Break Points
No Time For a Startup?
Jack Ganssle
8/10/2009 1:49 AM EDT
He was right.
So, is today a good time or a bad time to form a startup? Certainly there are significant risks, but there are always risks.
Successful businesses start with having a customer, and customers with cash might be in very short supply today. But the economy hasn't dried up; the GDP is off a handful of points, but spending levels have not changed significantly.
In difficult times smart customers are always looking for a better, cheaper, or more efficient way of accomplishing some goal. Given a product or service that truly addresses those needs, it may be The Next Big Thing. Or at least the foundation for a successful business.
Certainly credit and VC money is tough to find, according to the New York Times. I read recently that VCs in the US have funded only a single company in 2009. But most startups begin life as small outfits with modest goals. VCs have never funded those. And even in the best of times banks laugh at people proposing a startup unless there are significant assets to guarantee a loan.
Lots of us have used home equity to fund companies, or a fistful of credit cards. The former is definitely less of an option today. The latter, well, has always been tremendously risky. But risk is an essential part of a startup.
Certainly there are more people available. Layoffs hit the losers and good folks alike. The supply of engineering and other talent is high now.
In good times there's plenty of competition. Recessions weed out the weak, opening opportunities for smart people with brilliant ideas.
Every recession ends. The companies that use the tough times to invent new products will be much better positioned to profit from the rebound than those which draw inward.
I never advise people to start a company unless they have a fire burning within, a great idea, and the skills to execute. One has to be willing to bet it all, and to work like Sisyphus. But given those, I think one outcome of this recession will be a host of new startups.
(Editor's Note: Jack's Embedded Poll Question this week is "Is now the time to start a business?" To vote, go to the Embedded.com Home Page..)
Jack G. Ganssle is a lecturer and consultant on embedded development issues. He conducts seminars on embedded systems and helps companies with their embedded challenges. Contact him at jack@ganssle.com. His website is www.ganssle.com.
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krwada
8/10/2009 1:28 PM EDT
I can tell you this ... most ... actually, the majority of my consulting customers are, or have been start-ups at one time. Out of all of my customers, I can honestly say that only a handful have hit home runs, (less than five).
This recession is very different from the others. What is currently different this time around is the fact that this one is a financial-led recession. That means there is very little speculative money out there to fund the start-up scene. My guess is that this will unfreeze when folks start realizing that there is still a ton of money out there that needs to be invested!
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rainierco
8/10/2009 3:11 PM EDT
Even during a downturn, embedded OEMs are designing tomorrows products and need hardware and software component innovation including that which comes from startups.
OEMs make design decisions today that will be the basis for how they differentiate their products and compete in 2010 and beyond i.e., when the economy fully recovers. There's no question about it, in today's economy, everyone is tempted to and urged to, "hunker down." But today's investments in innovative R&D (and hard-hitting marketing, I might add) will determine which businesses survive this recession and live to thrive when the economy comes back to life. And startups certainly have a place in these future-revenue opportunities.
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Ray Keefe
8/13/2009 2:12 AM EDT
I agree.
Now is a good time to get 2010's products happening. And being off the boil a bit means you've got time to do the stuff that you know you should be doing but you couldn't get to when things were flat out.
I run an electronics and embedded software development company in Australia and while some of our clients are bunkered down others are seeing it as the opportunity to get a head start on their competitors and are generating their new models now. As a result we've had to move to larger premises.
The hardest part about starting something is having the idea and the passion to sustain the early phase. Australia is very poorly serviced with VC or startup funding so most new ventures have to fund their own beginning. We did that nearly 12 yeasrs ago and I would do it all over again.
Ray Keefe
http://www.successful.com.au
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pbleyer
8/17/2009 5:32 AM EDT
I must be living in a parallel universe. My company, although not a startup, just bagged $60M more from new and old investors. The medical device industry seems to be doing pretty well during the recession. I also think that this recession is more abnormal than the previous ones; it has not hit everyone with the same sword.
Investors are still willing to invest in some areas and are being forced to diversify, which is a good thing for a general finance health.
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Finleythewombat
8/20/2009 9:07 PM EDT
I think a recession is sometimes an excellent time for a startup. Americans are just having a hard time affording regular donuts and SUV fillups. To paraphrase Paul Hogan, "that's not a recession. THIS is a recession" : 70% of the planet's other inhabitants are starting wars over water rights and worrying about how they will eat or keep the lights on. With foreign investment hard to come by, anyone with a useful contribution to make to solving these problems is onto a winner. Ray Keefe is correct - if you're part a team with the drive and passion to stay chained to the bench, it's possible to self-fund and present VCs with a full-fledged product (in my experience, they're more impressed by something that works than a powerpointless presentation). This is exactly what we're doing, and it's working out just fine.
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