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10 reasons startups love recession

Love and hate go hand in hand. Today there are many negative thoughts among tech startups because of the global recession. At least here in Estonia I believe things will get even much worse during the next 6-18 months. So to create some positive aura, here are some thoughts (in no certain order) why we should take the current and coming months on a positive note.

1. Downturn makes you think. Management of a startup often feels like being a “rat on a wheel.” Now is a good time to sit back, relax, look into the ceiling and think some deep thoughts. What could be changed? Where are the inefficiencies? What are we doing wrong? What could be done better? Taking some dedicated time to (re)think on these issues you can come up with new ideas and solutions that you can then use to take your startup to the next level. Many people need this push from the external environment to take the time for this kind of thinking.

2. Good M&A opportunities. Most of startups still have cash or are in a good operational situation. Why not use these times to see which other startups to buy or merge. Even if they are also just starting, have just a few employees or only tens of thousands of visitors, they could be a good addition to your team, product or service. And don’t think badly of mergers even if you are a smaller party. Having a small piece of a great company can be great fun. At least much better than going out of business or not reaching your dreams.

3. Availability of great people. Hiring will not stop, even when there are layoffs. Letting unproductive people go is something that happens at all companies and that should be often done even in good times, now it is just much more visible. At the same time there are many great people available on the market, so go out and have them join your team. Today they might be even much more reasonable about their terms, willing to take more in shares than in cash or looking more at the long term perspective.

4. Focus on sales. As a CEO, founder or just an employee, today is the day to think how to get 50% more out of your sales actions. Reach out more to potential customers. Use your network, even friends and relatives to get new potential customers. If your main revenue source is advertising, consider having more special one-off solutions that you can propose to your customers in addition to standard banner and text ad spaces. Talk to customers 50% more than yesterday, ask them more about their needs and desires and urge all of your people to do the same.

5. Creative marketing. Now is a good time to save money and at the same time achieve more. A dream come true for any marketer. Use less standard solutions. Experiment. Try out new things, both online as well as offline. Partner with service providers that are also startups, hungry for business and willing to go that extra mile to do something innovative for you. Measure. Kill things that do not work.

6. Focus on long-term product development. This comes back to the “rat in a wheel” and short-term plans and execution. While in some areas like sales and marketing there is now more urgency to achieve more in less time, in product and service development you could dedicate more time now into things that have to be “ready” or reach maturity only after 1-3 years. Of course this means you have strong enough warchest or are already profitable. If yes, focusing on bigger long-term projects can mean much bigger rewards when the economy gets better after a few years.

7. Strong get stronger. Less clutter on the market makes good companies like yours stand out more. Do the right things. Stay alive and show your usefulness to your customers. Darwin knew his business. There is a reason in nature why the weak and stupid die.

8. The money is out there. The funding is still there. Angels still have their money, ask for it before they spend it all on yachts and space travel. VC funds still have their money. Stupid ideas get less funding. More is left for you, your good ideas and perfect execution.

9. Companies built to last. Forget exits for a while, this should not be your goal (although you can let the investors think it is). Take a view of where you want to be in 3-5 years. Try to be cash-flow positive, grow from your revenues, from the money you get from customers, not investors. Build a strong company, where you would want to stay for years to come and not even want to sell.

10. New startup opportunities. If you still have a dayjob at an established company, this might be the best time to leave that and follow your dreams. You might be ready to market just when customers are ready to buy what you have to offer. If you already are at a startup, try to come up with some innovations or new ideas that could be put into action there.

Probably you can add many reasons and potential actions yourself. Feel free to add them to comments.

We have good Baltic examples of great companies coming out from the last downturn as well. One of the best examples is the biggest Baltic social networking company One.lt (Forticom), which was basically bankrupt back in the beginning of the century. Now it is valued at hundreds of millions of euros thanks to perseverance of its founders and management. A job well done in tough times.

If you are good, you should be positive and full of optimism. I am. Times have never been better.

7 Comments

  1. I tend to agree with you. Although the financial turmoil is far from over, I still believe its a unique time for startups. I would add that the policy efforts from the government are also very strong now to promote R&D investments, clustering, mobility of specialist workers, start up loans and grants.

    Although the political rhetoric is focused on “the restructuring of the economy” mantra, I still believe start ups and entrepreneurship is the key to new growth wave.

  2. Juri – this is a pretty good list. Number one should always be about people though – so I think that availability of great talent at more reasonable prices belongs on the top of the list. In the end, it’s always about the quality of the team and how hungry they are. Everyone is going to get a little hungrier…

  3. Mark

    Agreed on the people. I’ve found that as long as your product is sound, getting the right team in place to execute makes all the difference.

  4. I like the optimism of this list. I posted a more defensive version for Startups here, based on what I am seeing in Seattle: http://actureconsulting.com/blog/?p=5

  5. I believe that beyond ‘creating a startup’, it is rather INNOVATION that is something that is more than ever needed in times of crisis and recession. That is both true for startup companies and may be even more so for major corporations and brands. And even more during deep crisis when internal resources are lacking and budget shrinking, major corporations will have no other choice than managing innovation in an ‘Open and collaborative’ new way, and especially collaborating with innovative startups… These major corporations will therefore have to transform themselves into ‘Open innovation’ champions faster than what they would have done in a more ‘comfortable’ economy. From a crisis to an opportunity ? PS: this change management mission is the ‘raison d’etre’ of bluenove (www.bluenove.com), and as its CEO and founder i still consider we are in a startup phase so this article is for the least quite supportive ;-)

  6. tarmo

    Apart from 3, and to a certain extent 7 and 10 this list applies actually to all times, good or bad. “Rat on a wheel” feeling is not really imposed on you by good times – it is really your own choice first and foremost. And if you honestly think that right now there is MORE money available for good ideas in absolute terms then you really should think again (I agree that this is certainly true in relative terms, but then again – your costs are in absolute and not relative dollars).

    But my main point is that there is no reason why it should take bad times to focus on sales, run creative marketing campaigns, take a long view or, least of all, THINK :).

  7. I totally agree that there are a tremendous amount of opportunities made to a start up during a recession.

    I also think you need a like-minded community of Scrappy Upstarts, willing to start up in a down time.

    http://www.scrappyupstarts.com

3 Trackbacks

  1. By 10 reasons startups love recession on 28 October, 2008 at 7:37 pm

    […] Go here to see the original: 10 reasons startups love recession […]

  2. […] fine for startups, if you have what it takes and are a bit lucky. Over at Kaljundi.com, I found a list of reasons why startups should love the recession, and I thought it was worth commenting […]

  3. […] this financial and economic crisis will affect startups in a very bad way. But there might also be a set of positive ones for startups to travel through this recession. I actually believe that beyond creating or […]

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