In response to my post Bad Times Are Good Times for Entrepreneurs, James Kwak has posted Crisis and Entrepreneurship, a comment on why he co-founded Guidewire Software right after the 9/11 attacks.
He gave five excellent reasons:
- Talented people were available;
- Rent, etc. was cheap;
- Private companies don’t suffer quarterly scrutiny;
- Dislocation in the economy creates opportunity;
- New companies aren’t expected to sell anything.
Kwak says reason five was the most important:
when you first start a company, you aren’t expected to sell anything, so the fact that no one is buying doesn’t matter. Your jobs are to research your market, research your potential customers, design your product, build your product, and (if you need it) raise money. Depending on the industry you are in, all of this can take a couple of years. Even then, if the recession isn’t over yet, you are selling to a small number of early adopters, who will not be making decisions based on the overall state of the economy. It will be even longer before you have the kind of sales volume that is susceptible to changes in the economic cycle.
What he’s saying is absolutely true. I’ve been interviewing venture capitalists and entrepreneurs lately, and all of them say, in different ways, that the state of the overall economy won’t affect investors who still have money, or companies that have problems they need to solve (remember, entrepreneurs who do well almost always eliminate some kind of friction in the economy). In fact, it’s a great time to do so, because new companies themselves are cheaper to invest in in downturns. Meanwhile, lots of smart people who went to Wall Street over the last few years will now be looking for other kinds of work. Quitting his job in the teeth of a downturn worked out well for Kwak, who notes that,
“Guidewire today is a leading provider of software to insurance companies with customers in Russia, Brazil, Japan, the United Kingdom, Australia, and New Zealand, in addition to the United States and Canada. Seven years from now there will undoubtedly be dozens or hundreds of successful companies that were started in the wake of the credit crisis.”
Have a great idea? Maybe it’s time to pursue it.
