Well unless you are just returning from a month long trip to Mars or Jupiter, you have probably been following what’s happening in the financial markets. If you are in the process of creating or thinking about starting a new business, you are probably wondering “What’s Next?”
For those of you who want a one-stop place to see all the comments that have been flying around, Brad Feld, Managing Director at The Foundry Group, put up a great post a couple of weeks ago and seems to be updating it over time. If you haven’t kept up on all the stories, take the time to catch up and see what all the noise is about.
I have been asked numerous times about what is going on with investing and what does this all mean to the the early stage entrepreneur? Rather than attempt to answer this in one large post, I thought I would write about a couple of big issues that I think entrepreneurs need to understand and take into consideration as they are creating their business plans or investor presentations.
The first big question that I will address here is whether I think this is a good time to start a business? I am not sure that there is a bad time to start a business. Some times are tougher on specific businesses or industries, but overall, you can look back at other down economies and find great companies that were started during that time.
That doesn’t mean that it might be much tougher or that certain industries might be more difficult to startup in than others. What seems like it might be tough to start? If you are thinking about starting a new restaurant, I would re-think that idea for the time being. Past history shows that people pull back on eating out in tough economic times. Now there are some exceptions.
I recently had a conversation with Nolan Bushnell, the godfather of tech gaming who created Pong and started Atari a number of years ago and then created Chuck E. Cheese. Nolan is creating a new restuarant venue called uWinkthat combines food, drinks and media and has lots of technology as part of the experience. He is also helping his two sons with a startup they are creating and I asked him how he thought the changes in the economy would affect the business. He said that during bad economic times, people will still spend money to be entertained. As an example, he mentioned how the motion picture industry grew and flourished during the great depression. I agree and think that he will probably do just fine in the current economy.
It is probably not a good time to open a car dealership or residential real estate brokerage/mortgage business unless you have some hook that is really different and complements the current problems in the space.
I know some folks who were active in the mortgage space writing loans. That industry cratered. They have changed their focus and are working with their clients who are having problems making payments and in or close to foreclosure to negotiate changes with the lenders. When they are successful, it becomes a win for the lender and a win for the homeowner. There is also a win for the negotiators since they can continue to make a living in the mortgage space.
So my bottom line is that the economic outlook is looking as if it will be tough for the foreseeable future, but that doesn’t mean that the door will be closed to all entrepreneurs. It is a time for every startup and early stage company to take a fresh look at their plans, operations, and financial requirements and decide what changes they should make to adapt to the economy.