I have been working for about 20 years, pretty much straight through since college, in the same industry (media). I have survived three recessions (1990-1991, 2000-2002, and 2008-2009). What’s interesting is that I’ve found each time we came out of the recession, the best opportunities came out of startups.
This is why I think that innovation, startups, and new technology will drive this recovery. It won’t becoming out of those large, slow, political corporations.
In my case, during recessions I left the large restructuring dinosaur-like company (in some cases, involuntarily) and moved to a startup. Both times it created opportunity. In the late 1990s, a company called CMP Media Inc. (now called TechWeb and part of United Business Media), fired a whole handful of us. Led by founders Peter Heywood and Stephen Saunders, we started a new company called Light Reading Inc., which over six years grew from 2 to fifty employees. The company that fired us ended up buying the entire company back again 6 years later, for $30 million plus (if you include an earn-out). Expensive mistake, for them.
The question is, if we had all stayed at that company (if they’d have let us stay), could we have created $30 million in equity and 50 new jobs? No way. The corporate structure and culture does not allow for that sort of entrepreneurial creativity. That’s why the startup way is the only way.
Turns out, last year, I left that same company again (strange, no?). I’m searching for the same startup opportunity that moves the world forward, again (for the third time). Can I do it again? I’m trying.
Startups are better equipped for growth coming out of recessions. They are nimble, tightly run, creative, and focused on new opportunities. Large corporations, are, in general, terrible allocators of capital. During recessions, they batten down the hatches, and the corporate executives are forced to cut costs to keep the bottom line good for shareholders (and reward themselves with bonuses). In the media business (as well as, I imagine, in other businesses), as Barry Diller has pointed out, the slash-and-burn mentality can be a crippling strategy. After you fire everybody and kill promising new developments in the recession in order to squeeze extra profit out of the system, you find yourself with not much left when things bounce back.
This is why you see this over and over again: In recovery phases of the economy, startups do better, in many cases gaining market share at the expense of the larger companies.
Thomas Friedman (somebody I don’t often agree with), is pointing this out in today’s New York Times.
Here’s my fun fact for the day, provided courtesy of Robert Litan, who directs research at the Kauffman Foundation, which specializes in promoting innovation in America: “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.”
Nice to see that Friedman gets it. But the title of his column, “Start-Ups, Not Bailouts,” is somewhat confusing. Friedman has in general been part of the Keynesian cabal espoused by himself and his Princeton academic mate, Paul Krugman, which was supported bailouts and in general held that government, and not entrepreneurs, will save us. But it’s nice to seem him altering his spin.
Of course, the problem this time is that the Powers that Be have generated enough of a “bill” in terms of debt, IOUs, and immovable structures (giant, captive, government-owned businesses), that it’s going to be a weight on our shoulders as we try to move forward. This recovery will be more painful than others. Think of these barriers as large boulders in the way of startups and entrepreneurs trying to move forward. The public debt represents future liabilities on us as individuals and businesses, probably in the form of higher taxes, inflation, or both.
Will startups and innovation be able to pull it off again this time? I think so. Never underestimate the creativity and drive of entrepreneurs around the world. We may actually survive, despite the diabolical and silly decisions made at the upper echelons of government and corporate America. Maybe they have created enough of a mess that it gives us more opportunities to move forward.