The Economy & Startups

My post college business boot camp came at Intel. Intel’s co-founder Gordon Moore famously said many years ago that “you can't save your way out of a recession." It has become words by which Intel lives by in every downturn. During the last downturn in 2001, Intel increased investments in R&D and semiconductor manufacturing technology. Those investments are what is driving their revenue growth today in server processors, ultra mobile processors, etc. When I first heard Gordon Moore’s quote at the age of 22, I was too young to fully appreciate the deep wisdom within those words. However, a decade later, I have come to understand that downturns are one of the most opportunistic periods to create the future, for several reason which I will share.

Less Noise, More Signals:

The noise in the startup world dies down during downturns. People will become very cautious and less people will leave their big company jobs for startups. Thus, it is times like this that great companies are born. Those that will take the risk will be more calculated and disciplined. They will strive to create new companies that are less copy/paste plays and more grounded on solving real world problems.

Sound Economics:

The days of getting eyeballs and eventually figuring out monetization are over. As the noise in the startup world dies down, the companies that are created will be focused on monetization from the onset. While advertising will continue to be one approach, new creative ways for making money will be developed. At the same time, the cost side of startups will become more disciplined. CEOs will watch costs and not spend money on anything that is not directly tied to product development or sales.

Grade A Talent:

CEOs will recruit for only the critical and necessary roles, and will be that much more stringent on ensuring that they are bringing in top notch teammates. There is no place for mediocrity in startups during downturns.

VC Investments Will Continue:

The thing to keep in mind is that while the debt markets are drying up, VC firms are sitting on funds that need to be invested over the next five years. Thus, while the likelihood of getting financing for a copy/paste business that does not have a revenue model will go away, the sound companies that will emerge in this downturn will find money. On the flip side, entrepreneurs will need to bootstrap for a longer duration as angel financing will get tougher because the net worth of most angels has plummeted. And so, true to Gordon Moore’s philosophy, VCs will not be saving their way out of this recession.

It is for the above reasons that I am waking up optimistic these days about the days to come. I think we will be in a period of less bull shit and more substance. And while many will hide away in big companies, the few who take the bold risk to start a company are more likely to play the game smarter and increase their likelihood of winning.