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10 reasons: Recession is good for your startup!

March 22, 2008

In January, Bank of America declared sub prime losses close to $3 billion. Citibank and Merill Lynch has posted close to $ 10 billion of losses. Goldman Sachs although has its ‘exits’ covered yet still is apprehensive about life ahead.Last week, Merrill Lynch bought out Bear Stearns for less than half of what its stock were trading. This is real stuff, and what looks like the quake has reached the surface.Plenty of news to come, bad mostly.

George Soros is speculating that sub prime crisis can lead to a very painful recession and even may end the dollars status as reserve currency. Very powerful stuff this is, and to me what seems is that ‘the shit is gonna hit the fan’ .Recession I believe is a mixed curse. It has got some very negative aspects, but looked from another point of view it has got some other ways too…

But recession if it comes in US, then India has a fair amount of chance to be hit. Yet I am still adamant about the fact the recession is good. Good?? What did you just say? Yeah its good for the most productive part of the economy, the startups. Let me think:


1. Good ideas wont survive, only the best ones will

Now with apparent crunch with the liquidity, it will no longer be a ride to wonderland. Good idea and not so good ideas wont even see the light of the day. Its only the best ones who will survive. The same old mom and pop services oriented startups will find it extremely difficult to cope. Remarkable tech or amazing services startups will only wade through this muck. This in itself is a weeding ground for the economy in the days ahead and your company in the years ahead.

Update: IBM and TCS has started culling due to rupee rise in the first week of Feb. Yahoo has also culled 45 of their Yahooligans from India(albeit for different reasons)

2. Dont flip but stay putDot Coms like Pyra Labs, Mingle2 etc always look forward to actually flipping through. That is get acquired by the Google’s of the world. I guess thats what made Google seem as a big ruthless organization.
At these juncture I am reminded about the author of Ask the Wizard,Dick Costolo. He said, a good company is not sold but kept.So very true! So once the acquisition counter gets cooled, the competition of starting up will cool down making it a tiny winy bit easy for real people to get started.

3. Grab the attention
Did you know that grabbing the attention in a receding economy is easy to get, if you have a good thing in your hand. Your competition is literally busy packing off,and those who are not, are busy staying afloat. So if you are convinced that you got your hands on a clincher, then go for the kill.

4. Non existent competition
When the declining competition is busy licking their financial wounds and sticking out their neck above the waters, you can bother less about the competition and concentrate more on the ‘remarkability’ of your product.
5. Moral Strength
Running a company is anything but easy.I remember talking once to Vishal Gondal, CEO of IndiaGames.com. You know what he said? “…people tell running a business is like a long arduous road, but for me it was a roller coaster journey…”
So when you are able to actually reflect back on days like these when you were grappling with a recession of this magnitude, you can always give yourself a pat on your back and dig in to fight another day. It can give an entrepreneur an amazing sense of pride that he led his team out of those dark days.[For more clues read Only the Paranoid Survive by Andrew S Grove ,CEO of Intel Inc.]

6. Fail if you must, but fail fast
A recession is an apt laboratory for your idea. Good or bad jump in. In a green economy, a good idea is celebrated and a bad idea is tried. The pittances which keep on flowing for a bad idea, can give false assurances to founders that they just need to stick out. A receding economy nods at a brilliant idea and scoffs away at a bad idea. That way you don’t have any cushions between the market and yourself to think otherwise.
7. Recessions create great companies
Yes, it does. Google came up when there was a tremor in economy post dot com bust. GE understood its position in the global scheme of things after the 1920s bust.So if you are prepared to brace up for the recession and if you are able to come out, then congratulations! you are on your way to greatness. Yes, this will not be without price. You will be bearing casualties and having collateral damages but as the line in Scarface goes, “somebody got to go, chico!”

8 Talent comes in droves not in herds
When a recession strikes, God knows, it gets dirty. Bloodbath in the stocks, layoff in the business. Yet the cost mindful founders should take a welcome relief, as talent becomes available after the IBM(India eq. Infy) and GE(India eq. TCS) behemoths of the world start culling talent.

9. Thousand hungry minds, million hungry hearts
The mantra to wade through a recession is not to listen to your banker, not even to your VC(heck you may not even get one), but listening to your already dwindling customers. So when you actually hardwire it to listen to your customers, you build not good, but great businesses. Companies, in economy booms, give what customers say they want. But companies of tomorrow, at times of recession give customers what they need and don’t know.

10. VCs are out, bootstrapping is in
You will not be riding on the stock market waves like now, VCs will see red everywhere and angels will trade their souls with devils so it seems. So what? You have got another way, bootstrapping, yes its tough. You get pittances for things otherwise worth riches, when you give it to pawn shops, friends run away from you and family has already been ‘alienized’. Yet, this will teach you the very core of finance management. You will be using Indian Jugaad, to actually do a thing worth millions in ways which will cost you no more than hundreds. You will be innovative while doing things and ruthless while cutting costs. That means no more of that swanky plush carpets for your office and no more of that 2 hour lunch breaks. But in the long run its good right?

So are you still thinking?

[The author is a Hardware Engineer working in an Hi-Tech startup based out of India. Nurtures a keen interest in semiconductors, economics and entrepreneurship. Apart from investing and talking about technologies with his friends, he loves reading people’s comment on his opinions]

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[At present comments are turned off, but if you have any suggestions/praises/brickbats then you can digitize them and send them to sohamdas at gmail dot com]

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