Editor’s Note: I originally had this post published on Internet Astronauts in Oct 2008, at Starting Up in an Economic Downturn.
I’m no economist, but even I can tell that the world’s finances aren’t in their best shape. Tech blogs are writing about layoffs in startups everywhere, investment advisors are urging their clients to knuckle down for a long, economic winter and news analysts are calling doom and gloom at every turn. So it’s probably a bad time to start your web startup right? Wrong. This may very well be the best time.
You remember that line in the old Frank Sinatra song New York New York? “If I can make it there, I’ll make it anywhere” – well it’s kind of the same in business. If you can get a business going now in the midst of the crappiest economic forecast in possibly decades, then you know you have what it takes to keep it going.
Of course if your plan is to get a load of funding, have a lazy business plan or to shoot for a very expensive and distant point of profitability – then this may not be the time for your startup. You see, tough times are the province of the bootstrapper – the guy or gal who builds a business on a shoe string, using only what is available and counts pennies like they’re going out of fashion.
Constraints Breed Innovation
One of my favourite startups of recent years is 37Signals. In their Getting Real book, the team declares that it’s good to embrace constraints, that they drive innovation and force focus. Well having no money is pretty much the ultimate constraint a startup can be under, and for most bootstrappers that’s not far from how they have to operate.
Having nothing forces you to figure out a way to bring in some income – any income – and to do so fast.
Having nothing forces you to figure out a way to bring in some income – any income – and to do so fast. It forces you to work out how to do things in the cheapest way possible. It forces you to really, truly evaluate what is necessary in your business and what is simply deadweight.
My Own Experience
When my wife and I cofounded Envato, we did so while working a freelance business where invoices always got paid late and cash flow was erratic. We started out with some modest savings in the bank but by the time our first site was up, we were thirty thousand in debt, I had worked for four months without a day off, lived for two of those months with my in-laws to save money and still there was no sign of a reprieve.
Because we spent everything we had, and then some, on building our website we were forced into a series of practices that made our business ultimately viable. We had no revenue, so none of the three founders could quit our jobs – we just started working one in the day, and one in the evening. We had no money so we couldn’t hire anyone beyond our one valiantly underpaid freelance developer, so every job had to be done by one of us – regardless of whether we knew how to do it. We had no advertising budget so we had to embark on a series of guerrilla marketing strategies trading time and ingenuity for money. We had no content on the site and no users, so we made a whole heap ourselves and invited, cajoled, persuaded and begged people to test it out.
In short we saved and scrimped, worked in odd hours and off hours, used our lack of income as a motivator to find revenue quickly and basically did it tough. Nobody saw a pay cheque for the first year, and even today after two and a half years when we have a staff of twenty something, I’m proud to say that all the management team and founders still get paid far less than the top authors on our sites.
The Lessons You Learn From Bootstrapping
I remember my father often saying that he’d been too soft on us when we were growing up, that hardship was actually a kindness. Happily his idea of an easy childhood involved living in one of the most dangerous countries in the world, persuading me to read an encyclopedia when I complained of boredom and waking me up at 5:30 every morning to practice playing the piano. So I flatter myself to think that we all turned out pretty OK.
What hardship will do for your child, it will also do for your business. You’ll learn that you need ingenuity to survive, that you need to be careful with how you spend and knowledgeable about where it’s going. You’ll learn that slow growth builds firmer foundations, that resilience and patience are powerful traits in business and that perseverance gets results.
And when the big downturn takes a u-turn – which it inevitably will, the lessons you learned in bootstrapping will stand you in good stead while others get cozy.
So should you attempt to make a go of it now, during a possible recession? Yes, but be prepared to work hard, have a fallback income source, and most importantly, don’t spend what you haven’t got. When you make it out the other side, you’ll be better for the experience.
What a fantastic read, more so about your personally as opposed to information on the economic downturn advice. Such an insightful read
x Thanks for the opportunity to read something into how difficult it can be to get things going. Your a credit to yourself for this.
This is just what I am aiming for. I really want my own business and yet have no budget to work with. Therefore I am doing everything I can to get up and running without resortting to bank loans & overdrafts. I have just finished a site for one client, have another I’m working with and two possibles. Not bad for a start-up with no budget. I too believe that if I can make it now then I am able to continue onwards and upwards once the u-turn happens.
Thank you for this article. It’s very insightful and encouraging, and definitely makes me more convinced to pursue a startup I’ve been planning for a while.
thanks again
I can totally relate to this post. I was laid off due to the economy and am 100% freelance now. It is hard… very hard… but I know I’m on the right track.
Thanks for this blog!
I’m actually both an economist and a web developer. So I tend to see the recession in multiple lights. And you speak the truth when you say that bootstrapping defines your caution in the future when times are easier.
I’ve been reading up a lot of bootstrapping since I just formed my LLC. And it seems like when the economy dips startups rise. I actually spoke to a lady working at my bank while I was opening a business account and asked if she saw more or less start-ups opening accounts. She said that she has seen much much more. She mentioned that she is seeing a lot of people being laid off and deciding to take a stab at starting up their own business.
So, recessions are not completely terrible. Nothing is so simple, so black and white. There are always shades of gray. You just have to remain positive, be rational and make the best out of the worst.
And, hey, start-ups often get a lot of credit for boosting economies and inducing a path out of recession. And it’s the businesses who are overly “cozy” that take on too much risk and take us all down with them when they slip.
Wow, nice article.
PS I don’t check for a day and this happens to the site? Nice
Superb article, thank you!
Great article, Collis! I totally believe that economic recessions and depressions are the best time to start a business because the lack of access to financing breeds creativity and truly inspires a strong work ethic. What many people don’t realize is that many of the biggest and best businesses were started during an economic downturn. It is tough but it’s better for the business owners and the business in the long run. Just my .02. Keep up the great work!
I was actually inspired by this article. I decided to pursue my freelancing/entrepreneurial dreams during these recession times as the uncertainty of our jobs are increasing and some employers are taking it to their advantage.
Please check out my blog as well for a story of a netsetting in a different country.
Thanks.