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Friday, November 7, 2008
Innovation Notations
Risk-takers can flourish in this economic storm
MHT reporter Efrain Viscarolasaga on NECN: Green tech brings jobs back to Mass.
How is the economic crisis affecting tech companies?
The current challenging economic environment creates opportunities for the savvy and brave entrepreneur or investor. When many may find themselves hunkering down in an attempt to simply weather the storm, those with the appropriate vision and fortitude will take advantage of this mass hesitancy to get a jump on valuable opportunities. Acting now may not be for those who want a quick score, but it’s the ideal time to strike for those with a longer horizon.
Just as much of the public has a habit of buying high when the media touts a high-flying economy and selling when the news turns glum when markets are tough, so too do many smart entrepreneurs and investors embrace good times and shun the challenges. Right now we are seeing fewer acquisitions, investments, and startups than we have during recent peaks in the high-tech industry. Investors may be harboring their cash, reluctant to gamble on a company in these uncertain times. Many would-be entrepreneurs may be pondering graduate school, somehow convincing themselves that buying an MBA will be a surer path to startup success down the road.
Right now the opportunities are abundant. Companies that find themselves downsizing will find real appeal in startups that help them do more with less staff. Focusing on things that increase efficiency and leverage scarce resources may be a path to success for new high-tech companies. Similarly, consumers will continue to spend money, they will simply be more selective in their short-term spending. Pursuing a venture that either appeals to the cost-conscious today or establishes itself in preparation for the next economic upturn would be wise bets.
Of course, finding investor funding may be a bit harder since far too much capital remains on the sidelines. That simply means that ideas with bootstrap potential may be better positioned to succeed in this environment since they are less likely to be facing imposing opposition from a well-funded competitor.
Meanwhile, smart venture capitalists aren’t hiding their wallets — instead, they are out looking for opportunities. With less competition for the best deals, investors can afford to be selective. There are no artificial competitions for funding to drive prices into the stratosphere, and that’s a good thing. A rational market has greater chance of long-term success than one that veers between extreme frugality and irrational exuberance.
Of course, there are other benefits to the current economic situation for entrepreneurs that must not be overlooked. The fact that many companies are reducing their workforces represents a tremendous opportunity for today’s startups. With talented individuals out of work and looking for their next paycheck, startups take on greater appeal. Moreover, with an expanded talent pool and a diminished market for employment, those who are hiring are in a position to pluck prime talent at affordable prices.
In the very best cases, some of these unemployed individuals may prove to be excellent entrepreneurs themselves, either by starting their own companies or by joining the founding team elsewhere. For those contemplating the refuge of graduate school, you might think about joining a startup — where you’ll get an on-the-job education about many business essentials. It won’t be formal or fancy, but you’ll get paid rather than shelling out cash, and you may just get a head start on the next big thing.
None of this comes without risk, unfortunately. For those who demand stability — either because of personal circumstances or individual preference — the turbulence may prove to be too great. The odds of failure for a startup today may not actually be any greater — in fact those at greatest risk are likely those started when times were better, when enthusiasm often outweighs reason.
If you have a strong stomach, a great idea, or a pile of cash, now is the time to find the right opportunities to take advantage of everyone else’s fear. Bundle up, prepare for the storm, and head out into the great unknown in search of the next prize.
Chip Griffin is a serial entrepreneur and angel investor who serves as the CEO of CustomScoop, a media intelligence company based in Concord, N.H. He can be reached at chipgriffin@gmail.com.
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