Why to start a startup in a bad economy (2008)
paulgraham.com
paulgraham.com
It's worth looking at the current macro climate through the lens of what is different, not what is the same. It remains to be seen if we land a meaningful revolution this time: lord knows it ain't the blockchain, but will it be AI? The other difference is as you point out, we're raising rates into this recession not lowering them. The intent right now is to slow growth and destroy demand making this an inherently more challenging time start.
As they say, don't fight the Fed.
Facebook’s ML models contribute massively to their profitability.
There's still ample tech innovation happening right now.
> It remains to be seen if we land a meaningful revolution this time: lord knows it ain't the blockchain, but will it be AI?
In 2008 the iPhone was already out and the App Store was launched that year, but arguably the smartphone didn't become a significant economic factor until around 2012. All the other services paulpauper cited as playing a role in the post 2008 recovery had been out for years, some of them almost a decade, but they just hit critical mass where they became economically impactful around then.
Green tech is the main exception, it's solidly into the steep phase of the adoption curve and has received a massive boots in investment in the last 12 months as a result of the Inflation Reduction Act*, plus the Ukraine war and the pivot away from Russian hydrocarbons.
* Gotta love US bill names. You just know the "Cute kittens appreciation act" is going to cull and stuff all the cute kittens.
I wouldn't be surprised to see a crop of start-ups focused around that space.
2023 feels a little like the start of the start with shades of 2008.
This has always seemed incompatible with the VC model, which involves raising a ton of money, putting the company on an 18 month clock, spending the money so you can hit key milestones, and then raising even more money when the clock runs out.
I have heard of a few companies that were on the VC track, raised money, and stayed frugal. But my impression is that investors want to see you swing for the fences, which involves spending all the money they invested, and fast.
How common is it for startups to buck this trend?
If you're pre-seed stage, in Silicon Valley, and the founders have a "good" background (the right companies, knowing the right people, etc), then sure you might raise a small round. If you're any later than that, or anywhere else in the world, you need results, and results don't come as easily in a recession.
Depending on your segment it may be easier to sell products in a recession. Tools which cut cost and are below a certain monthly spend actually become easier.
Hiring is MUCH MUCH easier.
Raising money is harder.
If you want to be frugal and grow responsibly, you have to do it without VC money.
What would he say now?
Tons of old pg essays sound straight from something like Indie Hackers or Microconf with their "avoid raising VC money" angle. He even literally predicts the death of VC in web SaaS, saying "investors aren't worth the trouble": http://www.paulgraham.com/divergence.html .
His YC cofounder Jessica Livingston wrote a book "Founders at Work" and about half the founders in the book are bootstrappers (DHH, Joel Spolosky, Craigslist). The other half are mostly founders recounting horror stories of interacting with VCs.
Compare that to modern YC where there are videos where they say _everyone_ should consider applying to YC with the _only_ exception being people that want to bootstrap. Modern Startup School says: "Without startup funding the vast majority of startups will die." (https://www.ycombinator.com/library/4A-a-guide-to-seed-fundr...).
There's something very important to note which is that YC did not change the deal from 125k for 7% to 500k for 7%. It's still 125k for 7% plus 375k worth of equity on your next raise. Which only makes sense if there is a next raise. So obviously they discourage bootstrapping since their whole model has been built around you raising at least one more round after YC.
Seems a pretty simple case of "follow the incentives." YC basically became more of a traditional VC over time. And I think pg was still closer to a founder in the early 2000s, from a founder perspective, it's more of a set of tradeoffs whether you should bootstrap or seek VC. But from a VC's perspective, obviously they want you to seek VC since they can't get involved if you bootstrap and bootstrapped startups won't get the outsized returns they need.
My opinion is, pg is a smart guy, there's still a ton of wisdom to learn from in his essays, but as with every other person on the planet, consider their motivation and incentives for telling you what they're telling you.
Not that I disagree with your assessment on pg's incentives and YC's change in position over time, but the environment for software startups is also materially different now that affect you whether you take VC money or not.
Key costs like hosting are way cheaper, back then you probably had to rack server in a data center, now you can deploy a free/cheap PaaS with a free/cheap database while you find PMF.
Marketing is way cheaper, social media is a grind but it's a game you can play to acquire users/customers for _free_.
There's more stuff going on online, more people, more businesses, more everything. Think about the entire "creator economy", other bootstrappers, Shopify sites, etc.
Yeah some stuff has gotten harder, more platforms, higher UX standards. But on the whole I'd rather bootstrap in 2023 then 2010.
Check in with me in a year though.
Back in the day I have delivered several different cheap 1U rackmount servers to data centres. Once took one - using public transport - to whatever suitable spot in the Docklands in East London. Travelling on the DLR with a server under one arm was a a memorable experience.
Long story short: you can do a lot from a $1000 server, if you put your mind to it.
Yet these days it seems PaaS is better, (over-)paying GCP/AWS/Azure, while you grope around to find a product that will sell for $$$ before your cloud credits run out?
It wasn't the greatest thing in the world, but it was dual-core, 2GB RAM, 160GB HD. I ran a small forum, email server, and a couple buddies used it for shells and running whatever PHP apps they wanted.
An $80 Linode these days only has 16GB and 320GB.
Here's what you can get for $89+: https://www.hetzner.com/sb?price_from=89
For 92 euro: 128 GB RAM, 3 TB SSD, 8 core i9-9900K, unlimited bandwidth.
You get 50x value for the 2009 price.
If in 2009 you served 480p videos that was fine, now you have to serve 4k or you will look like a tool. Various grumbling about JS bloat is optional.
free marketing through effort is by no means a new concept.
( and it's not free. )
But this bias is there. I'd wager if YC started HN today, it wouldn't be called HN. That name is uniquely related to the times YC & PG came into.
It's a bit like trusting an insurance broker's opinion on your own personal insurance necessity -- it'd be unsurprising to me for a broker to tell me that I need the most comprehensive (expensive) plan that they sell.
If you’ve taken VC, you had a bad VC. Otherwise, this misconstrues most VCs’ advice in a downturn, which is to prioritise staying alive.
The defining difference between a startup and small business is scaling potential. If you can’t grow, you shouldn’t take VC.
Usually not. Most small businesses have geographic limits to their scaling potential. That said, yes, there are niches where small businesses will beat a start-up competitor, at least in the short run.
VC is expensive capital. The same dilemma exists for companies that issue high-yield debt.
> there are ways to scale even without that level of pressure but VC doesn't allow that
Genuine question: what is this?
More time. There are examples of bootstrapped businesses that may be took a decade to get to first few million which will be dead in VC terms. But they continued and got to 100s of Millions. VC model would tell them to kill it if after a decade, they were doing a lousy couple million in revenue even if on the right path with PMF.
Isn't the criticism of the last decade of VC that it backed many of these?
Everything changed and I’ve seen it change from a small agile business with nice people to a baby corporation with up or out mentality, useless processes everywhere, harassment methods from HR department. In one year, VC money created as many millionaires as employee burn-outs.
If things don't go well, it would probably be hard to raise money for a future startup, due to the reputational damage of not having followed the VC playbook.
If things go fine, the VCs would probably say you could have grown even faster by spending faster. And what's considered a 'fine' outcome for you (selling for $15M with 1/3 for you) is not considered 'fine' for a VC whose model requires bigger wins — even if they take much longer.
No VC is telling companies to just to wastefully hire people they don't need. That wastes money and creates friction and bigger problems inside of a company.
They do tell you to hire aggressively, and you often present them with a model that shows _how_ you will use the money you raise, and sometimes you hire too many people on accident. But no VC is pounding their fists on the table telling founders to explicitly go hire people that aren't needed. That's directly against the interest of both the founder and the investor.
1. According to Zeihan, who points out that with the retirement of the boomers their 401k accounts that have been funding all this money are going to get cashed out and withdrawn, reducing the amount of money for lending, leading to an overall capital contraction.
I can start a business without an investment round, but not a startup? Is it a startup if it involves tech, a business if not? What if they use SOME tech, but not necessarily innovative tech? Or is this one of those 'you know it when you see it' kind of things? Has the term startup become a buzzword like "optimize" or "synergy"?
Seriously asking, not being snarky.
edit: thank you, for the responses that clarifiesthe distinction
Most small businesses do not plan to grow very quickly.
Startup incubators would rather have their 999 startups go broke and the 1000th become "next Google" than have average RoI on all 1000.
The answer around me seems to be that a startup comes out of an idea without the capital worked out. That the equity they have to offer is worth nothing, unless they execute the plan with money they don't have.
If you have the capital worked out, you can go ahead into the business phase of the process right away, where profitability is king and there's no plan needed to answer the "how to raise more?" question.
A lot of what we associate with startups is the justifications towards raising and a lot of what we see from a "business" is geared towards margins.
For instance, better margins by extracting more profits on a lower revenue is better for one, but looks bad for the other.
Some of the causes and effects:
1. New business may have a proven business model, customers, product, market. Startup may have to find or create any of those
2. New business may have some capital to build/invest itself (I've worked in a restaurant, saved up, now opening my own). Startup is based on idea/people/work, but likely has no internal capital
3. Both have risk; but in some ways New business risk is known & understood. Startup's risk may be as undefined as their product/market.
As frequently used, there's also a
4. Expectation of profit / failure rate. A new business would be happy to succeed with small profits, certainly very much over bankruptcy/shutdown. Startup ecosystem/expectations are built around fail or succeed wildly.
A startup is an organisation in search of a scalable, profitable and repeatable business model.
(Scalable is relative but at minimum exponential. Linear growth does not a startup make.)
The above definition has helped me delineate between a tech smb and what one feels is a “startup”.
When you start your startup, you are by definition pre-PMF. There is only a weak relationship between what you spend and what comes out the other side. Once you're post-PMF this changes and you may need to jack up the spending in order to grow as quickly as possible.
Lots of companies screw this up and scale up spending when they're pre-PMF. In 2021 those companies could keep raising, but now they're probably going to die.
I'm sure this depends on the business but I'd say if you need a lot of marketing spend in order to experiment it's a sign that you may not be enough of an expert on where to find your customers and you either need to find a way to gain that expertise or pivot to an area where you already have it.
If a startup doesn’t need the capital to grow, they’re not likely to take on VC funds. If they do, the startup will need to sell equity, which based on funding round have norms based on equity given for capital received. If the startup is frugal with the capital, but still manages to hit growth targets and reach an acceptable liquidity event for the VC, then any unspent capital would only add to the valuation of the company.
Is that common, no, but it does happen; if it does, generally means founders gave up equity unnecessarily. Regardless, VC measure ROI on capital invested in the startup not if the capital they invested was spent by the startup.
Somewhat amusingly now that the capital environment has shifted dramatically, we have investors coming around who used to give us side-eye for being discerning and fastidious (and also our investing resources early to acquire government & adjacent customers), but now they treat us like secret geniuses or something. Because we have a reasonably stable baseline to build from. We're aligned with key markets that continue to spend money even during down markets and recessions. Not to mention we're also not in crisis having to massively disrupt progress and morale by laying off a bunch of people (in fact we're hiring, though still judiciously of course), which is HUGE since team and execution is everything.
(a) Work at a big co, save a boatload of money, quit after a few years, and then fund it yourself without the bullshit coffee chats* and 18-month clock.
(b) Work somewhere that has good work-life balance, pays you enough, is okay with you spending your free time doing something that doesn't compete with the company, and then build it on the side until it makes enough money to replace your day job, and only then quit your day job.
* There are good VCs out there, but 95% of VCs will waste your time, and you'll have to wade through them in your search for funding. The amount of coffee chats you'll go through will literally destroy your company because you won't have time to do real work.
However, a long-lived, yet non-home-run business is actually a negative in a VC portfolio. Because of the nature of VC, they need big wins to give returns to their fund investors. Their model intentionally decreases average success probability for a business as a filtering mechanism to find big wins as quickly as possible, so they can provide those returns to their own investors on an acceptable timeline.
When things hit the fan, the larger and fatter a company is, the more likely they will throw the baby out with the bathwater. They go into ultra-stupid cost-cutting mode and that is a great opportunity to hire some of the best dormant employees you'll ever meet.
Since the best determinant of a company's success is the makeup of the team, I'd say when the economy is bad is the best time to start a company. You'll land some of the best talent and that'll give you the best chances of success.
It's "bad" now because central banks are actively making capital more expensive, which makes it harder to raise money for a speculative bet.
As in I would be really shocked to see a new Uber for X or grocery delivery startup raise tens of millions right now, but yes small teams building something that isn't very capital intensive will likely still be able to raise money.
I wonder if that is applicable here as a metaphor.
To me, that's a really convincing explanation for the Fermi Paradox. There may be other intelligent species out there, but evolution on earth seems to have a history of producing killing machines (and crabs. its always crabs). So, the gate to get to intelligent life isn't probable; and then you hit the gate of "does that intelligent life have enough local resources to escape the gravity well of its own planet", a gate which for earth practically required a prior chain of hundreds of millions of years of evolution, and an opportune asteroid impact to clear that chain out and make way for a new one to roll the dice again.
The mitigating factor for the second gate is: There could be other resources which could provide the power to escape a gravity well independent of biological decay (e.g. uranium, hydrogen). But at least in human history: think of what it took for us to fully understand how to harness oil, let alone uranium or hydrogen, create a rocket, and get to space safely; we did that with the tremendous benefit of plentiful hydrocarbon resources (global shipping, computers, mining rigs, plastic, etc). At minimum; a species without this advantage would take a lot longer to get to our level; but we did it in just a couple hundred years.
Universal timescales help, but they also work against; as the earth has showcased, planets get bombarded by civilization-ending asteroids often. So, either an element of luck, or: a species has to have these structural advantages, and apply them for the purposes of asteroid defense before the next one hits; or its all over and the clock resets.
Point being if I were a betting man: there are probably between 1 to 4 civilizations in our galaxy (including us) which have reached a similar or greater level of technology; but a great number more that are functionally trapped in a steampunk age, unable to escape their own planets.
My other more fringe theory for the Fermi Paradox, which to be fair is practically the entire plot of The Last of Us, is: that the Apex Predator on every planet that is capable of evolving carbon-based life is Fungus. Eventually, Fungus always wins; and takes intelligent civilization with it.
https://www.nytimes.com/1994/06/11/obituaries/mary-gates-64-...
https://www.cnbc.com/2020/08/05/how-bill-gates-mother-influe...
> Mary was a respected businesswoman with many responsibilities, including her membership on the board of nonprofit organization United Way of King County. There, she met the late John Opel, then-chairman of IBM, who also was a member of the United Way board.
> IBM's talks with Digital Research started to flounder, and when assessing options, Opel remembered Microsoft as the company "run by Bill Gates, Mary Gates' son," according to The Seattle Times.
> When Microsoft won the job, it didn't actually have an operating system of its own. So in 1981, the company bought QDOS, an operating system created by hardware company Seattle Computer Products, and with it developed MS-DOS, the Microsoft Disk Operating System. Microsoft licensed its MS-DOS to IBM to use as the operating system for its personal computer. (In addition to Microsoft, IBM also contracted Digital Research and SofTech Microsystems to use their operating systems for IBM's personal computer.)
If you have not a lot of savings to live from, and your runway is therefore short, you'd be stupid to quid your day job and launch your startup: your small savings will quickly be used up and that'll be the end, because you won't be able to raise a round.
If, however, you have substantial savings to deploy so that you can get far enough to afford to pivot 1-2 times until you find product-market fit, then PG is right and taking the plunge is the right thing, regardless of business environment.
If your plan relies on customers, then it also depends on whether your product or service is aimed at reducing customer cost or has value in a different way.
To exemplify the above: I claim "You can/should start something like AirBnb in a bad economy, but not Google."
Yet AirBnB was born into a good economy (that, in fairness, was on the cusp of going quite bad), while Google was born into an economy that was just starting to recover from being bad. Not when you start but when your product is ready to ship may be more significant. By the time Google was ready for prime time we were in a good economy. When AirBnB was ready for prime time, we were in a bad economy.
Skate where the puck is going, as they say.
Huh? Google was started in the mid to late 90s (incorporated 1998 but started earlier at Stanford). It was quite literally during the peak years of the dot com bubble and the US economy was doing fantastically well. The Clinton administration was even trying to draw up plans for what to do if the national debt was paid off...
Are you thinking about when Google went public in 2004?
If, in an alternate universe, work on Google had started in 1998 when the economy was strong and didn't ship until 2000, things could have been quite different. It was no doubt important that they were ready to ship when the economy was at its peak. That means starting when things aren't so good.
https://fred.stlouisfed.org/graph/?g=YUZM
Sure, it was still above 5% in 96 nationally. But strongly down from the summer of 92 peak.
Additionally, Netscape's IPO was in August 1995. I wouldn't call that a bad environment for starting an internet company.
People building Internet infrastructure (Cisco, Sun, etc.) were making some decent money, but actual Internet businesses? Not really.
In fact even by 98, 99, '00, Google itself had no real viable business model. Despite becoming a household name already.
> Google was born into an economy that was just starting to recover from being bad.
I don't think being grad students at Stanford and then incorporating in 1998 counts as "just starting to recover". The economy in 1996 wasn't bad. 1998 definitely wasn't.
Q: How many times did AirBnb and/or Google have to pivot to find product-market fit?
I'm not sold on pivoting, and I'm not the only one. See:
Too Many Pivots, Too Little Passion https://hbr.org/2012/09/too-many-pivots-too-little-passion
Like, is there PMF if no money is changing hands. I saw Docker be described as having extreme PMF but they went down because they had a product, but giving away cool stuff does not create a market.
If it's not profitable, it's not PMF.
I think PG is fairly criticized for some things, but on this topic I trust that he knows what he's talking about.
This line of reasoning has always felt so bizarre to me: try to start a business doing something you think is important and when you find it doesn’t work, try some other business until it does. I understand it as a response to things not working out as expected, but people go into business with this as a strategy.
I guess I’m just not that type of person.
So you learned a bunch and therefore aren’t starting from scratch with the 2nd try.
I.e. you make some environmental tool and try to sell it to the government. You learn that the government is a byzantine mess. You then sell the tool as part of a service to the corporations causing the mess to prevent future lawsuits. You pivoted, but the tool itself still had value.
What happens if you don't find a customer, even after some several iterations/searchings? How do you know the tool has value in that case, other than personal conviction?
Apple and google seem to be more of the latter
For me, I just wanted to learn React/Node and picked the context of Electron.
Since I was a hardware/software integrator… I thought: what is the best common hardware with the worst software? Label printers!
Now, after 4 years of pure software I’m launching a new brand of 300 dpi label printers.
The value I’m offering Mac users is a blue ocean strategy: creating huge value at low cost whereas my windows version is more purple ocean (some blood in the water)… since I’m disrupting incumbents on the lower/middle sized end.
You only fail when you stop trying.
[1] https://medium.com/journal-of-empirical-entrepreneurship/dis...
Very very few truly do as you state at face value. Most people go in with a plan and rarely want to hard pivot.
But, starting a business is a test and the outcomes of the test shows whether it's working for you or not. Many times its fundamental business problems (homejoy) other times it's you (friendster vs fb).
There's no right/wrong way to decide what is the correct move because whatever example someone provides, there's plenty of counter examples.
But, firing as many bullets as possible helps reveal what potentially works and to double down on. Sometimes what is showing signs of life is an aspect of the business that's not directly related to your current core, but pivoting there means survival. That is the hard pivot (segment.io).
Nice work, if you can stomach it.
"Capitalism!"
It's irrelevant to some degree if this growth is real (driven by a better product), or inflated (by offering steep discounts, ads, marketing, etc).
It looks good on paper, and allows raising the next round. This is of course an order of magnitude bigger and demands even more growth. VCs look like geniuses in that case. Value of fund goes up, fees go up. Until they don't.
People have accepted to work tireless hours for peanuts and paper money with the promise they will become rich: this rarely happen. Don't buy the hype. It is more the exception than the rule.
Many multi billion dollar VC funded business are still not profitable and often don't have a path to profitability.
In the 90s my wife worked at a software company that makes scientific imaging software. They have a nice niche and continue to sell their software into academic and research labs. They never had more than about 7 employees - now about 5. It's a decent business that never needed VC funding and has gone for about 30 years now.
Perhaps VC is an equalizer here. It makes it possible for founders (like me) to start the next Microsoft without having to rely on privilege.
I understand allocation of VC resources has its own privilege issues but I'll take that slightly more accessible world over a world where your family determines the outcome.
https://en.wikipedia.org/wiki/Fairchild_Semiconductor
Edit: HP started earlier in 1939, but was bootstrapped and didn’t do silicon till much later.
I wouldn't bet on it. Wait for $$$ to become cheap again and you will see all sorts of garbage with multi million $$$$ evaluation out of thin air.
All things being equal, you’d rather not fund failures. But VCs care more about missing Facebook than getting conned by FTX. Most of their investments go to zero anyway.
you missed the step where you completely destroy the established market, and then when you're the only game left in town, make for a more expensive and/or worse product/service than what existed before.
It's not about getting rich. It's about being able to give yourself a realistic shot at each of many things you care about. If I do the slow path, I get maybe one or two shots and if I'm not ready for that industry or if I fuck it up, I'm borked. Succeeding or failing fast lets me do this the way I have succeeded at everything else: trying many times.
But this is pointless. Those who get what I'm saying need no convincing. Those who don't can't be convinced by me.
Unicorns are rare. Businesses that pay 2-5x the local salaries and let their founders get 8 hours of sleep are more common, I'd argue.
> But this is pointless. Those who get what I'm saying need no convincing. Those who don't can't be convinced by me.
That's an odd way to join a conversation, since that's precisely why we have them.
I think this falls under the founders' shoulders. Some founders tried to "hack" their way to "fake out" large growth that they themselves know are not sustainable, just so they can fool the VCs they are raising money from.
The next big thing appears to be AI (not VR), but I don't really see how it can really compete with that historic low cost startup. What would a MVP AI even look like? Would it only be a good AI part of the time? We already have that. Try using Siri.
> That was the task for some Stanford students in the fall of 2007, in what became known here as the “Facebook Class.”
> The students ended up getting millions of users for free apps that they designed to run on Facebook. And, as advertising rolled in, some of those students started making far more money than their professors.
> “Everything was happening so fast,” recalls Joachim De Lombaert, now 23. His team’s app netted $3,000 a day and morphed into a company that later sold for a six-figure sum.
> Early on, the Facebook Class became a microcosm of Silicon Valley. Working in teams of three, the 75 students created apps that collectively had 16 million users in just 10 weeks.
In the early days of the platform app developers had a huge amount of freedom in terms of accessing users' social graphs, pushing notifications to timelines, and so on. It made it incredibly easy to build a viral loop and push out an app that spread like wildfire.
Obvious downsides to that - big privacy issues, and annoying users with endless notifications like you said. Facebook had to start restricting what app developers could do, and once that happened it became much harder for apps to get traction.
I would argue though that tech salaries are highly overpriced right now. A lot of software engineers in the valley should be able to live quite comfortable life even with 50% pay cuts.
Show us the math, please.
Their stock is down by 50-70%. Their base is not that high compare to the insane rent.
Business cycles, timing the downturn and all that, does this Warren Buffet type "sound contrarian advice" apply also in Alice in Wonderland economies?
Inflation is rampant still, even wealthier folks are cutting back, and interest rate hikes are destroying markets. Keep in mind markets always lead the broader economy by at least several months. They'll crash well before earnings consistently start looking bad and recover before you see earnings recover. US interest rate hikes are also having an outsized effect on other countries vs. the domestic economy.
obviously inflation is real and the new rates regime is real but it feels that people are pre-emptively trying to cool things down, build some buffers etc. rather than an already realized economic malaise.
the implication for the "time your startup" narrative of OP is that it is even less clearcut of a decision than if it was a real (let alone deep) recession.
So agree with this sentiment. It matters less about when you start a company. It's how you execute. You might be building something very timely, but if you can't scale then it hardly matters whether there's a recession or not.
If PG says "you should start a startup in a bad economy" it's simply a clever sales pitch, a spin on the current circumstances. Back in 2008 when this was posted it was presumably in response to the Global Financial Crisis (or "Credit Crunch" in the UK), I'm guessing it's being posted again due to the recent layoffs.
It may be the right time for you to take the plunge, but you should be reading this article with a clear head and remember that this is not an old friend giving you some sage advice, but someone who is incentivised to get you to take risks on their behalf.
there's always an optimistic take to everything and a pessimistic one. if you're always taking the wait and see approach, chances are you're not going to do anything later, either. be somebody who does things and doesn't just sit around dreaming and waiting (like me)
I get that people are concerned about their ideas being stolen, but honestly, you can probably come up with another idea. I think what most people who have their ideas stolen find is that it turned out to not be a good business, and someone else invested 2 years of their life on a painful slog to discover that. On to the next idea!
Just as a couple of concrete examples:
A paid-for app was a great idea in 2009, but a bad idea in 2013.
A dedicated handheld PlayStation was a great idea in 2005 but an awful idea in 2012.
Self-driving car companies were a great idea in 2017, but a bad idea in 2020.
I think the point is that technology changes and sometimes you need to strike whole the iron's hot.
There are so many things that were "before their time" and failed, like garbage-collected programming languages. C beat Lisp, because GC was too slow. Then Java beat C, because manual memory management was too dangerous. Being too early is almost scarier than being too late.
It's not technically wrong or anything, it's just business. But people sometimes forget that because we do get good, honest, selfless advice on here and it's sometimes hard to differentiate.
Tech in 2008 looked very healthy, and VC funding only went up from there.
We're looking at an actual contraction in the tech sector now. We can argue how about whether this is a small "correction" or something more major, but I think it is a good idea to not just blindly apply good market advice from 2008 to the 2023 landscape.
It probably is a great time for a startup, just probably not a tech startup.
Well, it's not really an issue of tech vs. non tech anymore is it? A good chunk of the largest companies are now under the "tech company" bucket. It boils down at the end of the day in whether they invest heavily in tech or if it's incidental.
This mashes together companies as diverse as Tesla, Snowflake, and Airbnb together. The former is a car company with inventory, etc. The middle one is a SaaS company. The latter a travel company platform.
Ultimately, a few things are clear-- even after 5% interest rates get slashed (which looks increasingly likely to happen in 2024 and not 2023) investors are no longer interested in businesses that have no idea how they'll attain profitability. I would argue this is a good thing-- it now forces companies to be strategic in what they invest in.
> I'm guessing it's being posted again due to the recent layoffs.
This was submitted again (by someone not affiliated with YC), but it's a repost.
Objectively speaking starting a startup in a recession / bad economy is actually a good idea. There are numerous examples of why this is the case, but the simplest explanation is that you get to follow a regular venture cycle that correlates to the highest returns. Since it usually takes about 7~10 years to get to $1b+ valuation, this follows a normal market cycle. There is a reason an unprecedented amount of software companies IPO'd 2020~2021, because valuations were sky high, and not because of those individual businesses were strong but simply because the market was hot. If you can ride that wave you can create incremental wealth for yourself, regardless of whether a VC is involved. In other words, timing is everything and starting when the market is at the bottom is good timing.
In a bad economy you don't have that luxury. Not only is there not as much cash to go around, investors are pickier with the cash that they do hand out. This means you can no longer pursue a business plan that sacrifices profitability for growth, you have to prioritize making money. Assuming your business succeeds, it will then be better prepared to get investor cash when the economy improves and can theoretically weather future financial storms better.
I realize this is a very idyllic way of looking at it and there are a million other variables that come into play, but I think pg is definitely looking at it in idyllic terms in his piece.
> Technology progresses more or less independently of the stock market.
Progress could be defined in many ways, but sure as hell there is less money in the tech sector, and funding is very difficult right now as far as I understand.
I do agree with the sentiment that the market shouldn't affect your timing if it can be avoided, but I wouldn't expect it to be very easy to start something capital intensive with a long road to profit right now...
My thinking was if I can survive in the lean times, I can survive in the better times.
However, in the 2010s, we saw an explosion in tech business opportunities and cheap capital during strong economic times. Most of today's unicorns are from this era.
It's not just less competition, it's the extant players in any market assuming there is less competition and getting blindsided by upstarts.