We are in the beginnings of another recession, and while everyone is panicking, this is the best time for startups.
Recessions are bad, especially for larger companies. But what most people aren’t talking about are the once-in-a-lifetime opportunities that arise for smaller startups during a downturn.
Dropbox, Airbnb, Instagram, Venmo, and many more of the best companies we know today all started during a recession.
So why is a recession such a good time for startups?
During a recession, a lot of companies will want to save money. That means you will see decision-makers looking for cheaper alternatives to legacy software. This could mean you might start getting those meetings with key decision-makers much easier than in the past.
While larger companies are focused on reorganizing during a recession, small and fast-moving startup teams can quickly serve new niches in the market.
Talent is cheaper.
The top income positions like coding have historically seen a salary correction during a recession. Right now, you see top employees making half a million dollars or more, but history shows that those numbers will likely come down. That’s a massive opportunity for bootstrapped startups. You can acquire better talent during a recession. So while big companies are focused on downsizing and removing talent, this is historically the best time for you to hire new talent.
Solving real problems.
Less money is invested into companies during a downturn. You have to have an idea that solves a real problem. Airbnb started because the founders wanted to make some extra money. so they solved a problem they had themselves. The market will shift its focus back to real tangible problem-solving startups.
This means those competitors who haven’t found product-market fit yet or don’t even have a working prototype will likely fad out. Leaving startups who are actually solving problems with more customers and more funding than those who aren’t.
The Forest Fire Analogy
The best way I have heard anyone explain this is the forest analogy. It goes like this.
When you are standing at the bottom of a forest and look up, you see all the largest and oldest trees getting all the sun because they have been there the longest. The small trees at the bottom of the forest hardly get any sunlight.
But then, after some time, a forest fire happens out of nowhere. Maybe lightning strikes and a lot of the forest begins to burn down.
Yes, it’s terrible, but the surviving smaller trees at the bottom of the forest suddenly have access to way more sunlight. You then see the next generation of trees growing from the ashes of a seemingly terrible event.
Forest fires and recessions are both terrible but natural events. If we can all survive the coming forest fire, then there’s going to be more room for us all to grow in the future.
No matter what, stay strong and hang in there because the best times to be in business are right around the corner.