Why The Best Startups Are Created In An Economic Downturn

Written by Dan Martell
3 Comments

A few months ago, while speaking with Keith Rabois (PayPal, LinkedIn, Slide), I got his thoughts on why the best startups are created during an economic downturn.  I found them extremely insightful and felt they needed to be shared.

Here’s the three reasons he gave [with my supporting thoughts attached]:

1. Pure Brain Power in One Building

The idea that the more “A Players” you can get in a building, the higher the likely hood of success. When things are good, the top talent gets diluted amongst the vast amount of startups and/or work on their own projects.

2. Lack of Derivative Companies

When the markets hot, people are quick to copy models that work. It’s not uncommon to see 3-4 companies compete in the same market once one proves some level of traction.  However, in a down market, this effect isn’t as pervassive leaving the originating companies time to build out a larger footprint.

3. True Entrepreneurs

It’s easy to start a company when the skies are blue – it’s almost like a “hobby du-jour” for some.  However when times are tough, only the “True Entrepreneurs” continue plugging away, creating value and building their dreams.  They don’t stop and get day jobs, they figure it out.

What companies can you name that come to mind that would’ve had these market conditions? PayPal? Google? Facebook? Cisco? Others?

What are your thoughts?

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3 Comments

  • http://www.loogaroo.com Gene Fowler

    Great thougths.

  • http://thomasknoll.info @thomasknoll

    I think you have to really LOVE what you’re doing when times are tough. Maybe tough-times act as passion filters?

  • http://intrastand.blogspot.com/ Patrick Rafter

    Dan— Nice post.
    Other thoughts on “Best” Startups.

    I’ve spoken often on the need for “must haves” that a startup needs to have in order to succeed. Think of them as legs of a stool:
    1) Product or service that someone will pay money for
    (“Free” websites like Google, Facebook aren’t really free).
    2) Articulate vision of the value of the company and execs who can express it (without arrogance)
    3) Reference customers (someone who will say the offering has value)
    4) Good timing and good luck (the history of startups has umpteen stories of companies who had a great product at the wrong time).
    5) Dogged and smart execution
    6) Ability to attract buzz, traffic, interest from those who see relevance.

    I’ve written on some of these themes at my blog:
    http://intrastand.blogspot.com/

    Keep the smart thinking coming and continued success!
    Best,
    –Patrick Rafter
    Chief ValueCaster, Intrastand

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