Recession Proof Your Startup

Today on Techmeme there are a bunch of stories encouraging entrepreneurs to startup companies right now. Here’s a couple that caught my eye.

Paul Graham talks about why to start a startup up in a bad economy.

Don Dodge urges entrepreneurs to go for it.

OK, rah, rah, rah, we all know some startups will take off in the recession. Microsoft and Google both either got started in, or accelerated through downturns early in their lives.

But I think some of the advice I’ve been seeing out there it a little too optimistic.

Last night on Donny Deutsch’s show an entrepreneur called up and was crying. He had started a business that was selling promotional cookies and swag to corporations and his business has dried up. Clearly not EVERY startup will do well. Why? People change their behavior in recessions, but that behavior does NOT change equally. In this case companies had stopped buying non-essential items, which means that promotional items get cut first.

So, the question to me is “how do you recession proof your startup?”

That’s the conversation I’m hoping to see happen. Already VentureBeat is putting together an event to discuss how to manage through a downturn. I’m attending that and will bring any good idea I hear.

Some ideas I’ve already heard though:

1. Make sure your startup is aimed at a real pain point of other companies. I was speaking at Cisco a week ago and saw that lots of people really are struggling with email, for instance.
2. Have a startup who’s customers and users are recession proof. For instance, education is probably not going to cut back a lot, so if your customers are teachers and educational IT people, you’re probably a lot safer than if you sell to small businesses like restaurants like my brother has.
3. Have a business that helps people or companies save money. Both Dodge and Graham pointed this out. I’m starting to use services like Mint, for instance, which look at my behavior and try to find me ways to save.
4. Look for upturns due to change in behaviors. For instance, if you can’t afford to go on long trips anymore, you’re more likely to stay home. That might mean more people will work on home projects or try things like crafts or games. Make Magazine might be well positioned here.
5. Diversify your customer base. Are you only reaching customers in USA? What about going international? Often times, one country’s economy will do better than another, or might be more open to new approaches.
6. Have enough cash on hand to last at least a year without any revenues. Who told us to do that? Microsoft’s Bill Gates.
7. Look for new opportunities that happen because of the downturn. Banks might start paying money to maintain houses that have been foreclosed on, for instance.
8. Look for new distribution channels. TurnHere, for instance, told me about landing YellowPages.com and that’s meant that their business is taking off. If yours can land similar distribution deals that might really help you accelerate through the downturn.
9. Be innovative with marketing and advertising your startup. For instance, if you do a Google Search for “Recession Proof Business” and you’ll find an ad that says “start your own economy.” That took me to CircleDog, which is a customer relationship management software package. Hey, if the economy is falling apart, I want to start my own! Not to mention it caught my eye among the ads because it was different. Now, let’s say you’re going to CES or SXSW or the Web 2.0 Summit next week. How can you find new customers without spending much money?

How about you? What are you doing to recession-proof your business? Would love to see some ideas.

Comments

  1. “if your customers are teachers and educational IT people, you’re probably a lot safer than if you sell to small businesses like restaurants like my brother has.”

    You’re joking, right?

  2. “if your customers are teachers and educational IT people, you’re probably a lot safer than if you sell to small businesses like restaurants like my brother has.”

    You’re joking, right?

  3. A lot of start ups in this crazy new world of ours don’t make (or even expect to make) a profit for the first few years, I guess the recession wont change much there for them :).
    Any “change” creates opportunities, some startups will be well placed, some won’t – more by luck than judgement for existing startups.
    If you have a startup that isn’t well targetted to people in hoarding mode then cut all the fat you can, minimize all spending, close your offices if possible (work from home) and try to tick over until things settle down.
    Maybe even get a job just to keep things going – it doesn’t mean your startup failed, it’s just a tactical move.
    Change your pitch, try to find an angle to demonstrate that people need your product / service more than ever – even tweak your product if possible to suit people’s current needs.

  4. A lot of start ups in this crazy new world of ours don’t make (or even expect to make) a profit for the first few years, I guess the recession wont change much there for them :).
    Any “change” creates opportunities, some startups will be well placed, some won’t – more by luck than judgement for existing startups.
    If you have a startup that isn’t well targetted to people in hoarding mode then cut all the fat you can, minimize all spending, close your offices if possible (work from home) and try to tick over until things settle down.
    Maybe even get a job just to keep things going – it doesn’t mean your startup failed, it’s just a tactical move.
    Change your pitch, try to find an angle to demonstrate that people need your product / service more than ever – even tweak your product if possible to suit people’s current needs.

  5. Innovation is definitely one of the strongest tools for a company in any time. Right now is a great time if one can find an innovative way that can benefit the consumers, and if possible may be even more helpful because innovation is on the decline right now with many people holding back in fear.

  6. Innovation is definitely one of the strongest tools for a company in any time. Right now is a great time if one can find an innovative way that can benefit the consumers, and if possible may be even more helpful because innovation is on the decline right now with many people holding back in fear.

  7. I think the most important thing we’ve been doing lately is keep diversifying and discovering new revenue streams which seem to be opening up with everyone talking about the economy tanking. When you own a website with pre-sold traffic it’s fairly simple to steer the conversation toward the right solution (i.e. you). This has really kept things rolling along without a hitch.

  8. I think the most important thing we’ve been doing lately is keep diversifying and discovering new revenue streams which seem to be opening up with everyone talking about the economy tanking. When you own a website with pre-sold traffic it’s fairly simple to steer the conversation toward the right solution (i.e. you). This has really kept things rolling along without a hitch.

  9. Run lean to begin with and hopefully also be in the business of serving against basic needs. Diff for b2c than b2b but for Moco we’re part of an experience that GenY cant get enough of- they consider their mobiles a lifeline. We’re actually hiring, not firing. Wish I knew more about the context of these other firms? Were they bloated or is this just panic?

  10. Run lean to begin with and hopefully also be in the business of serving against basic needs. Diff for b2c than b2b but for Moco we’re part of an experience that GenY cant get enough of- they consider their mobiles a lifeline. We’re actually hiring, not firing. Wish I knew more about the context of these other firms? Were they bloated or is this just panic?

  11. Robert, Great ideas…and exactly the kind of advice we need to hear. I think I read a post from you last week that said a startup should have revenues and/or great technology. If they don’t they could end up in Jason Calacanis’s “80% will fail” bucket.

    Companies without proven revenue streams will fail pretty fast. They will have a very difficult time raising another round of investment…and can’t save their way to cash flow break even. That is a bad spot to be in.

    Startups without revenue streams can only survive if they raised a ton of cash earlier…and manage their expenses wisely until teh economy turns around.

    I like your suggestions for recession proofing your startup. Great advice.

    Don

  12. Robert, Great ideas…and exactly the kind of advice we need to hear. I think I read a post from you last week that said a startup should have revenues and/or great technology. If they don’t they could end up in Jason Calacanis’s “80% will fail” bucket.

    Companies without proven revenue streams will fail pretty fast. They will have a very difficult time raising another round of investment…and can’t save their way to cash flow break even. That is a bad spot to be in.

    Startups without revenue streams can only survive if they raised a ton of cash earlier…and manage their expenses wisely until teh economy turns around.

    I like your suggestions for recession proofing your startup. Great advice.

    Don

  13. I also think that the economic recession is a great opportunity for startups providing solutions based on reducing the operational costs of businesses. Our startup, which is only 2 months old, is doing very well and I think the recession was “very timely” for us.

  14. I also think that the economic recession is a great opportunity for startups providing solutions based on reducing the operational costs of businesses. Our startup, which is only 2 months old, is doing very well and I think the recession was “very timely” for us.

  15. Thanks for the mention, Robert.

    We started using Build Your Own Economy this summer based on our belief in the strength that comes with tenacity and focus. CircleDog ($99) is a great tool for helping with that.

    But businesses need to focus on the basics:

    -segment your customers and prospects, then send the right message to the right segment
    -listen to your customers and serve them well
    -ask customers what they need and value–you might be surprised
    -talk to lost customers and prospects and find out why you lost them, make adjustments from what you learn
    -measure everything, refine, rinse and repeat.
    -keep costs in line (basic, basic, basic) but don’t necessarily kill all spending.

    None of this will help businesses that depend on credit to keep payroll smooth, but instead of banks, try friends and families, customers and vendors if you get screwed by your lender.

    And yeah, it depends on the stage. Our other product serves the nonprofit sector, and we’re profitable and still growing monthly (35 employees). People still need to spend, businesses still need to invest in growth. So just be tenacious and focused and you could very likely come out alright.

  16. Thanks for the mention, Robert.

    We started using Build Your Own Economy this summer based on our belief in the strength that comes with tenacity and focus. CircleDog ($99) is a great tool for helping with that.

    But businesses need to focus on the basics:

    -segment your customers and prospects, then send the right message to the right segment
    -listen to your customers and serve them well
    -ask customers what they need and value–you might be surprised
    -talk to lost customers and prospects and find out why you lost them, make adjustments from what you learn
    -measure everything, refine, rinse and repeat.
    -keep costs in line (basic, basic, basic) but don’t necessarily kill all spending.

    None of this will help businesses that depend on credit to keep payroll smooth, but instead of banks, try friends and families, customers and vendors if you get screwed by your lender.

    And yeah, it depends on the stage. Our other product serves the nonprofit sector, and we’re profitable and still growing monthly (35 employees). People still need to spend, businesses still need to invest in growth. So just be tenacious and focused and you could very likely come out alright.

  17. You mentioned Make magazine, which I think is probably very well, placed as is Craft. I also think sites like Ravelry are positioned to do well if more home-based leisure activities like crafting take off. I know it’s proven to be an invaluable resource for me, in terms of being able to do research and make smart decisions about where to spend money on my hobbies.

  18. You mentioned Make magazine, which I think is probably very well, placed as is Craft. I also think sites like Ravelry are positioned to do well if more home-based leisure activities like crafting take off. I know it’s proven to be an invaluable resource for me, in terms of being able to do research and make smart decisions about where to spend money on my hobbies.

  19. MAKE is celebrating makers with the largest diy, science, engineering and crafting event right this moment — http://www.makerfaire.com in austin texas.

    lots of folks are doing more with what they have, learning new skills and spending more time on things as opposed to money. it’s a great time to be part of the diy movement and “make” more scientists and engineers.

  20. MAKE is celebrating makers with the largest diy, science, engineering and crafting event right this moment — http://www.makerfaire.com in austin texas.

    lots of folks are doing more with what they have, learning new skills and spending more time on things as opposed to money. it’s a great time to be part of the diy movement and “make” more scientists and engineers.