OnStartups

More Reasons Why Now Is The Time For Hatching Something New

Posted by Dharmesh Shah on December 29, 2008 in guest 31 Comments

The following is a guest article by Neil Davidson.  Neil Davidson is co-founder and joint CEO of Red Gate Software. He also runs the annual Business of Software Conference with Joel Spolsky. His blog is at http://blog.businessofsoftware.org and you can follow him on Twitter at http://twitter.com/neildavidson.

A couple of weeks ago, Jason Cohen of Smart Bear wrote a guest post on 6 reasons why this economy is good for startups. Damn you Jason, both for your perfect timing and for writing the blog post I wish I had written. So I'm going to have to ride on your coat tails, scrape the barrel and come up with 6 more reasons why now is as good time as any for startups.

Here they are:

1) VC money is hard to get. Yes, this is a good thing. You only need VC money for a software startup in certain, very narrow circumstances: if this isn't your first startup, and if having the money would genuinely accelerate your growth (if you're Dharmesh, for example).  It takes time to get to used to running a software company. Mulla Rasrudin once said that good judgment comes from experience, and experience comes from bad judgment. Lots of money and bad judgment don't mix well. If you've not done this before then you will make many mistakes. Make small ones, not million-dollar ones, and make them without VCs breathing down your neck.

2) Even if you are unlucky enough to get VC funding, the odds are still good. In the late 1990s, in the days of Webvan, pets.com and Boo.com, the five year survival rate of VC-backed software companies was still close to 50%.

3) You need constraints to build great software. If there's one thing we've got plenty of in this economy, it's constraints. Make good use of them.

4) Constraints enforce discipline. You'll need to, among other things, manage your expenditure, focus on making products that people actually want to buy, learn the difference between cash flow and profitability and figure out how to market on a shoe-string. Now is an excellent time to forge those skills. You will need them the next time things go bad.

5) Times are turbulent, but the turbulence contains many pockets of opportunity. Big companies will be too large, or too clumsy or too slow to fill these pockets, but you, as a startup, can. And you only need the tiniest market niche to start up. Once you've started, you'll gather momentum, and you'll figure things out. Don't overanalyze: odds are you'll find success doing something other than what you intended anyway, so whether you pick a small market niche or a billion dollar opportunity doesn't matter. You'll end up doing neither.

6) In difficult times, skill and hard work, which you can control, become more important than luck, which you can't. I like this soccer analogy. If you want to compare my soccer skills with David Beckham's then don't put us both six feet away from an open goal and ask us to kick a ball into the net. I might get lucky, and he might show off and miss. Instead, start us off from the other end of pitch against a couple of defenders and a goalkeeper. Then you'll get a true picture.

Starting a business is risky, but not as risky as you think. The oft-stated fact that 90% of startups fail within their first year is an urban myth. In reality, the four year survival rate for IT startups is over 50%, and there's no evidence that this is significantly lower for companies founded in a downturn. And most start-ups that fail don’t crash and burn, owing people money and bankrupting their founders. They are quietly wound down, or sold on, and the founders set something else up or return to employment, with the added skills that even attempting, and failing, to build a business bring.

Starting up isn’t for everybody, but don't use the state of the economy as an excuse for inaction. Research shows that external factors such as the economy, or the industry you're in, aren't the only – or possibly even the main – factors that determine success. How much you love your product, and how deeply you're prepared to commit, count just as much. So choose something you are zealous about, think things through, save up some cash and quit your day job.