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12.30.08 Economic Downturn Is Prime Time For Startups  By Jason Cohen Doom and gloom. Layoffs, bankruptcy, insolvency, bailouts. Blah blah blah Wall Street, blah blah blah Main Street. It's a terrible time to start a company, right? Wrong! Here are six reasons why you should start your new company right now. 1. Low opportunity cost When the economy is booming, staying in a regular job makes sense. Generous bonuses are common when revenues are soaring, stock option grants are valuable when an IPO is imminent, your resume is improving in direct proportion to the success of the company. Upside and safety! Fabulous. Of course that scenario is almost non-existent today. Most companies aren't hiring; many are laying off. Salaries are low, bonuses are suspended, stock options are as worthless as a vote for Pat Buchanan. So if the alternative is working for low pay without job security, why not work for yourself and build your startup? You'll be investing your time and energy into something with more potential upside in future. If you're talented and have always toyed with the idea of a startup, financially it makes sense to do it now. 2. Cheap Talent It's hard to hire good people because they already have a job. But right now that's not true -- companies are exploding and laying off everyone, even the stars. If you're starting a company you're probably looking for a co-founder more than an employee. Even better. In an environment where few companies are hiring, lots of stars (or, better, potential stars) are out of work. The market is flooded with good people. Maybe you yourself just got laid off with some co-workers you like! Just keep your hiring standards high and dig into your social network. (Or go get a social network now. See? That Facebook account really was a good idea.) 3. Cheap Stuff Need cheap office space? Layoffs mean newly empty desks in empty offices with phones that still work. Look for subleases where someone is trying to recoup some costs -- often they'll throw in Internet as long as you don't abuse it.
Need cheap furniture? Companies are dumping stuff into used furniture stores and there aren't a lot of buyers. Drive a hard bargain. Need cheap advertising? Ad revenue is drying up as companies down-sizemarketing budgets and miss their next round of funding. Combine that with lower readership (especially in print) and ad deals are everywhere. Don't listen to theprotestations of ad reps -- they're under duress and will take almost any offer. (I'll post later on ways to wrangle with ad reps.) With everyone hurting, deals are everywhere. Your expenses will never be lower than right now. Low expenses mean getting to profitability faster -- exactly what a new bootstrapped company needs. 4. Eager customers When budgets are tight, people need to get stuff for free. Good for open source projects, bad for companies, right? Good for startups. Remember, with your first twenty customers you'll be giving away your product for nothing. You need to -- your product isn't fully-formed, they're helping you work out the kinks,you're counting on them for testamonials, and you need to prove your product works in the market. You'll be a Godsend to companies who need your product. Their (lack of) budget prevents them from buying anything else, including competing products that are better than yours. They'll be ecstatic to get something for free or cheap. Continue reading this article. About the Author: Jason is the CEO and founder of Smart Bear, Inc. Smart Bear creates tools for peer code review. Jason "gets" software startups. Jason is also a guest writer for Onstartups. |
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