Fickle Finances and Software Startups

Too true, too true. I ran into Paul Graham's post on startups in a bad economy via Phil Windley's blog, and I very much agree with what was said, there:

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.

"When Microsoft and Apple were founded.

"Someone who thinks 'I better not start a startup now, because the economy is so bad' is making the same mistake as the people who thought during the Bubble 'all I have to do is start a startup, and I'll be rich.'"

On the nose, I'd say! We've been batting this idea around as we talk about eLearning technology. The fact of the matter is, no matter how bad the economy gets, schools are still going to use an LMS because, well, they need it. They can't ask their faculty to go back to paper grading, and they can't suddenly drop their distance learning programs. In some ways it makes our product even more viable because it's a better return on investment. You don't have to keep paying on top for all the plugins and features that make the product actually viable. But in general, web services aren't going to be the first thing to go in a budget cut.

The same vein goes for a lot of web technology. Companies still need software to manage their customers and to mine their data, even with a bad economy. People aren't going to stop using email. They're not going to stop using Facebook or watching movies on Hulu or Netflix online or whatever. They actually might do it more because it's cheaper than going out. I think it's fair to say that in general it would take quite a financial sucker-punch for people to cancel their Internet service altogether. They may even be looking for new opportunities and experiences online. Now, people may be reluctant to add more monthly fees, so in that sense maybe there's an issue. But at the same time, if you really are doing a startup right now then you're probably offering a free beta for the next little while anyway. And products for companies, all you need to do is hit a meaningful ROI and you're home free.

Phil summarized the sentiment quite well, I thought:

"Actually, he doesn't necessarily think starting in bad times is better than good times, just that there's nothing special about good times when it comes to starting high-tech businesses"

Phil and Paul both get the idea pretty clearly. The technology sector is less sensitive to (or maybe just slower at reacting to) financial upheavals. In the end it still boils down to having a good idea and doing a good job putting it forward.

"If we've learned one thing from funding so many startups, it's that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it's rounding error compared to the founders.

"If you're worried about threats to the survival of your company, don't look for them in the news. Look in the mirror...
If you're the right sort of person, you'll win even in a bad economy. And if you're not, a good economy won't save you."


Popular Posts