Friday

Paul Graham’s Take On Starting Up in a Bad Economy

Paul Graham

Every time Paul Graham speaks, we listen. This partner at Y Combinator just updated his blog by adding some thoughts on why stating up in a bad economy is good.

It might seem unbelieavable now, but both Microsoft and Apple were founded during one of the worst economic times, the mid seventies. So, what made these companies stand out? Their founders. Both Bill Gates and Steve Jobs were charismatic, driven, and most of all, intelligent. They knew the economy was bad, but they also knew their products were going to change the world.

Now, I’m not saying that you have to be the next Steve Jobs to be successful, but Mr. Graham makes a good point. He says that:

Someone who thinks “I better not start a startup now, because the economy is so bad” is making the same mistake as the people who thought during the Bubble “all I have to do is start a startup, and I’ll be rich.”

Paul Graham goes on to talk about another challenge startups face: funding.

Investors are more of a problem. Startups generally need to raise some amount of external funding, and investors tend to be less willing to invest in bad times. They shouldn’t be. Everyone knows you’re supposed to buy when times are bad and sell when times are good. But of course what makes investing so counterintuitive is that in equity markets, good times are defined as everyone thinking it’s time to buy. You have to be a contrarian to be correct, and by definition only a minority of investors can be.

With all of that being said, Mr. Graham covers another great part of what makes a startup successful during the economy (and good economic times too): making it all work for less money. “Be a cockroach”. The more money you save, the less you’re spending. The less money you spend, the more you’ll have for your startup.

So, if you were worried about VCs pulling out of investing, you shouldn’t be. Make sure your company meets these requirements, and take Mr. Graham’s advice:

So maybe a recession is a good time to start a startup. It’s hard to say whether advantages like lack of competition outweigh disadvantages like reluctant investors. But it doesn’t matter much either way. It’s the people that matter. And for a given set of people working on a given technology, the time to act is always now.

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• Paul Graham: How to be an Angel Investor
• A Startup Camp For Young Entrepreneurs
• Startup Tips from Paul Graham
• 6 Key Steps Towards a ‘Yes’
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