What do GE, Microsoft, Cisco, HP, FedEx, and IHOP all have in common? They were all started during recessions. More than half of the companies on the Dow Jones Industrial Average were started during recessions, in fact.

Last week the founder of WePay.com, Bill Clerico, wrote about the dedication that it takes to start a company. Recession be damned, he and cofounder Richie Aberman are determined to start the next revolution in online banking. Finding investors has been a challenge for WePay, to be sure. But after months of shoestring budgets they’re on the verge of making it happen.

Recessions provide an ideal climate for entrepreneurship. In a lot of ways, this recession is especially ideal. Think about it:

Venture capital is still in play

Typically, investors lose their appetites when the markets plummet like they have since last summer. This remains the case. However, a confluence of credit crunch and low energy prices has sucked a lot of private equity money out of asset-backed securities and alternative energy investments. The net effect is that although investors are wary, there is still VC money out there for projects with solid fundamentals. And even if it wasn’t: VC really only funds a fraction of start-ups. Friends, family, angel investors, and personal debt constitute the lion’s share of start-up capital.

Competition is weak

Corporations usually have an edge over start-ups when it comes to raising funds to expand. Again, the credit crunch has leveled the playing field. Very few companies are expanding. In fact, most are struggling to keep the lights on. A lean start-up with a fresh operating plan is perfectly positioned to cater to price-sensitive consumers. Demand for goods and services falls with the economy, but it rarely disappears. If you can improve something or make it cheaply, a recession is an ideal time to steal some market share.

Talent is cheap

With unemployment on the rise and wages poised to fall, you won’t have as hard a time recruiting a talented team. People tend to focus on the idea portion of starting a company. What turns an idea into a company, however, is the amount of push that you put behind it. Having the right people in place is crucial to making that push.

None of this is to say that starting a company is easy; it’s not easy in any climate. Sure, if you time a bubble just right you may be able to sell a half-cocked company to speculators for a quick profit. But building something enduring takes time in any market. At least in this one, external conditions seem to slant in your favor.

Mike Trapanese - April 3, 2009 - 9:51 am
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