There has been lots of hand wringing this week in the start-up community over the US financial crisis. (for example, here and here and here). The discussion was fueled in large part by a post by Jason Calacanis in which he states that “50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.”
Although I found this claim a bit Chicken-little’ish (even in booming economic times the failure rate on start-ups is very high), I really like the advice Jason gives in his post. Namely, that you should stay lean, and focus relentlessly on your business model without being afraid to quickly adapt in your effort to build a great company. There are lots of similarities between Jason’s tips and the way Brian and I have operated in our past start-ups. In particular, I couldn’t agree more when Jason writes: “If you’re idea is wrong, it really doesn’t matter. What matters is if the original ideas allows you to evolve into your big idea.”
The only problem I have with the post is that Jason seems to suggest that being a lean, focused, rapidly innovative company is required because of the economic downturn, which infers that crappy ideas and bad execution can actually lead to success in times of economic prosperity. You bring up some great points Jason, but they should apply regardless of the macro-economic climate in which we find ourselves.
The financial meltdown hasn’t impacted Alice significantly (knock on wood). We are pleased to be wrapping up a large angel round of investment for Alice.com right now. Although the fund raising has been more difficult because of the financial market meltdown, we are still going to close our round as planned and obtain the capital we need to execute. What’s more, Brian and I have met with several potential VC partners in the past few weeks that are still very active in funding new ventures.
My takeaway is that the future is still bright for start-ups that have a good idea and a good team to execute on that idea. Let’s hope it stays that way, and that trying economic times like these makes us all better at bringing innovation to market regardless of what is happenning in the stock market.
October 5th, 2008 at 10:44 pm
Opportunities emerge during downturns.
Good luck!
October 8th, 2008 at 9:11 am
Being a glass is half full kind of guy, I like to look at the positives for startups in the midst of the financial crisis. A few from a recent VC Confidential post (http://www.vcconfidential.com/2008/06/worst-of-times.html):
1) fewer competitors are started
2) weaker competitors go out of business
3) Darwin forces efficiency and laser like focus in your business
4) this discipline continues on when markets open back up, making for more profitable exits
5) less capital consumed means more equity for the founders in the end
October 8th, 2008 at 10:18 am
Thanks Aaron. We were just talking about reasons why a really strong start up would ever choose to be in a down economic cycle and I think you’ve cited a few, especially 1, 2 and 5 on your list. I just hope we are a really strong start up
October 11th, 2008 at 10:36 pm
I just read an article in Fast Company about startups founded in down times that became incredibly successful companies. Cheers.