37signals can trace its roots back to the dot-bom tech recession of the early 2000s. The party was over, the mega budgets were gone, and you had to hunker down and make money in exceed money out. Back to basics.
This might have seemed like exactly the wrong time to start a business, but I believe the opposite is true. The skills and the culture you pick up at formation will stick with you forever. The corporate mind of 37signals became imprinted with frugality and efficiency that still is at the core of who we are today.
That’s why it brings me extra joy to read in the New York Times that 2009 was a record year for new businesses started. It’s at a 14 year high! As the article muses:
Maybe this is a good thing. A deep recession can be the mother of invention. These Americans are now liberated from the bureaucratic straitjackets they thought they had to wear. They can now fulfill their creative dreams and find their inner entrepreneurs. All they needed was a good kick in the pants.
A whole class of companies forced into existence, forced to be lean, forced to be profitable. Nothing is so bad it’s not good for something.
(Yes, some of these starters will not be successful or they’ll make less than they did in their former job. Just starting a business is no guarantee for success.)
Scott MIller
on 02 Jun 10It has been my experience that a recession makes for a great time to start a business. Mostly from the standpoint that your customers are pursuing value ruthlessly. It does not take long to learn if you have something people will pay you for. Unlike good economic times, where spending is freer and current demand for your service/product is less of a barometer of long-term success.
I have started both of my companies during recessions. One in 1990, the other last year. Its tougher to get traction. But the early customers, the “value seekers”, are typically very loyal.
Trey Langford
on 02 Jun 10There is never a cheaper time to start a business or take market share then in a down market. True Competition is low because everyone else is in safety mode or dieing.
Kenneth Vogt
on 02 Jun 10A recession in the job market means that there are highly competent people on the streets, hungry and looking for opportunity. If you attract those people now, you can build a very strong team that is used to performing with less.
Noam
on 02 Jun 10Great insight! We started in 2007 and our company soon hit the deep recession. Here is an extract from the first post on our blog from Nov. 2008 – it’s in line with what you’re saying:
“As a company that started when the economy was in decline, more than once did we encounter obstacles that seemed impossible to overcome. But being passionate about what we do, we were always committed to keep doing it! So each time we adjusted our strategy, changed our approach, and ended up stronger.”
I definitely agree that starting a business in conditions that are considered tougher helps you find the path that’s optimum for your business.
Шлифовка бетона
on 02 Jun 10I think all back to bases in 2010
Anonymous Coward
on 02 Jun 10How’s the redesign of this blog coming along?
Bill Seitz
on 02 Jun 10Your argument is not unreasonable. But you should be more clear that it’s not connected to the original Reich editorial, which ends with:
“New businesses are vital to job growth, and entrepreneurship does fuel the economy. And surely some of America’s new independent workers will build their own companies. But when the economy is still so hard on so many, it’s important to distinguish between entrepreneurial zeal and self-employed desperation.”
Cleavon J. Blair
on 02 Jun 10A recession is a terrible thing to waste!!!
Jimmy Chan
on 03 Jun 10Recession or not, it is not relate anything to me.
Just START.
Deltaplan
on 03 Jun 10You have to take into account that the increase in unployment leads many people, who can’t find another job, to consider starting their own business.
We see that in France too, expecially since the administrative chores, and taxes, have been significantly reduced for individuals who want to start a freelance business (as long as it doesn’t make them earn too much…). The number of business creations has been skyrocketing since then.
It has also drawn much criticism, from the workers unions who believe it is an attempt to lower the workers rights (many people have been fired by their employers, who ask them to register as a freelancer to go on making exactely the same job – just without any benefits, and much less taxes for the employer), also by the people who were already freelancers and who complain that it leads to unfair competition with newcomers who don’t have to pay as much tax as them, and also by the state itself, seeing that as much as 1 out of 3 of these businesses have never generated a single euro of revenue after several months.
Mike Wagner
on 03 Jun 10For existing businesses, a Recession doesn’t cause problems, it reveals them.
Thanks for stirring the pot with this post.
Keep creating…it freaks people out, Mike
Discobot
on 03 Jun 10Totally agree. Succeed when you’re hungry and prosper during the fat times!
Martin Edic
on 03 Jun 10There is actually quite a bit of data that says that businesses started during downtime are far more likely to succeed than those started during periods of irrational exuberance. Virtually every large tech company was started in a downturn. The costs associated with starting companies these days are significantly lower due to the cloud, online distribution, easy outsourcing, social marketing etc. So it’s tough to compare with a few years ago when you needed a lot of cash for these things.
Luis
on 03 Jun 10Every business, whether in a recession or not, should be frugal, efficient, extracting each and every penny for what it’s worth. Even in good times it pays (literally) to be frugal, spending only when absolutely necessary. Unfortunately I’m part of a company that spends money like it’s going out of style when new projects and income comes in, then takes a shit when times are lean, letting good people go, when we should be creating and always evolving and adapting. That’s very possible, so long as you bank your pennies for that rainy day…and there will be more rainy days ahead, I’m sure.
Will Hardison
on 03 Jun 10I believe Ford was started in a recession along with HP, Burger King, Trader Joe’s, Sports Illustrated, and the list goes on. A recession does challenge the business owner to think/work smarter, start and stay lean, and pour their heart and soul into it. The only downside I can see is that business to business companies, like a marketing or web design firm ,struggle to help all of these new companies because many of them are created with little to no budget or financial backing. Many companies are being created because laid off people have no other choice.
Martin Edic
on 03 Jun 10Will, I think we have to distinguish between service businesses and product businesses or limited growth businesses and unlimited growth businesses. A web or marketing firm (I’ve owned both) can take a real hit during a downtime and has less ability to make up for it when times are good because their potential revenue is limited to the output of their human capital. A product company can keep a flow going when things are slow and then expand dramatically when markets open up. A little different scenario.
Helmut
on 03 Jun 10All your startups are belong to us!
Eric Fleming
on 03 Jun 10I started two last year, hopefully one will be as successful as 37 Signals in 10 years.
Ram
on 03 Jun 10I’m not sure if the “extra joy” is warranted and I think the disclaimer of “Yes, some of these starters will not be successful or they’ll make less than they did in their former job.” seems like a big understatement.
While it is true that 2009 was a record year for the starting for new businesses, it seems reasonable to assume that this record was due to the fact that a large number of people lost their jobs and then set up companies that got counted as “new businesses”.
I think that some of the laid-off-people who started new businesses will make more money than they did in the their previous jobs, but that most will make much lesser money than what they made in previous jobs. Obviously, money isn’t the only metric for success, but it is an important metric for any “business”.
m3 zero
on 04 Jun 10The trend in engineering and architecture during the now-bursting Web 2.0 bubble has been one of precious little engineering at all. Now obviously Democrats do things to contribute to recessions too.
Slava
on 04 Jun 10Seems that no one has actually read the original article in New York Times.
Just below the “Maybe this is a good thing” they tell the story of George who is an “involuntary” entrepreneur. He was laid off and after several months he started doing the same work as an independent contractor for less money and no benefits.
So this growth of entrepreneurial activity may be not a good sign.
Mac Martine
on 04 Jun 10It’s uplifting to hear when people take something bad (in this case being laid off, or otherwise jobless), and make the best out of it. It sure beats walking around complaining and sulking that nobody will hire you. Instead they are taking advantage of the “time off” and doing something productive with it that could be a life-changer for them.
Of course not everyone will end up starting a successful business. And they may not succeed for any number of reasons, and maybe simply because the person decides running a business is not for them. But as I see it, the worst case is a great learning experience, and a unique resume item.
And if they succeed, it’s very likely that they will be okay making less money than at their previous job. After all, wealth is not just about money, but happiness and the ability to spend your time doing something you enjoy.
This discussion is closed.