When asked whether this is the right time to start a company, I often use the old line about planting a tree: When is the best time to plant a tree? Twenty years ago. The second best time is now.
After all, starting a company takes time and effort. Get on with it. What’s stopping you? Money? Health? Family? Fear? There is a term for people who claim to want to start companies but never do: “Wantrepreneurs,” and it’s not a compliment.
Say, however, you’re coming to this entrepreneurship question belatedly, that you had never given it serious thought, but now are. Is this a good timewonder?
At the Kauffman Foundation, we have studied this subject, and here is what our research says: Looking back at the last few decades of company creation in the U.S., the most auspicious time to start a company was during recessions. A disproportionate number of the fastest-growing and most important companies of the 20th century – from Ford to FedEx to Google – all started during downturns.
Economic downturns decrease company supply while they increase the number of founders and hires. Few people want to create companies, but many people are let go by employers. Fewer competitors and more potential employees is a potent mix. It has helped drive the success of many young companies. (One of my favorite examples: The single best time in the 20th century to start a bank was during the Great Depression.)
Of course, it’s not necessarily happy start-up trails if you create a company during a downturn. Investors exhibit pack behavior, just as entrepreneurs do. While it’s easier to get a company funded during good times, it can be harder during downturns.
Similarly, downturns can make it more difficult to sell your product or service. Getting customers, especially large ones, to take a chance on a start-up is never easy. It is generally harder during downturns when prospective customers are worried about their suppliers’ longevity.
That doesn’t mean economic good times are great for pursuing start-up dreams. You trade off capital scarcity for capital oversupply with seemingly every company with even a remotely interesting idea getting funding. During boom times, every emerging niche seems to be over-populated with start-ups, much like what we’re seeing today in certain social networking niches. Most of these companies should have, like trees, been started years ago. Or never.
So, is now the best time to start a company? We’re in a start-up boom and not in an economic downturn so, statistically, the answer is “no.” Having said that, consider two things: As with trees, the best time to start a company is always sooner rather than later, whatever any cyclical statistics say. Secondly, there are so many things that have to go right for a company to succeed. Fixating on start-up cycles is mostly a sign you shouldn’t be starting a company in the first place.
