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Comment by aaronsw | Hacker News Reader

This article seems to ignore the main argument I've heard: exit strategies are fewer in a recession. IPOs are out of the question and few companies are in an acquisition mood. So instead of growing fast and selling out before you hit your plateau, you have keep your traffic climbing until the market picks back up. That's really hard, esp. since founders have a tendency to get bored. I expect many will start something new at that point anyway, so I can see why it'd be tempting to skip the step in between. (That said, it's hard to think of a better way to spend the time -- even a failed startup's more educational than grad school.)

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While exit strategies might be fewer during a recession, the point of starting now is that the economy will (hopefully) be out of the recession by the time you want to exit (typically beyond 12-18 months).

Agreed. With some exceptions, startups are more like marathons than sprints. Investors often look for an exit in ~5 years, while too many founders think that they'll be out, as a success or failure, in 18 months.

Yes. Startups generally take 3-5 years to succeed. The economic situation that far ahead is effectively random, so you can discount it.

Just curious, how do you define succeed? Founders becoming millionaires or?

Good point, but there IS a delay. Some companies have a 6 month triumph like Omnisio, but most follow a multi-year path to liquidity. Maybe not the 5-7 that is tradition for VCs, but at least a few years.

So starting up now, founders should ask themselves-- what's liquidity look like in 3-5+ years? The correct answer is, "I have no clue"-- but if you start now, you'll probably have a better shot at liquidity in 3-5 years because all of the other hackers went to grad school. ;-)

People starting companies now can choose ideas that lead to profitability rather than "exits" (IPOs and acquisitions). Ideas along the lines of what 37signals does. As long as they do that, one can argue that startups are not any less feasible now than they were last year, as follows. PG's essay of a few years ago on why you should take VC gave as one big reason, Well, you competitors are probably going to take VC (which allows them to progress faster than you can if you do not take VC). The credit crunch makes it harder for you to get VC, but it makes it harder for your competitors, too. Now, what would people do who decide not to found companies? Well, become employees. But the employment market really does get a whole lot more competitive during a big economic downturn, whereas if the analysis I just gave is right, the start-up sector does not (at least the part of the sector in which success is not dependent on an IPO or acquisition does not).

There is a hidden assumption in the above: it assumes that a startup's competitors are other startups, not established firms. Established firms have easier access to credit than startups. (They can fund new lines of business out of profits from existing lines of business, for example, which is a form of "access to credit" for the sake of this discussion, which is about starting new lines of business -- i.e., exploiting new markets.) This is a real disadvantage of startups relative to established firms, and the disadvantage gets bigger because of the economic downturn, but the disadvantage of being an employee of an established firm when lots of job hunters are in the market might get even bigger.

There are ways in which startups have been able to neutralize the funding advantage held by established firms. One big way is to be more agile. "Agility" means adopting new technologies and entering new market more quickly. Changes in technology and changes in markets and potential markets continue to occur during economic downturns.

You don't need exit strategies. Issue dividends.

Existing startups will probably have a hard time trying to decrease the burn rate and at the same time growing traffic.

On the contrary, potential startup founders will have more reasons to think of their projects as businesses - trying to grow revenues, not traffic. And to get revenue, you have to solve real problems.

Right, you have to build something people want - not something companies want. Solve the first and the second will always take care of itself.

EDIT: Just to be clear: That doesn't rule out enterprise applications. People in companies have needs too!

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