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Good time to start a business? History is on your side

While many facts and figures are all doom and gloom about the economy in general, it may be a good time to start a business if you have a good opportunity to make a difference.  I saw a new study by the Kaufman Foundation (http://www.kauffman.org/newsroom/the-economic-future-just-happened.aspx) that found that “more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies.”  And they looked as far back as the 1700 for the Fortune 500 companies.  

Why is it a good time to start a business?  At our annual investor meeting this spring we hosted a discussion panel with some of our CEOs, which I was moderating.  One of my first and obvious questions was about how this recession environment is affecting their business.  I was surprised to get mostly positive comments!  Here is a sample of some of the remarks:

• Resources are cheaper: one of our companies is designing their website for their business and was able to receive 7 unpaid for draft designs from high quality flash designers before selecting their vendor (that was unheard of a year or two ago).
• Recruiting high quality talent is easier: one of our companies was looking for a top-notch VP of Engineering and they were able to evaluate several high caliber candidates.
• In some cases it’ easier to grow the top line: one of our companies, Pontiflex, which is a marketplace for customer leads saw their book of business grow dramatically in the last year as customers shifted away from brand to performance advertising solutions.
• Competition is in check:  several companies commented about slowing down of innovation at some larger companies that might be otherwise looking to expand into their turf.
  

Off course in order to start a new business, you have to get it financed, and that has gotten significantly more difficult as angels and VC are cutting back.  However, the cost of starting a technology business has also decreased in the last few years and for those that can bootstrap their business or find a way to get some startup capital, this period presents a great opportunity.

And by the way, from a macro perspective, startups are a great buffer against unemployment.  Take a look at this graph below showing startup job creation and what job creation and what net job creation for the economy would have been, absent startups.

Which is why our elected representatives should be more careful about providing disincentives to startup growth through either additional taxation or regulation to industries like Venture Capital (that provide the fuel for startups to grow). But that’s probably the subject for another blog!