hedgehoglab

A day doesn't go by without someone I know asking me "how is business going?", obviously referring to our being a small boot-strapped start-up in the current economic climate. The media is doing a great job of covering the doom-and-gloom of the state of the economy, so I am afraid there isn't much more I can report on that end.

My response to them always is "Hell! Better than ever before." Sure, we are all affected by the economic crisis, and there is no denying that. Venture Capital has dried up and credit is nowhere to be found. Hence, now is the best time to be a boot-strapped technology start-up.

Here is why,

• Lack of lavish venture capital and easy credit is a boon. Businesses now have to become cash-flow positive rather than building their strategy on "borrowed" money. Which means, that if you start a company that is cash-flow positive in the current economy, it will have a sound financial infrastructure for the future.
• If you have been laid off recently, terrible as it may be, now is a perfect time to pursue that idea or business you always wanted to. You have already faced the worst that could happen and your risk profile is probably lowest at this time. You have nothing to lose and the opportunity cost is low.
• If you are in the service business, larger clients are more likely to explore working with smaller companies to be more cost-effective. This doesn't mean you have to be cheap, but as a small/start-up company your overheads will be so low that you can effectively compete with larger businesses. At hedgehog lab, service-based activity has increased 5 fold in the last 2 months, with even FTSE 100 companies considering working with more flexible, smaller businesses.
• With your larger competitors cutting costs and trying to reduce their exposure to financial risk (because of larger payroll and costs), you will have decreased competition and a great opportunity to offer value in both products and services. As a small company, you don't need that much revenue or profit to stay afloat, while your larger competitors needs hundreds of thousands just to pay their employees.
• If you are in the product business and build business software that makes companies more efficient, saves them time, and saves them money, then you are likely to have more interest from customers. This is especially true if your product is priced affordably for the mid-market. Big-ticket purchases are unlikely to get approved in corporations in the current climate, but small software purchases that fly under corporate purchasing limits are likely to get the nod.
• An unfortunate up-side of all the people being laid off is that great employees and co-founders are easier to come by. Not all corporate "cost-cutting policies" are based on merit and you will get to hire great talent for a relatively lower cost with no competition.

Obviously, I am not claiming that it is good to start a business only in an economic downturn, but now is as good as any other time, if not better.

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