job and start a company of your own you probably want to have a good deal more than six months worth of expenses on hand - probably more like 2 years given the current economic outlook.

Thing is, it's gonna take several months to develop the product (probably code in this case) and then you have to try to market it and find paying customers - that takes time. And then customers might want additional features and changes. More time. When it's all said and done it's likely to take a lot longer than six months to get to the point where there is some cash coming in. You don't want to be in a situation where you just exhausted your six months cash and now you have to go back to work in the middle of your product development cycle. Give yourself some breathing room and have 18 to 24 months expenses on hand.

Re: Ask YC: Is there a recession/depression coming?

#42

Post by ocamlback » Wed, Dec 12, 2007, 6:52 AM UTC

CarpeDiem wrote: post #12

Wow, thanks for all the comments! @nickb: That Morgan Stanley report is what prompted this post. I think it is prudent to question the source, however. @shayan: My team and I have 6 months of savings, meaning we can pay the bills for 6 months before we either need income or investment. Do you think that is long enough? @skmurphy: This makes a lot of sense to me, there are a few anecdotal stories about 2002-2003 being…

"@shayan: My team and I have 6 months of savings, meaning we can pay the bills for 6 months before we either need income or investment. Do you think that is long enough?"

I'm not @shayan, but I'll put in my 2cents: no. It's not enough. Given the current economic conditions and the realities of startups you should have more like 18 to 24 months worth of expenses saved up. Because: 1) you don't want to have to go hat in hand to VC at a very vulnerable time and 2) you don't want to have to go back to work in the middle of your development cycle because you ran out of money.

Yes, you may think it'll only take six months till you get some cashflow, but it'll likely take longer than that.

Now is as good a time as any to do a startup, but do make sure you're adequately capitalized.

Re: Ask YC: Is there a recession/depression coming?

#43

Post by ocamlback » Wed, Dec 12, 2007, 6:57 AM UTC

ctkrohn wrote: post #31

rms wrote: post #30

Earlier quoted context omitted.

I think it's terrible that the Feds keep cutting interest rates. All it's doing is propping up Wall Street at the expense of individual citizens and the value of the US Dollar -- kind of like how China keeps the Yuan devalued at the expense of ordinary citizens. The last time the Feds cut interest rates this much, it caused a housing bubble.

There are certainly risks to cutting rates: it hurts our currency and increases inflation risk. I don't think your analysis is correct, though. First of all, the Fed hasn't been continuously cutting rates: the first cut was in September, after several years of continuous increases. Since then, they've only cut the Fed Funds target rate (the rate at which banks can lend to each other overnight) from 5.25% in summer 20…

Lowering rates won't help the current situation much if at all. The current problem is a crisis of confidence. That confidence can only be restored if the big financial outfits like Citibank come clean about their exposure to MBS and bad debt. As long as they continue to hide their exposure such as by creating this "super SIV" or whatever they're calling it this week, the problems will just fester and confidence will not return - we'll end up with a stagnant economy like Japan had from the early 90's till about 2004.

Re: Ask YC: Is there a recession/depression coming?

#44

Post by ocamlback » Wed, Dec 12, 2007, 7:04 AM UTC

patrickg-zill wrote: post #25

Just a note, recession strictly defined means 2 quarters of decline. If there is 1 quarter of decline, then 1 of gain, then another of decline, there is no recession. My question about your startup would be along the lines of how you are getting paid - are you depending on online advertising, or is this a service you are going to sell someone? Is there any chance you can have 1 or 2 customers ready to pay you somethi…

"Just a note, recession strictly defined means 2 quarters of decline. If there is 1 quarter of decline, then 1 of gain, then another of decline, there is no recession."

True, but long periods of sluggish growth can be worse than a relatively short recession. Better to get the pain over with quickly than to spread it out over a long period - just ask someone from Japan about the 1990 to ~2004 period of very sluggish growth there. I'd much prefer a 1 or 2 year severe recession than a 14 year epoch of sluggish growth (and it can oscillate as you mention, going from positive GDP to negative and back again and still not be classified as a recession)

Re: Ask YC: Is there a recession/depression coming?

#45

Post by Tichy » Wed, Dec 12, 2007, 9:51 AM UTC

joeguilmette wrote: post #6

What do you think is going to happen when the dollar crashes, oil costs US$200/barrel, and we can't borrow money from the Chinese (or anyone) anymore? I, for one, am buying a bike while the steel is still exchangeable for all that green paper I have lying around.

less driving -> more internet usage

Re: Ask YC: Is there a recession/depression coming?

#46

Post by brlewis » Wed, Dec 12, 2007, 1:55 PM UTC

mattmaroon wrote: post #39

pg wrote: post #18

It doesn't matter. First of all, it is notoriously impossible for anyone except a few pros (if even them) to time the market. So don't even bother trying. Just live your life. But second, even if you were sure that a recession was coming, you shouldn't let it affect your plans for starting a startup. Yes, funding does tend to dry up somewhat when the economy is bad. But if you look at startups that succeed vs. those…

Unless maybe your startup is called stufftodowhentheeconomyisnotinarecession.com.

Uh oh. I'm toast.

Re: Ask YC: Is there a recession/depression coming?

#47

Post by shayan » Thu, Dec 13, 2007, 12:23 AM UTC

CarpeDiem wrote: post #23

shayan wrote: post #14

Earlier quoted context omitted.

Since I have no idea what your product is, how big your team is, how much experience you have and what resources you have access to, it is hard to say how much saving is good and how much time you can spend with it (since the costs are also unkonwn). But I would say in general you would spend about 6 months developing your product, and having something ready anywhere from a good working alpha version to something mor…

We already have a feature complete beta, we've been working on it for 8 months while keeping the day jobs. Most of the remaining work to do before we launch is superficial, just refining the UI and "making it pretty". We have been actively seeking money, but have gotten blank stares from investors when we explain that we have kept our day jobs thus far. So, I think I am agreeing with what you're saying, thanks for th…

well if you already have a feature complete beta, and all that is left to do is to make it look pretty, then congrats and I would recommend the following. You don't necessarily need money right now! Try to get a small group of beta users on your system, see their reactions and take their feedback. Then try to slowly grow this group to get more people using it. It is always a lot easier to raise money with a working product and some users on it. For doing any of these you guys don't have to quit your day jobs, if you have managed to get this far without quiting I am sure this will be doable too. Or you can do what the guy's at hotmail did (read the second chapter in Founders at Work) one person quits and the other works and they share the income, until they get to a point that they can get funding or generate revenue.

Also as a reminder, the more you have achieved, and the more you have to show, not only the easier you can get funding, but the higher you will be evaluated, which is definitely to your benefit. I would say giving out shares and raising money just so you can pay for your life expenses is not the best idea, get a line of credit!

Anyways, it looks like you are in better shape than I thought. All the best to you.