Downturns offer Opportunities for Disruptors

Amidst all the doom and gloom, there is a lot of hope for start-up companies. Here is the good news: during a downturn, people tend to re-evaluate the way in which they do things. They go through the budget line by line. They question all their current expenses. And the are prepared to change things, even when it hurts.

This is bad news for all companies, young and established, who are offering the run of the mill products. The me-toos. But it is actually good news for all start-ups that are challenging the status quo.

I watched a presentation by Craig Elias the other day. Craig is a sales specialist. I have inserted a picture from his presentation below (I combined two slides to generate this one picture):

I agree with Craig. If you are profiting from the status quo, the a downturn will hurt you. If you need people to change their way to do business with you, then this is a great opportunity to get in front of potential customers. Solutions that offer a quick ROI, cut costs, or that reduce risk should be selling pretty well right now.

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Where are the isolated start-ups?

techcrunchThere is a funny article on TechCrunch UK where Nicola Robinsonova asks where the most isolated start-ups in the UK are. Well, I don’t know about start-ups, but I know about VC-backed companies. This is a map that Peter Lahoud, Stephen Siard and I made in 2006 when we were still at Library House:

I can see companies (for those of you from outside the UK, I have added additional comments in brackets) up in Scotland (very dark, rains very often). And at the West coast of Wales (yup, this is the places where it always rains). There are some at the tip of Cornwall (in the South West, where the wind never stops). And some at the East coast of East Anglia (Peter once lovingly referred to it as Dragon land, don’t ask).

Conclusion: they are everywhere. Must be some sort of unstoppable force… 🙂

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Start-ups & Economic Cycles

I recently stumbled across a website called CyclePro Outlook. On this site, Steven Williams analyses various long term cycles using various chart tending packages. What really got me was the following chart of the US house prices (in Florida) over the last 60 years or so:

House price

 

Obviously, the crash of the US house market is a pretty big topic right now. However, what interests me in the context of this blog is the following. How should start-ups, particularly those that are not cash-flow positive react to the current situation? How do you actually react or position yourself in the case that the house market continues to drop further? Let’s assume for a second that the US continues to be in a recession or will have only marginal growth state for many quarters to come. So, what do you do?

Interesting question. A few weeks back, I read an article by Marc Andreessen, founder of Netscape (amongst other things). Well, his newest company, Ning, has recently raised an amount of money much larger than what they actually needed. Marc explains why in his blog post:

We have raised about $60 million net in a private Series D equity round”

“We raised the money to enable us to keep scaling given our accelerating growth […] and to make sure we have plenty of firepower to survive the oncoming nuclear winter. At current growth rates, we don’t need it to get to cash flow positive, but having lived through the last crunch, it’s good to be conservative with these things.”

When Marc Andreessen believes there is a ‘nucleare winter’ coming and prepares by raising extra cash, start-ups should notice. Better dress warmly. This could be a cold one.

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