Why Found A Startup During A Crisis? 4 Key Reasons
At Tau Ventures we have the privilege of interacting with dozens of entrepreneurs on a daily basis. Given our focus on seed we end up disproportionately exposed to people considering executing an idea. You would think that in a crisis that number will go down because of a natural desire for more stability. What we have noticed indeed is slightly less commitments to founding a business this year but by and large the number of about-to-be founders has remained healthy.
Why start a company now? The current pandemic is unprecedented in modern times, in the US it reverted a decade-long boom into an economic recession within a quarter. But it’s not the first crisis, nor will it be the last. Let’s do first a quick historical overview — Kelly Bartog has a great recent article about companies started during a recession, here is a snapshot of 10 names:
Not to mention several companies technically didn’t start during a recession but an economic meltdown was a major obstacle in their road to success: Apple, Google, Salesforce, Facebook, Netflix, AirBnB. Bottomline — there are plenty of precedents and launching during a crisis is not as crazy as it sounds.
So what are the reasons for becoming an entrepreneur in difficult times?
1) Vision aka Long-Term Promise — Even during a crisis there are some winners but more importantly, some fundamental assumptions change. A trend that was long brewing becomes more obvious and leads to more investor interest. A technology whose adoption was in the infancy bursts through teenage years and becomes a mature adult. The Great Recession pushed a wave of fintech startups, case in point both Square and Stripe got started in 2009. The lesson from any moment of great change is clear — it’s not about capitalizing on just temporary demand but building something that holds long-term promise.
2) People aka Buy Low And Retain — With hiring severely affected — furloughs, lay offs, salary cuts, salary deferrals, hiring freezes — a lot of good talent becomes available and accessible. How much of Google’s success is that they attracted world-class engineers pos-2001 that a startup of their size wouldn’t have been able to otherwise? In startups it’s often about people but if you are founding in other industries it could be about resources, say oil that has now become much cheaper.
3) Culture aka Fighting Together — A crisis forces a startup to be even more focused. No distractions, no unnecessary burn, all hands on deck, working together to overcome a tough situation. The spirit de corps invariably engenders resilience, akin to soldiers fighting together in a war. Why is the PayPal Mafia so influential now? There are many lessons in how individuals that just barely made it through the dotcom bust have thereafter supported each other, from creating Tesla to LinkedIn to Yelp.
4) Execution aka Survival Of the Most Adaptable — How long have you been considering your idea? And how open are you to fundamentally changing your mind? The answer to those questions matters as much if not more than the moment in the market. In 1997 Apple had an internal crisis, namely 90 days from being bankrupt. Steve Jobs came back, signed an agreement with arch-enemy Microsoft, the rest (iPods, iTunes, iPads and iPhones on the road to $1T) is history. If the famously-obstinate Jobs could ahem think different, it should certainly serve as a reminder for innovators now on how a crisis can indeed be an opportunity.
Inspired by a conversation with Fernando Gouveia and originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.
