Downturn Economics
Michael Malone, Forbes.com, 02.16.01, 12:30 PM ET
The economy is going to hell. Small tech companies are dying. Big tech companies are laying off thousands of workers.
Time to start your own company.
Obviously you'd have to be crazy to consider such a thing. And that's why you should. The natural thing to do right now is to hunker down. You know the boss is looking over the budget and concluding that some dead wood has got to go. Say ten percent of the workforce, maybe 20. Everybody in the joint knows what's coming.
So everyone, including you, is doing his or her damnedest to look busy and productive--sort of an adult version of not making eye contact with the teacher when she's about to call on you. Suddenly, everybody in the building is showing up early and loudly announcing at five o'clock that they'd rather skip Junior's soccer practice (science fair, graduation, wedding) so they can pitch on the Big Project.
You think this sudden burst of commitment is going to save you. But it won't. That's because we are now experiencing the back side of the "no loyalty" model we all gleefully embraced a decade. When times were good, the notion of skipping from one good job offer to the next without feeling any commitment to one's current employer seemed not only pretty cool, but eminently fair. Of course, now, when those same companies are booting our butts out the lobby doors . . . well, how dare they!
The simple fact is that your fate is already woven, measured and cut. You will be laid off probably not because of anything you've done--the 80:20 rule suggests that almost everyone in a company should be fired--but because of factors having little to do with you. Staff gets cut because it doesn't contribute to revenues; line gets cut because orders are down. Meanwhile, top management gets cut, not because it deserves to for screwing up, but because it is a way for the better corporate politicians to exile their
current and future rivals.
So, the simple fact is, no matter how hard you've worked, unless you are brilliantly Machiavellian, a major shareholder, or the owner's child, you have about a ten percent chance (double that for every decade you are over thirty) of spending the next six months watching Jerry Springer, faking up your resume on a laptop at Starbucks, and strolling out to the mailbox in your bathrobe.
If you are typical, you will devote endless hours to finding a new job, in the hopes that this time it will be different, that you will buck the boom-bust cycle and actually fill up that 401K before your left atrium or that one ballooning little blood vessel in your brain explodes. You will try to ignore the fact that, given the new "no loyalty" rules of modern business, you will most likely fail.
So what's the alternative? As I said at the beginning: start your own company. Even if you don't get laid off this time--because you will the next. Even if you are the smartest person or the best politician or the hardest working person in the company--in fact, especially if you are one of those people.
Yeah, you're thinking, RIGHT. But bear with me for a moment. Think about it: How many really successful companies do you know that have been started during boom times? Exactly. There are certain characteristics of downturns that make them particularly fertile for entrepreneurial ventures. Here are some of the ones I've noticed after living in Silicon Valley for almost forty years:
COMPETITIVE PARALYSIS - Established companies usually respond to recessions
by folding their wings and reverting to a chrysalis stage. They are bleeding money, employees and customers--so the last thing most of them consider doing is redoubling R&D investments and taking off after new technologies or markets. Rather, they are just trying to hold on to the gains they made in the last boom, struggling to keep their stock out of the cellar, and bringing in the crisis counselors to deal with demoralized employees. All of that means the puny research budget of a startup suddenly has a shot at capturing industry leadership with a clever new product. Moreover, all of those angry
customers out there, who've lost their in-house contact at the company, and are growing angry at late deliveries and rushed billing, are going to be a lot more receptive to a new competitor on the scene. They'll even be more forgiving of the occasional shakedown screw-ups most startups endure.
EMPTY RADAR SCREENS - When big companies start hurting, they also tend to look inwards. They have enough problems with angry shareholders, employees and customers. That doesn't leave much time or money for market analysis. The big projects with market research firms get put on hold, or the final reports are ignored. In other words, no one is scanning the horizon for new competitors like you. Your startup can run under the radar screen for a long time, growing in strength, hiring talent, perfecting prototypes and running alpha and beta tests . . . and only surfacing at the last, best moment.
PRACTICE TIME - The nice thing about being under the radar screen is that you've got time to mess up a few times. Every startup makes mistakes, often disastrous ones. The advantage of making those mistakes during a recession is that no one's watching. You'd be amazed how many times Intel, Apple and Sun stumbled at the beginning--but you never read about it at the time. The dot-com generation died not only because it had to pay boom-time prices for marketing and advertising, but also because it had to endure the miseries of adolescence in the glare of the public eye. Right now, nobody's looking.
OVERFLOWING TALENT POOL - This is the best part: Unlike last year, when you had to pay top dollar for third-rate talent (schemers, school kids and sociopaths), right now the marketplace is filled with talented people . . . well, just like YOU. As I said above, when bad times hit, companies tend to lay off good people with bad. And even those left behind, like the lab genius whose new project has just been cancelled or the killer sales guy whose region has been reorganized, are often frustrated and looking for new excitement. Look at Hewlett-Packard: Now that Carly has announced layoffs--and thus broken Bill and Dave's half-century-old sacred oath--how many HPers no longer feel the same old loyalties? Steal 'em. Take the best people you can get from anywhere you can, give them lots of stock and move fast.
Will it work? Can you start now building a billion-dollar company that will endure for generations?
Probably not. The odds are always high against entrepreneurs. But, they are better than usual at the moment. The VCs are still awash in money and, though chastened, will start investing heavily again any day. Thousands of young and talented people are streaming out of e-commerce companies, Dell and thousands of other companies--and many have learned important lessons they now want to apply. And, the timing is perfect: Keep in mind, most of the big dot-com companies that have survived this current shakeout, and made their founders rich, were started at the beginning of the industry, not in the middle. By the time, around this October, when everyone will start thinking again about starting a company, it will be too late. The next shakeout will hit before the lock-out ends on their stock options. You've got to be the first through the door--even if means living on Top Ramen between now and Labor Day.
Besides, what else are you going to be doing this year?
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