Why to Start a Startup in a Bad Economy
paulgraham.com
Why to Start a Startup in a Bad Economy
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Re: Why to Start a Startup in a Bad Economy
#2Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed).
One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam FAST. My prediction is that you will see more companies trying to start monetizing their web-app soon. FWIW, TipJoy is well positioned to take advantage of this if my prediction is true.
Of course, I've always been a hardware/product startup hacker, but I've had a couple of rounds in software and Web 2.0 companies. So, I'm not as immersed in web-app funding cycles as some others here are.
I would look to solar and certain other viable alternative energy options right now as the next major tech growth sector. I think the tech startup world needs to see more "inventions" (again, admitting my own bias).
While many here may disagree with me, one of the problems with web-apps is that while they are cheap to get going (relatively speaking), I think that the saturation of non-revenue producing web-app companies, coupled with the low cost of starting them, will make many traditional VCs look elsewhere for their next investments. The web-app community needs more investors like YC, that keep the investments and process realistic.
Re: Why to Start a Startup in a Bad Economy
#3One of the underlying things here is that there is very little use saying 'bad economy' & leaving it at that. Bad what? What are the actual effects.
A startup might be affected by:
Customers/market - These are not necessarily the problem. True. Particularly if you are evolving in this economy, Like a Neanderthal in an ice age. This point is probably neutral on average.
Investors - This may be a problem. This is a market that can shy. But only a problem if you need them. This point is negative.
Buyers- (Of some description) Definitely a negative. But you don't need them right away & you can probably be more flexible waiting for the right time. If Cockaroach doesn't do it.. endospore.
You can't have everything. Comeptitors - A plus. Fewer investors (including founders as the essay implies) by definition means fewer startups.
Re: Why to Start a Startup in a Bad Economy
#4Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed). One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam…
Indeed, there are a ton of web-apps that probably will never take off. Still, there is the big advantage that you can build a prototype almost for free.
Other fields (solar, biotech, whatever) might require way more money to start. For real stuff, like machines, not for swag and parties.
Having nothing than an idea, how do you convince a VC that you need a ton of money, given the current economic situation?
Re: Why to Start a Startup in a Bad Economy
#5Great article and the example from the 70s (brk has some good points) was a good one. A LOT of innovation happened in what were very difficult times on a macro level. Living / working cheap is absolutely key. I knew the economy was going to tank back in January when I started my company, but I still did it.
I'd also like to see more "inventions" (another good point from brk). There may be a certain amount of critical mass of development that has to happen around other technologies. The last 10 years or so have seen optimization in the development cycle for web apps, resulting in their relative low barrier of entry today. It could be my ignorance, but I don't detect the same level of commoditization in other industries. Of course, a higher barrier of entry is great for the people already involved.
Another way to look at the "inventions" issue is the rather quick evolution of non-web technologies to web accessible interfaces. We've seen this happen with telephony, video, radio, print, television, navigation, security systems, and many more, I'm sure. It's pretty amazing actually. I think you'll continue to see more of this over the next few years, so we'll all still have stuff to work on.
Re: Why to Start a Startup in a Bad Economy
#6Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed). One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam…
MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave
That was the point I was making with those examples: that technology evolves independently of the stock market. So if it's time to build the Apple I or Altair Basic, do it whether the economy is good or bad.
Re: Why to Start a Startup in a Bad Economy
#7I'm not sure I follow that bad times being a good time to invest means that its a good time to start a company. Investors want a low price, but for founders I would have thought the amount of effort (price paid) is fairly much independent of the economy.
Re: Why to Start a Startup in a Bad Economy
#8It is nice to read some sober thinking on the economy...
PG has it exactly right. Startups are HARD and there are so many factors that are more important than the state of economy.
The odds of success are low enough with a startup already that the economy shouldn't really change the decision making process.
Re: Why to Start a Startup in a Bad Economy
#9Another great essay Paul, I wrote up a blog post with similar conclusions last week: http://www.charlesju.com/2008/10/5-ways-recessions-help-star...
Sorry for the plug, I just thought it was funny that we're on the same side of the equation, when everyone else in the world isn't.
It seems to me that somewhere along the evolution of the internet we forgot the golden rule of any business:
If you make stuff people want, they'll pay for it (either directly or indirectly), and you'll make money. Recession or not.
Re: Why to Start a Startup in a Bad Economy
#10Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed). One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam…
one of the problems with web-apps is that while they are cheap to get going ... many traditional VCs look elsewhere for their next investments.
It's not a bug, it's a feature.