Thursday, January 8, 2009

Recessions Are Good News For Immature Aussie Startups

[Article published by Michael Watkins for technation on Dec 10th 2008]

With all the news around at the moment, indications are that they sky is falling and Aussie Tech Startups have little or no chance of surviving through the ever-widening financial quagmire that is the current world economy. I thought on this, felt sorry for myself and my own startup for 5 minutes, then decided to dig deeper into the effect economic downturns have had on small tech companies.

The results may encourage you ­

Talent Pool

When a market tanks, job cuts follow. When the market really tanks, lots of job cuts follow. The IT industry is one of the worst industries hit by layoffs, as companies prefer to keep on their core staff that provide the bread and butter applications for the company, then cut the rest of their roster. Most of the time it’s the young ones working on the cool new things the company had envisaged 6-12 months earlier, that get the chop.

Suddenly, almost overnight, the talent pool changed. The market is offering up brilliant young developers and designers that would have normally cost squillions an hour, to virtually nothing ­ all they want is to make their next rental payment.
If you had trouble finding good staff before, look now, in the right places and you will find them in abundance.

Less Competition

Remember reading about all those promising new tech startups that received bucket-loads of venture capital cash 12 months ago ­ and competed directly in your space -while you were busy writing your own business plan, in your makeshift office? Most of them will be out of business in the next 12 months, which gives you a clear start. VC backed companies usually have very aggressive business plans that are well suited to an aggressive market, once the market turns south, that business then chews through cash with a burn rate that would smoulder any page it was written on. Some will be smart and begin saving cash quickly, others won’t and will head down into the deadpool.

If your startup is compelling enough and you focus only on your primary proposition, you may find it easier and faster to grow in a lonely, lame marketplace than that of a busy, crowded marketplace. The time to jump in is now.

Perseverance and Money Management

If you thought juggling finances was hard 6 months ago, its gotten exponentially harder since. An economic downturn whittles out the companies that have bad revenue models and bad fiscal management, those companies simply deadpool. The ones that survive have solid revenue streams - no matter how much they make and strong fiscal management. So if you want to survive this, better start learning how to control, allocate and conserve money well, very well. If you come out the other end looking relatively bruised and battered, but all in all healthy, the market then has only one way to head and that’s up. If you take the lessons learned during a market fall and keep applying them to your business while in good times, it will only serve to make you as an entrepreneur and your company that much stronger when the next one comes.

Real VC’s

The time of the VC firm that had too much money is now over. VC’s will only invest in companies that they have researched to the point of lunacy, then they’ll research them some more. Its good news for startups because the wrong investors wont get involved with your company. Your business plan will only attract those VC’s or investors that know and connect with what you are trying to achieve. It will be harder to raise money, but know once you have raised it, you will be on board with an investor who truly understands you, your business and its future.


Apple and Microsoft were both conceived and then later founded during the tail-end of the 1973-74 stock market crash - supposedly one of the worst stock market downturns in modern history at the time, where did they end up?
They now have a current combined market cap of US$316.3B.

To sign off, here are some of my ideas - Go out now and build your dream team, the people you need probably have no job at the moment. Be frugal and smart with your companies money, if you get through this, there will be plenty on the other side. Take advantage of a desolate playground, market your brand in smart ways, get in customers faces while no one else is.

Raise money smartly, if your idea is compelling and growing, you’ll be 1 in 100, rather than 1 in 100,000, so you have more room to move - get the investor that sees your vision.

If you do come out the other side, you and your company would have been born in and persevered through one of the worst economic landscapes the world has ever known. You’ll probably have one of the strongest and smartest staff going around, have VC’s throw money at you and be in one of the best economic landscape the world has ever known.

Recession?? I think Progression.

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