As a founder, this is your moment to remind your employees, investors and customers why your company … [+]
No business was ready for what’s happening right now. Mine wasn’t, and I’m sure the same goes for yours. The world hasn’t seen a pandemic this disruptive in a century — and most of us weren’t around for that one. There’s no obvious playbook for entrepreneurs to follow. But just over a decade ago, the Great Recession provided a handy reminder of what can happen when capital dries up overnight, markets freeze, wealth evaporates and consumers retreat in fear.
Lessons learned from the housing market meltdown loom large right now. If there’s a silver lining to the wreckage wrought by 2008, it’s this: The actions business leaders take now can save their companies and help them come through the recession stronger.
Here are four lessons that technology entrepreneurs can take from the Great Recession and apply today.
Recessions shuffle the deck in technology markets
The technology sector didn’t just go on a tear after 2009; in many ways it thrived during the recession itself. The number of technology startups tracked by TechCrunch grew 25% annually from 2007 to 2012, and big tech companies like Google and Amazon grew right through the crash to see their valuations skyrocket in the years after. Right now, Big Tech is not feeling threatened the way airlines and your local deli are.
That doesn’t mean recessions don’t affect technology companies. McKinsey analyzed data from the Great Recession and found that tech companies that acted swiftly to counteract the downturn ascended to the tops of their markets, but that nearly half of market leaders slipped to the back of the pack. The lesson: A recession often shakes up the competitive landscape, opening up markets and allowing nimble and fast-acting entrants to make gains where competition was previously fierce.
Seize the opportunities that aren’t available when the economy is humming
Labor and assets go on sale during a downturn. While a viral epidemic is a unique circumstance, with entire sectors essentially shut down and indefinite orders to work from home, expect bargains if you know where to look.
During the Great Recession, restaurant chain Smashburger told Forbes it was able to lease locations that would have been unavailable to a smaller brand. An in-home elder care startup, meanwhile, bought its office furniture at fire-sale prices. Walgreens took advantage of the housing crisis to expand its generic drugs business when competitors faced a capital crunch. Find the opportunities that you’re uniquely suited to take advantage of, whether it’s cheap desk chairs or a warehouse full of unsold razor blades.
Adjust Your Expectations
Things have been so bubbly in Silicon Valley, an entire canon has been penned over the last few years warning of the next recession and dissecting who would suffer most. Pundits have reserved particular scorn for unicorns that need massive scale to grow into profitability and that devour capital to get there — think WeWork and Uber. These firms are “default dead,” a label coined by Y Combinator co-founder Paul Graham for companies that can’t survive without continuous fundraising.
That view isn’t necessarily wrong, but venture capital and other growth investors aren’t as flighty as you might expect. While dealmaking and valuations dipped during the Great Recession, they didn’t come close to crashing. If risky capital held steady through the 2008 meltdown, it’s a good bet it can hold its own through the pandemic, too. But it will get more conservative and fundraising will take longer.
Adjust your expectations for how long you can go without another raise and make sure your firm is “default alive” when investors run your numbers.
Be the leader your firm needs
This column is focused on technology entrepreneurship, so I won’t wade into our country’s poisoned politics. But leadership ability crystallizes in times like these. Contrast the federal government’s contradictory messages, hesitation and confusion with New York Gov. Andrew Cuomo’s forceful and human presence as the virus has invaded the U.S.’s largest city. There’s no comparison.
The Great Recession also showed the weakness of many business leaders, who seemed out of touch with the real-world effects their decisions had on ordinary Americans. In a time of crisis, the people who invested in you and those whom you lead want to know that someone is looking out for them, being honest about the challenges ahead and pointing out solutions instead of pointing fingers. As a founder, this is your moment to remind your employees, investors and customers why your company exists, what you stand for and how you will thrive.