Why a recession is great for start-ups
What do AirBnB, Uber and Groupon have in common? They were all founded during the 2008 banking crisis.
In fact, it was Andrew Wolstenholme who coined the phrase “Never Waste a Good Crisis” in his visionary report on the future of the construction industry as a sustainable, low-carbon industry at its lowest point in 2009. Now, we are in the midst of the Covid crisis, which has had a devastating effect on the UK and global economy.
But some of the best-loved companies in the world, from Disney to WhatsApp were founded in times of great struggle. Indeed, many of the innovations that fuelled the ‘white heat of scientific revolution’ celebrated by Harold Wilson in 1963 were born as inventions by the motherhood of necessity that was the 2nd World War.
So why is a recession so good for start-ups? Today, there are three powerful forces driving opportunity. The most important is availability of talent. Many skilled senior professionals, fresh graduates or entrepreneurially minded youngsters are facing a world where traditional employment and career paths are blocked or even terminated. Senior professionals can take a further advance on equity in their home while employed or max out their credit cards to buy months of freedom to try something new. Graduates can return home and, with minimal outgoings, trade favours to start a new business. Entrepreneurially minded youngsters can ignore the calls from their seniors to ‘get a proper job’: there just aren’t any!
The second powerful force is availability of cheap money. Government has a whole series of incentives backed by cheap money: Kickstart (providing free staff), Bounce Back loans, CBILs, VAT deferral, grants for the self-employed are just the start. Add in mortgage and rates deferrals, furlough and protection from repossession proceedings. Finally, conventional investments are providing very poor returns, so alternative investments by friends, family, angels and private equity can accept higher risks.
The third powerful force is disruption. The existing market players find that business as usual is no longer possible but often lack the resources, agility or innovation to re-invent themselves. Disruption also creates all kinds of unsatisfied needs that haven’t been exploited and accelerates existing trends.
All of these forces spell opportunity for those with the courage or desperation to start something new. Even if you don’t have the ambition to create the next Uber or Groupon, maybe it’s time to sow the seeds of something that will reap success in the future?
Charles is the founder of FuturePerfect and InspiredCEOs