Mario Gamper reports in Venture Beat:
The last recession was a pretty awesome time to launch a company. Airbnb was founded in 2008 and is currently valued at $35 billion. Pinterest, founded in 2009, was last valued at $10.6 billion. Looking back through history, a pattern extends beyond the startup: Apple, Microsoft, General Electric, IBM, General Motors, Burger King, CNN, and Disney were all founded during recessions. Economic downturns weed out obsolescent business models and products. This frees up the market for new players with strong products. There is also less competition for top talent and great office space, both of which are key to scaling a new business.
The world economy has entered a period of uncertainty. US business confidence has been on a negative trajectory since early 2018. An increasing number of indicators — such as the inverted yield curve — are signaling that the US economy could be heading towards the first recession in a decade. Other countries, like Germany, might already be in recession by the end of this year.
Given this environment, investors, founders and corporate leaders face difficult questions: Isn’t now the worst time to invest into something new and unproven? Aren’t you dooming your new product to fail if you launch it right into a recession? Shouldn’t you wait until there is widespread growth again — which will also support your continued innovation?
These are all fair questions. In his famous 2015 TED Talk, Bill Gross looked at 200 successful startups. He found great timing to be the single biggest driver of their success.
Surely launching in a recession is bad timing?
The Great Recession launchpad
Back in May, Uber’s IPO caused it to reach a record initial valuation of $82.4 billion. But in March 2009, when Uber was founded, the world economy was on its knees. Businesses faced an investment climate many times more difficult than today’s as they navigated the depths of the worst recession since the 1930s.
Uber’s unicorn trajectory is far from an outlier. As it turns out, the last recession was actually a pretty awesome time to launch a company. Airbnb was founded in August 2008 and is currently valued at $35 billion. Pinterest, founded in December 2009, was last valued at $10.6 billion. Looking back through history, we can begin to notice a pattern that extends beyond the startup ecosystem: Apple, Microsoft, General Electric, IBM, General Motors, Burger King, CNN, and Disney were all founded during recessions.
For some courageous founders and investors, the worst of times were the best of times, and their decisions have proven to be some of the most lucrative in the history of business.
Yet the opposite is also true. In the US alone, over 170,000 businesses shut down during the recession. In absolute terms, the depths of an economic meltdown are a terrible time for all companies.
Given the oppositional nature of these outcomes, it’s evident that time isn’t equal or fair to everyone.
The art of discovering your right time
The Ancient Greeks knew two concepts of time, Chronos and Kairos. Chronos describes the quantitative aspects of time, its measurement and division into minutes or seconds. In this framework, we are always located in a moment we have no control over as time moves past us — second by second. This dynamic is perfectly mirrored in how we think about macroeconomic situations, which we define by abstract statistics. The relationship humans have with Chronos is one of passive watching and waiting.
Conversely, Kairos considers the quality of time. It sees time not as numerical sequence or measure, but rather understands each moment as a specific opportunity. In order to find that opportunity, we need to consider what each moment offers in its isolated specificity and seize it, with fully dedicated effort, at the right time. Kairos time needs humans as active participants, demanding our best work in order to sense and create the right moment.
The metaphor of hunting is often used to describe Kairos. A hunter must not try to determine a specific time to release the bow and kill the game but has to constantly observe distance, position, and speed of its prey. Each moment presents an unpredictable opportunity with greater or lesser chance for success. The hunter’s job is to identify the correct moment and seize it by actively adjusting aim, position, and force.
With this in mind, we can begin to see how launching a business at the wrong time might, in fact, make sense. Macroeconomic metrics are not declared irrelevant, but they become situative factors, like trees that protect the target. If other, more critical factors fall in favor for this specific enterprise, release the arrow!
The opportunities of economic downturns
Economic boom periods offer obvious opportunities for companies and founders. Everyone benefits from the rising tide of demand. However, phases of strong economic growth also create challenges — especially for small companies. The field of competition is often packed, as even weak players can find an opportunity to grow. As a result, the parallel fights for market share, talent, and real estate can become too much for a new business.
On the other hand, phases of slower growth or larger scale economic downturns weed out obsolescent business models and products, and quickly cut down weak new ideas. This frees up the market for new players with strong products. There is also less competition for top talent and great office space, both of which are key to scaling a new business.
The price of US office space during the last recession declined by 8%, with office vacancy reaching 17.4%. This is just one example of how a downturn can dramatically enable leadership teams to focus on delivering a great product rather than worrying over operations.
Additionally, a recent BCG study found that downturns can be an excellent time for dealmaking: Two years after a transaction, the study found, deals made in a weak economy created more value for buyers than in a strong economy.
How to hit the right moment: The 3 Ps
Three factors determine your ability to hit the right moment: perspective, patience, and practice.
Perspective involves putting yourself in the right position from which to see what’s happening. For new businesses, that means getting insights from multiple perspectives, e.g. identifying tech trends and maturity, user needs, and market frictions. Again, the hunter perspective is instructive: Quite often you will need to give up your current position to find the right opportunity. While expertise surely helps, be aware that you will always learn new things while you get a grasp of how the new business will truly succeed.
Patience is the most overlooked factor. The innovation ecosystem has a strong belief in moving first. This is survivorship bias at its best: We throw parades for first movers that succeed, while the wayside is littered with failures who tried to scale too early. Successful hunters are able to hold back even when the moment looks almost perfect. Finding the right moment means being able to wait for it.
Practice is what keeps your heartbeat down and your hand steady in difficult situations. Contrary to common belief, the most successful founders have an average age of 42. There’s a significant part of product development and go-to-market that will not let itself be reduced to prescriptive process and method. Success requires leadership with sustained practice in the real world, merging repetition and talent.
Bringing it all together
The lessons of Kairos about qualitative time are simple. There is no bad time to hunt for new opportunities. Every macroeconomic situation offers specific momentary opportunities to those who fully commit to identifying and seizing them. As we enter a phase of economic uncertainty, relying on Chronos-time may cause you to miss the biggest new opportunities. There’s a high likelihood that the next Uber, Airbnb, or Pinterest is about be born — brought to life by an investor, corporation, or founder with the conviction and skill to create the right time.
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