A financial crisis is actually the best time to start a startup

Problems create entrepreneurial opportunities, and 2023 is not without its problems. The crisis environment is fit for smart entrepreneurs.

I started my digital marketing company in 2009 against the backdrop of a global financial crisis. Most people thought that a young college graduate, like I was at the time, should play it safe and wait for the business climate to improve before starting a company. I will never forget a middle-aged business owner who approached me at a trade show and suggested that he was “very valiant” to start a company in “the crisis,” and he wished me the best as if I were traveling to some dangerous place from which I would never return.

My youthful ignorance turned out to be bliss, although the first two years of startup were painfully humiliating. My business card said “CEO,” but in reality, I was sleeping on an air bed under my desk. Two years later, armed with proof of concept for our business model and backed by the tailwind of the improving economy, I raised my first round of funding. I eventually assembled a fantastic team of hundreds of people and then sold the majority of the company to a media conglomerate. It was a great ride, and I now believe that starting my company during a recession was the best move I could have made.

According to a 2009 study by the Ewing Marion Kauffman Foundation, a whopping 57% of Fortune 500 companies were founded in a recession or bear market, even though only 31% of all years since 1855 count as “down years.”

Starting with a blank slate is your advantage in 2023. This year, the competition is weak.

If most of these companies were started during tough economic periods, it suggests that these may not be bad times to start a business. “bad time to start a business” It usually involves low consumer demand and limited access to funding. But that’s mostly a problem for startups that are already established. They have to manage the decline, after all.

With no legacy costs, no grueling layoffs, and no bank calling you to cut the line of credit, entrepreneurs starting companies now can focus on creating a great new product or service. Starting with a blank slate is your advantage in 2023. This year, the competition is weak, and you can gain an advantage that could last for years.

In the startup world, there is no guaranteed formula for success, but you need at least four ingredients to avoid failure: a good idea, an exceptional team, sufficient funding, and a way to find customers.

Great ideas usually solve a real, significant problem or make life considerably easier. Think of great ideas as painkillers: people need them and are willing to pay for them. 2022 will produce a wide range of “painkiller category” problems that will translate into entrepreneurial opportunities.

Millions of children are unable to attend school. How can you solve that? Visit any quarantined household with young children. Those parents surely have a litany of new problems that need solving. Tens of millions of workers have been laid off. Hundreds of thousands of urban storefronts will be left empty by shuttered restaurants and struggling retailers. What will fill the gaps in 2023?

Problems create opportunities, and 2023 is not without its problems. It’s no coincidence that companies like Uber or Airbnb were founded and thrived after the last financial crisis. They solved real problems (“I need extra money”) and made life easier (“I want a cheaper, easier option”) at the right time.

Finding good employees has historically been one of the biggest bottlenecks for startups. This is the most important reason to start a company in 2023: For the first time in the last five years, there is access to an abundant pool of amazing talent. In 2019, companies had to bend over backwards to attract great people. Outstanding employees were spoiled by poaching offers from competing companies. That drove salary levels and job search frequency up.

Today, the pandemic has forced millions of skilled and hard-working employees to be laid off by their companies. Some of them, perhaps you among them, will take matters into their own hands and create a startup. Others will be happy to work for one.

In 2023, it will be much easier to compete for talent and retain employees. Perks like free kombucha, Disneyland furniture, and daily yoga classes at work suddenly sound so “2019” now. This year, offer meaningful work with good pay and possibly some stock options, and people will happily assemble their own Ikea furniture to work for you. Add to that the possibility of global recruiting, accelerated by the explosion of home office work, and your inbox will be overflowing with applications.

Now you might be thinking: “This sounds great, but it will be impossible to raise money in 2021.”

I disagree. But before I explain why, let’s get one thing straight: I think the last five years were a fake fundraising environment. It seemed like anyone and their dog could raise a $1 million seed round if they walked in a straight line and put together 20 PowerPoint slides. There was so much money available that one company was able to raise $120 million dollars to build a $400 machine to squeeze juice out of a plastic bag.

These times are probably over, but venture capitalists and angel investors are still here and they still have money to invest. It will undoubtedly be harder to raise funds in 2023 compared to 2022. The 2023 funding environment will favor outstanding founders. They will still raise rounds, and mediocre startups will suffer. But who wants to be mediocre anyway?

Let’s consider a temporary shortage of capital a good thing. Less funding means the quality of entrepreneurship will rise again. Fewer dollars will force everyone to work harder and improve. In my first two years after starting, I would think three times before spending a dime. For example, we would never pay for any sales lead datasets, but instead would hack a script to scrape that data from public sites for free. This instilled a culture of frugality that lasted far longer than the actual startup phase.

In normal times, no one needs a $50 million Series A round six months into their company. Many of those rounds led to premature scaling and created more harm than value. Potentially good companies like WeWork bombed into problems.
Use temporary capital shortages to your advantage and foster a culture of frugality and ingenuity. No business class flights or $1,000 office chairs. The leaner you operate, the better.

When I started my digital marketing company in the financial crisis, many companies had shredded their advertising budget. Needless to say, our products didn’t sell like hotcakes. But we knew there were still businesses out there doing well that needed our services. Our job was to be smart and find them.

As a founder, your job in the first year is to build something that 100 people love, rather than something that 10,000 people love. If you do a great job of building something valuable, you’ll find those 100 people, no matter if it’s the year 2020, 2009, or 2001. That’s the first stage for most startups, and during this stage, the macroeconomic environment alone doesn’t matter all that much. It’ll easily take a year or two until you’ve truly figured out product-market fit.

Take advantage of low advertising prices as well. If you really offer something that people need, the crisis is the best time to attract users at low cost. With marketing budgets reduced to almost zero in many cases, you will be able to buy advertising inventory at low prices, especially on digital channels.

The next two years in a recessionary environment will be your training day. The sales you make will be the hardest of your life. Fundraising will be slow and cumbersome, especially if you founded your first startup. You will have scars. But those kinds of scars will make you great in the future.

Fortune hunters who are only in the game for the easy money will likely leave the scene during this crisis. But true entrepreneurs will enter the arena and stay. Entrepreneurship is always a tough game with limited resources, no matter when you start. One of my mentors always said: “As a founder, you have to eat concrete”. You will face a thousand setbacks on your journey. Therefore, it is better to start now when everyone else is too scared to join the race.

You will have a head start